Some folks never learn. The news from General Motors – or “Government Motors” if you prefer a more apt description – confirms that the Obama administration is either unable or unwilling to learn the lessons of history and the laws of economics.
GM is in trouble, it has been for some time. As labor costs have demolished any semblance of a reasonable financial model at the automaker, the government has stepped in to prop up the broken company. Today we learn that in order to sell its cars, GM is relying on subprime loans. If you are not cringing you should, subprime lending is largely what collapsed the American economy.
In the first quarter of 2012 GM increased subprime lending, through its loan office, the government owned Ally Financial, by a whopping 93 percent. People with the worst credit scores received a massive $2.3 billion in loans in that quarter. GM apologists at places like Media Matters claim that GM is only following industry practices but that is not true. GM grants subprime loans at a rough 130 percent of the industry average.
President Obama likes to talk about “the people who got us into this [economic] mess,” and their “failed policies,” yet under his watch dangerous practices have in fact become more commonplace. Whatever successes GM may claim do not change the reality that the company own by the taxpayers has over $176 billion in outstanding liabilities, and dimming prospects.
GM spokesman Jim Cain deflects criticism of the subprime addiction claiming, “our experience, however, is that with proper management they are very good risks.” As evidence he points to GM’s credit losses which have not risen above 5.5% since late 2010. Go ahead, read that again. GM is happy with unsustainable losses that are not greater because they are propped up by loans to the people least capable of paying off those loans.
Increasingly GM is reliant on those subprime loans to create buyers. GM loans to prime borrowers, those with credit scores above 660, have dropped by 42 percent.
At a fundraiser in 2010 Obama claimed the mantle of believing in “fact-based policies.” Unfortunately he seems to think he can create his own facts. The actual facts are frightening. GM exists today because of a $50 billion bailout in 2009. Add to that a $45 billion tax write-off specially granted to the failing automaker to cover post-bailout losses, and GM has enjoyed a negative tax rate that netted them an additional $110 million tax payment in 2010. But this is the macro view of GM. The micro view of Obama’s “fact-based” policies at GM illustrate an even starker picture.
The Chevy Volt lists at $41,000. It costs GM $40,000 to make a single Volt. Of course to make those $40K Volts, GM first received from the government $700 million to develop the car, $70 million from the government to advertise the car, and $240 million in an Energy Department grant to improve the clean fuel technology. A Korean manufacturer got $150 million from Uncle Sam to make the Volt’s batteries – which still have an unidentified problem that causes fires. Despite all this “stimulative investment” no one is buying Volts.
Forbes writes that Volt sales are “in the hundreds, and most of those are government purchases.” The magazine notes that Volt sales make “Edsel sales look good by comparison.” So, to stimulate buyers Obama offers a $7,500 per car bribe for each Volt purchased, effectively lowering the cost-to-own price to $34,500 for a car that costs, according to industry analysts, a total of $250,000 to make [the aforementioned $40,000 please a per capita share of the above referenced government grants.]
To date, about 20,000 Volts have been sold nationwide, each at a massive loss. So, Obama appointed GM CEO Dan Akerson has decided to…wait for it… up production to 60,000 Volts a year. I guess he assumes that all those new subprime borrowers are anxious to get an under-sized, under-powered, over-priced green car.
It’s like I said, some people never learn. In 98 days we will find out how many of those obstinate folks vote.