Dan­ger­ous prece­dent

Austin American-Statesman - - BUSINESS -

GM’s for­mer lend­ing arm, now known as Ally Fi­nan­cial Inc., lost $16.5 bil­lion in its mort­gage busi­ness from 2007 to 2009. GM sold 51 per­cent of Detroit-based GMAC to pri­vate-eq­uity firm Cer­berus Cap­i­tal Man­age­ment in Novem­ber 2006 as the nation’s biggest au­tomaker ran low on cash.

Since then, GM has had to rely on out­side len­ders, in­clud­ing Ally, which is 56 per­cent owned by the U.S.

“The thing that brought down GMAC was its … sub­prime mort­gage busi­ness,” said Joe Phillippi, prin­ci­pal of Au­toTrends, a con­sult­ing firm in Short Hills, N.J. “But I think they will man­age this smartly. This is go­ing to be solid, care­ful mea­sured growth.”

As long as GM is ma­jor­ity-owned by the govern­ment, it shouldn’t be in sub­prime lend­ing, said John Berlau, a pol­icy di­rec­tor at the Washington-based Com­pet­i­tive En­ter­prise In­sti­tute, which pro­motes limited govern­ment.

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