When dealers saw headlines saying the U.S. Department of Justice had subpoenaed General Motors Financial Co. last month to produce documents relating to its subprime auto loan contracts, they could be excused for worrying that this represented another threat to their arranging car loans for consumers.
It appears there’s nothing to worry about on that front, at least not for now.
As reported by Jim Henry in this week’s F&I Newsletter, the Justice Department is being tight-lipped about what it’s up to, refusing to comment or even to confirm the existence of the GM Financial subpoena. “There are no allegations set forth in the subpoena,” GM Financial said.
But all signs point to this being an investigation into Wall Street financing and investors, not car loans and consumers.
That makes it very different from previous actions by the Consumer Financial Protection Bureau and the Federal Trade Commission.
The Justice Department is delving in particular into subprime auto loans that were bundled and sold to investors in the form of so-called asset-backed securities.
In an asset-backed securities transaction, an auto lender sells off the income from a bundle of loans to investors. The lender gets more money with which to make new loans, and the investors get paid back as consumers repay the loans. The risk to investors is considered low, in part because so many loans are bundled together in a single transaction -- often $1 billion worth or more for larger lenders. That spreads out the risk over many borrowers in many markets, even if individual borrowers are considered higher risk.
The Justice Department subpoena could prove the opening salvo in an investigation with major implications for auto financing in general. But it appears unlikely to have any immediate impact on the day-to-day transactions between car shoppers and dealers.