Fannie Mae on Wheels?

I’m seeing an ominous parallel here. In yesterday’s Charlotte Observer, I read an article about General Motors’ upcoming purchase of Americredit. They called it, “a deal that allows the automaker to expand loans to customers with poor credit…” It further states that, “GM, which is 61% owned by the US Government, is getting back into the business of making risky loans.” The article goes on to say that GM is missing sales opportunities due to lack of credit for lease deals and financing for subprime buyers.

We the people (US Government) own 61% of GM; the unions own a big chunk of the rest. We the people will now own 61% of Americredit which will finance GM cars to buyers with subprime credit. If these subprime borrowers default on their loans, the loss will be ours.

It’s one thing for a company to raise capital and risk it to offer subprime financing in return for a chance to get a higher reward from higher interest rates. It’s totally another for the government to do it and force the risk onto the taxpayers.

This is exactly what happened to the real estate market. The government passed laws to encourage subprime loans to homebuyers to increase home ownership. These loans are purchased by Fannie Mae and Freddie Mac, two quasi government agencies, which are backed by the US Government. The taxpayers are now on the hook for the future losses of these agencies which now own over half of the outstanding home mortgages.

So, now we are in the process of creating a Fannie Mae on wheels. I, for one, cannot see anything good coming out of this. GM will have the unfair advantage of offering subprime loans to buyers with poor credit; all backed by the people of the United States.

How does this affect competition with Ford Motor Company, which did it the right way? When Ford saw the government’s deal, they walked away. They sold off or mortgaged assets to build up cash. They invested in new technologies, quality control, cross platform efficiency and designing cars that people will buy. They made a deal with the unions to eliminate the “job bank.” This allowed them to close unnecessary factories. Ford started making a profit and has actually made a big payment into the pension fund to reduce the unfunded pension liabilities. Ford has increased market share while GM, Chrysler and Toyota have all decreased. Ford has now surpassed Toyota in the J. D. Power ratings of buyer satisfaction. Now they have to compete against US, the taxpayers of the United States who now have a huge stake in the success of GM.

Until GM pays back all the money to taxpayers and fixes its own problems, I will buy Fords. It is my little protest. I say little because when I buy a car, I drive it until it drops or until I can’t stand it anymore. My 2 year old Ford has given me 37,000 trouble free miles so far. It may be a long time before I need another.