Federal Bailout Should Include Bad Car Loans Too
It’s good to know that the Bush administration has finally widened the plan to buy as much as $700 billion worth of bad mortgages and other problem assets, such as debt student loans, home equity loans and credit cards, held by banks, Wall Street firms and other financial institutions.
But, here the question rises, if bad car loans are going to be included in the proposed bailout? However, a financial trade association said “Yes” to its answer.
Recently, the top U.S. automakers have already asked for an another $25 billion low-interest loan to retool their plants to build fuel-efficient vehicles, but the car-loans question was different from that.
The American Financial Services Association is kind enough to ask Congress to include auto finance companies and other institutions into the $700 billion bailout, that has been designed for the troubled mortgage industry. According to the association, automobile loans should be classified as “troubled assets” along with home mortgages.
“The goal behind all this is liquidity,” said American Financial Services Association spokeswoman, Lynne Strang. “It’s not that auto loans are performing badly. But what’s happening in the mortgage business is affecting liquidity, particularly in the secondary markets (where auto loans are bundled and sold as securities). We want auto finance companies to be able to raise the money they need to finance more auto purchases.”, she added.
Reportedly, many of the automotive finance companies had stepped out of both mortgage business and auto lending. For instance, General Motors sold 51 percent of GMAC to a private equity firm, called Cerberus Capital Management LP in 2006. The latter also owns Chrysler LLC and its captive finance company.
According to Bill Himpler, executive vice president of federal affairs for the American Financial Services Association, “The ripple effect of the credit crunch in the mortgage sector has brought the nation’s finance companies’ ability to secure credit lines from investors to a virtual standstill.” “If they are not explicitly included in the definition of a ‘financial institution,’ these companies will be placed at a distinct disadvantage to the types of institutions explicitly enumerated in the legislative language in their ability to access the liquidity needed to continue to lend to consumers.”
