GM's Shameful Finance Company Purchase

It was big news in the business media last week that GM bought AmeriCredit.

The stated reason from GM's press flacks was that the company is suffering lost sales without a captive finance subsidiary.

This is, of course, a lie.

It would be a trivial thing for GM to select from among many lenders a few which would be granted exclusive access, in exchange for revenue sharing and pre-agreed credit terms for customers.

So it's not about lost sales. It's about GM getting greedy with your tax dollars. After all, the company hasn't repaid the bailout billions it received. True, chairman Ed Whitacre staged a big press show to highlight a partial payment of the money. But it's far from all repaid.

Thus, this purchase is, in fact, the US taxpayer paying for a shiny bauble that Whitacre has convinced his overseers that he has to have.

The reasoning is basically,

'But Mommmmmmmy, all the other kids- Ford and Chrysler- have captive finance units. I want one, too! Or I won't eat my vegetables!'

Oh, did we discuss AmeriCredit's subprime business? That GM wants that segment to sell cars to lower-end consumers?

Hmmm...but wouldn't that be jumping back into the predatory lending pool that everyone agreed caused the 2007-08 financial sector meltdown?

Bob Lutz, one-time senior exec at Ford, GM, and Chrysler, as well, defended GM's acquisition on CNBC the other day. A newly-minted "contributor," he never the less received a decent grilling from, I believe, Melissa Francis. Lutz' replies were disingenuous, poorly-constructed and wholly unconvincing. He, too, pulled the 'Great Depression' card, claiming that letting GM file for bankruptcy would have destroyed the US economy. Ergo, GM must be allowed to buy AmeriCredit.

Flawed, but, then, I guess nobody ever accused Lutz of being logical.

Guess it's safe to go back to subprime auto lending now. And guess you, as a US taxpayer, are the guinea pig in this experiment.

Of course, none of this government favoritism for GM over, say, Ford, and subsidization of bad investments was necessary. And, no, it wouldn't have led to a depression.

All that was required, as I wrote at the time of the GM bailout and faux-bankruptcy, which favored the UAW over secured senior creditors, i.e., bondholders, was to have put GM into Chapter 11 while offering one-time cash payments to workers.

Thus, the shareholders would have lost their money, creditors would have retained standing, Congress could have had its social policy by paying workers- including lower-level managers- and the money-losing parts of GM would have gone away.

Meanwhile, the court would have endorsed the trustee's reorganizing GM into either a smaller, manageable going concern, or salable parts.

None of this required law-breaking moves to put the UAW in front of secured lenders, or risk tens of billions of US taxpayer money bailing out a poorly-run private sector firm.

However, having eschewed this route, two administrations have now put taxpayers in the ludicrous position of favoring one car maker over others, and funding its return to subprime lending, as well.