DoJ Subpoenas GM Over Subprime Auto Loans

Tyler Durden's picture


While we are used to the daily flashing red headline from GM on recalls, today's was a lot more concerning:


We have warned of the surge in subprime auto-loan lending (and lowering standards and rising delinquencies) but this move by the DoJ should be very concerning. Once investors began digging into the details of subprime mortgage deals in 2007, the drastic credit risks reality was exposed very quickly... we fear the same in auto loans.


The OCC has warned...

Auto-loans are surging... Subprime auto-loans were up 10-fold in 2013...


As OCC reports,


Auto lending remained a highly competitive product segment, as strong growth continued through the end of 2013.




Banks reported year-over-year growth of 11.3 percent in the third quarter of 2013 and 12.9 percent in the fourth quarter of 2013 (see figure 18). Banks continue to hold a sizable market share of outstanding loans of $250 billion, or 31 percent of the total auto lending market.


But risks are rising... Signs of Risk in Auto Lending Beginning to Emerge 


Across the industry, auto lenders are pursuing growth by lengthening terms, increasing advance rates, and originating loans to borrowers with lower credit scores. Loan marketing has become increasingly monthly-payment driven, with loan terms and LTV advance rates easing to make financing more broadly available. The results have yet to show large-scale deterioration at the portfolio level, but signs of increasing risk are evident. Average LTV rates for both new and used vehicles are above 100 percent for all major lender categories, reflecting rising car prices and a greater bundling of add-on products such as extended warranties, credit life insurance, and aftermarket accessories into the financing (see figure 26).



As we have numerous times...

Of course, this is not the first time we have discussed this... As we discussed here "Auto Loan Delinquency Balances Rise 24% YoY":




And here...

It Always Starts Somewhere …


However, what interests us about this development is mainly this: it shows that the credit bubble is beginning to fray at the edges. Every downturn starts with a seemingly innocuous report about things 'suddenly' and 'unexpectedly' going wrong in a relatively obscure corner of the market. We find ourselves reminded of how sub-prime real estate credit troubles began to show up for the first time in February of 2007, leading to the often repeated mantra that this particular disturbance in the force was 'well contained'.


That is however never how it works – in the end, it is all one big interconnected market. When troubles begin to show up at one end of it, they soon tend to  begin to spread.


repo order

A car repo notice – at least the repo sector can expect a boom now.



Good-bye overpriced SUV piece of junk – it was nice to know ye while it lasted …



One should certainly keep both eyes open henceforth; more anecdotal evidence of this type is likely to emerge in coming months, especially if the Fed continues with its 'QE tapering' course. Once problems become visible in one obscure corner of the low grade credit markets, it is often a warning sign for the entire market and economy.

We suspect the DoJ investigation stems from this

"Buying The Car Was The Worst Decision I Ever Made" - The Subprime Auto Loan Bubble Bursts

*  *  *

Of course, the biggest irony is that it was the government itself that has been forcing GM to aggressively push NINJA loans onto any deadbeat consumer with mirror-fogging skills. And now it is going after GM for doing just that...

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Mon, 08/04/2014 - 13:07 | 5044435 syntaxterror
syntaxterror's picture

Government Motors. How did that bailout work out for ya? Funny how bond restructuring laws don't apply to GM but apply to Argentina...

Mon, 08/04/2014 - 13:11 | 5044468 Jannn
Jannn's picture

Chinese Gold Demand 1063 MT YTD, Total Chinese Reserves Reach 15,000 MT

Mon, 08/04/2014 - 13:25 | 5044536 NoDebt
NoDebt's picture

If GM was smart they wouldn't even try to deny any of this.  They should just make a statement that owning a car is everyone's basic human right.  That really wouldn't leave Holder any place left to go with this.  What's he going to say in response?  "No, it isn't"?  

Mon, 08/04/2014 - 13:29 | 5044559 pods
pods's picture

Those Escalades won't sell themselves.


Mon, 08/04/2014 - 13:31 | 5044567 knukles
knukles's picture

What's wrong with those sub-prime loans?  They were for sub-prime cars....  I mean whatthefuck is they bitchin' about?
Fair's fair

Mon, 08/04/2014 - 13:53 | 5044692 BurningFuld
BurningFuld's picture

Don't know about the US, but in Canada they are running ads: 84 months @ ZERO interest.  They must be in a very desperate position 'bout now.

Mon, 08/04/2014 - 15:24 | 5045128 nidaar
nidaar's picture

Soon they are gonna offer money for buying their shit. They are being paid by guaranteed tax money anyways... NALP coming with NIRP.

Mon, 08/04/2014 - 13:33 | 5044578 IANAE
IANAE's picture

GM Financial f/k/a Americredit was acquired by GM pre-IPO in 2010 and was always a subprime auto finance company. 


Not clear they are after GM...

Mon, 08/04/2014 - 13:44 | 5044641 mr1963
mr1963's picture

That's what this is about, it's about preventing repo's from the overextended borrower. This is a stealth wealth transfer in action. The borrower will get to keep the car, the loan originator will have to write it off. This was planned years ago, and is just coming around now. Free automobiles for everyone except anyone who might be able to pay their bills.

Mon, 08/04/2014 - 13:58 | 5044731 SethDealer
SethDealer's picture

@mr1963, You nailed it

Mon, 08/04/2014 - 14:09 | 5044786 Freddie
Freddie's picture

Our overlords just want GM to give the cars to O's people.  If GM-UAW refuses to give loans then they are redlining.  The police state wants GM to give the vehicles to O's peoples.

Mon, 08/04/2014 - 13:37 | 5044602 Bossman1967
Bossman1967's picture

yes but the price keeps skyrocketing down. let's just buy some paper gold it's the fools gold of today or am I the fool????

Mon, 08/04/2014 - 15:31 | 5045157 caShOnlY
caShOnlY's picture

Chinese Gold Demand 1063 MT YTD, Total Chinese Reserves Reach 15,000 MT

great comment, befitting for a topic showing how America attains its wealth: DEBT.  China has gold, America has debt.   Which one would you bet on?

Mon, 08/04/2014 - 13:12 | 5044470 kliguy38
kliguy38's picture

just lining up the sheep for slaughter.....hehehehhehe.......this shit never changes

Mon, 08/04/2014 - 13:13 | 5044471 Looney
Looney's picture

Eric Holder's subpenis hits GM…


Mon, 08/04/2014 - 13:20 | 5044509 Duffminster
Duffminster's picture

When is ZERO HEDGE going to do an analysis of the impact of SEC rule 2a-7 amendments on the situation with shortages in the 2 and 5 year treasury and repo markets.  Here are the two related articles (both from Bloomberg).  A correlation with potential consequences would be very informative I believe:


Half-Trillion-Dollar Exodus Magnifies Treasury Bill Shortage


Bond Anxiety in $1.6 Trillion Repo Market as Failures Soar

Mon, 08/04/2014 - 13:27 | 5044550 NoDebt
NoDebt's picture

Ask and you shall receive.  Actually, you ALREADY received.  There was an article about it last week.

Mon, 08/04/2014 - 13:48 | 5044552 LawsofPhysics
LawsofPhysics's picture

Yes, interesting, I second this request.  Although I doubt anyone (aside from myself) was dumb enough to buy treasuries at the begining of the year.  Yes, I was buying up until about a month ago.  starting to sell now.  Folks around here probably don't touch bullshit government paper.  I couldn't resist simply because I don't see how the U.S. government (at least with it's current liabilities) can afford higher interest rates.  We will sell some .gov paper and invest in companies that make riot gear now.  Somethings got to give...

Mon, 08/04/2014 - 13:45 | 5044648 Dr. Engali
Dr. Engali's picture

Old news.... we've been talking about this for months.

Mon, 08/04/2014 - 14:16 | 5044820 ClowardPiven2016
ClowardPiven2016's picture

the bail out actually worked quite well...haven't you seen the kickass factories GM has built in China, Mexico and Brazil.

Mon, 08/04/2014 - 15:21 | 5045107 Berspankme
Berspankme's picture

Brilliant- 8 yr loan on a depreciating smoldering piece of shit. What could go wrong?

Mon, 08/04/2014 - 13:06 | 5044437 LetThemEatRand
LetThemEatRand's picture

The government investigating itself again?   Probably the fault of some low-level guy in financing.  He'll pay for this!

Mon, 08/04/2014 - 13:06 | 5044444 LawsofPhysics
LawsofPhysics's picture

Wait a minute, wasn't GM taken over by the government?!?!


I take it back folks, apparently they really are willing to indict themselves...



This is fucking rich, cue the John Stewart writing team, they will have a field day with this one.

Mon, 08/04/2014 - 13:18 | 5044500 Looney
Looney's picture

They are throwing a bone to frau Merkel and Hollande, "see, we are punishing our own too"


Mon, 08/04/2014 - 13:47 | 5044659 mr1963
mr1963's picture

Talk about a pump and dump. If I remember right, the goobermunt sold the majority of their shares BEFORE all this crap started. Think they didn't see this coming as well as the recalls prior to the sale? Now that's an investigation...

Mon, 08/04/2014 - 13:54 | 5044701 LawsofPhysics
LawsofPhysics's picture

yes, they sold at a loss in fact.

Mon, 08/04/2014 - 14:55 | 5045005 Its_the_economy...
Its_the_economy_stupid's picture

Time for a claw-back of monies form prior government stock sales of GM (after all, they all knew this was coming, right?)

Mon, 08/04/2014 - 13:07 | 5044445 Save_America1st
Save_America1st's picture

Oh, they deserve a huge fine of at least $650,000 bucks for that!



JP Morgan

Mon, 08/04/2014 - 13:09 | 5044446 NoDebt
NoDebt's picture

And all this is somehow easier than just letting that shithole company go bust in '09?

By the way, that's a Ford Escape on the back of that flatbed in the bottom picture.  Just to be fair.  I wouldn't want to unnecessarily pile onto such a fine, upstanding company as Gov't Motors.

Mon, 08/04/2014 - 13:08 | 5044450 Number 156
Number 156's picture

Its called a shakedown.
GM just needs to pony up some campaign contributions.

Mon, 08/04/2014 - 13:10 | 5044458 LawsofPhysics
LawsofPhysics's picture

Someone is confused then.  GM doesn't print money, the Fed does.

Are you suggesting that this is simply one big misunderstanding?

Mon, 08/04/2014 - 13:40 | 5044537 Number 156
Number 156's picture

Wait till they discover that GM has been hiding a negative margin.

Idiots plain and simple.

Or, this is some lame attempt at a backdoor money funneling scheme?

Mon, 08/04/2014 - 13:42 | 5044620 froze25
froze25's picture

Are you suggestioning that they are selling cars at below cost to make it up on the finianing?

Mon, 08/04/2014 - 13:08 | 5044451 fuu
fuu's picture


Mon, 08/04/2014 - 13:09 | 5044455 IANAE
IANAE's picture

GM Financial was not owned by GM back in '07 instead was known as AmeriCredit, a sub-prime auto finance company, subsequently bought by GM to replace its former captive finance arm GMAC (now Ally).


Not clear to me that the focus is GM if Justice is going back to 2007.



Mon, 08/04/2014 - 13:11 | 5044456 astoriajoe
astoriajoe's picture

Eat your heart out Ackman.



Mon, 08/04/2014 - 13:16 | 5044467 Dr. Engali
Dr. Engali's picture

Bail them out, screw the bond holders and pensions in the process, then turn around and bankrupt them so we can bail them out again. Your great great great great grandchildren's tax dollars at work.

Mon, 08/04/2014 - 13:16 | 5044494 LawsofPhysics
LawsofPhysics's picture

The average 'merican is going to have that many prodigy?  You sir, are a true optimist.

Mon, 08/04/2014 - 13:21 | 5044512 Dr. Engali
Dr. Engali's picture

As an "exceptional" American, optimism can not be helped. It's a divine gift.

Mon, 08/04/2014 - 13:34 | 5044579 knukles
knukles's picture

YES ++++++++++++++++++++++++++++++++++++

Mon, 08/04/2014 - 13:56 | 5044706 LawsofPhysics
LawsofPhysics's picture

We, the relatively few that survive, always are.

Same as it ever was...

Mon, 08/04/2014 - 13:19 | 5044477 Chupacabra-322
Chupacabra-322's picture

Here's a Novel Idea. Let The American People Subpoena the DOJ.

Mon, 08/04/2014 - 13:13 | 5044478 Seasmoke
Seasmoke's picture

What you mean the Unions don't know how to run a company ??

Mon, 08/04/2014 - 13:33 | 5044482 Save_America1st
Save_America1st's picture

okay...I know how obama and Holder will fix this.

In lieu of any fines, obama will give every illegal invader a "credit" of $15,000 dollars towards the purchase of any GM car, straight up.  That way GM won't have to write shit loans anymore, channel stuffing will disappear, and of course GDP will sky-rocket, right Folks??? 


*This offer also valid towards all illegal invader's children (regardless of age), children's children, aunts, uncles, cousins, nieces, nephews, grandchildren of any other relatives, and all peoples in Mexico, Guatemala, Uraguay, El Salvador, Costa Rica, Venezuela, Columbia, the Bahamas.....Ahhh, fuck it!!!  Free cars for everybody who isn't an American citizen, bitchez!!!!!

C'mon down (or "up") to obama's Crazy Town Auto where if you have a pulse, no job (and never will have a job), an EBT card, collect Social Security Disability (even though you're a illegal invader), can't speak the English language and aren't a true American citizen then you're fucking QUALIFIIIIIIIEEEEEED!!!!

We'll also throw in a free driver's license, insurance, obamacare, an RFID tracking chip, and we'll register you to vote for our gang, the Demopublicants, all at the same fucking tiiiiiiiime!!!!

*****paid for by the American tax payers and the generations of citizens (slaves) who are yet to be born into this cruel, fucked up, degenerate, police state. (and hey, don't worry about them...they're justa buncha white RAAAAAYYYYCISTS anyways) ;-)


Mon, 08/04/2014 - 13:14 | 5044483 Aussiekiwi
Aussiekiwi's picture

Investing in a new car shoud be everyones right irrespective of whether you currently have a job or any sort of credit rating, as soon as that hockey stick recovery kicks in you will need a new car to get to that high paying job.......Just being Hopey.

Mon, 08/04/2014 - 13:16 | 5044491 SmittyinLA
SmittyinLA's picture

Baloney, GM is the Obama administration, this is like Barry jacking off with his right hand instead of left  

Mon, 08/04/2014 - 13:17 | 5044497 WTFUD
WTFUD's picture


Mon, 08/04/2014 - 13:19 | 5044504 moneybots
moneybots's picture

"Banks continue to hold a sizable market share of outstanding loans of $250 billion, or 31 percent of the total auto lending market."


How many banks are expected to go under in this round of "It's confined to sub prime"?



Mon, 08/04/2014 - 13:27 | 5044546 NotApplicable
NotApplicable's picture

All the ones who weren't smart enough to securitize this shit. Honestly, I figured that they all had by now.

Oh well, back to increasing the channel-stuffing conduits.

We're gonna need a bigger black-hole.

Mon, 08/04/2014 - 17:46 | 5046043 notadouche
notadouche's picture

I think the first bank get identified is fairly easy.  It is a bank called Ally.  It's the lending arm of GMC.  The name changed from GMAC during the whole financial debacle so as not to look associated with GM.  It was a nice quiet way for GM to be able to double dip from TARP/bank bailouts and then special automaker bailout that no one seems to discuss.  

Obama probably assumed that it would be enough to kick the GM can down the road long enough for him to be out of office.  Now that strategy seems to be failing so it's time to finger wag at the CEO and corporate.  Needs to walk a tightrope on this deal as on the one hand he has to be seen as punishing corporate while at the same time not hurting the unions.  He's proven to be as adept at tightrope walking as a Flying Walenda but those efforts have been helped greatly by a complicit media that is very selective in what they choose to investigate and report.

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