The government figures that if car loans are scarce, car buyers will stay on the sidelines. To remedy this it will inject $7 billion into GMAC Financial Services, which finances GM (GM) and Chrysler auto loans. Based on the company's needs it could get an additional $7 billion.
Whether the government is right in its assessment of the car loan industry is hard to tell. Scores of banks also provide lending for the industry. No one knows for certain whether these banks would take up the slack if GMAC disappeared.
As the government hedges its bets to keep money flowing to car buyers, the question is whether access to credit will help revive the industry. Americans have become wary about taking on debt of any kind, even under attractive terms.
According to Bloomberg, "With GM facing possible bankruptcy following Chrysler's filing, the companies want a lender offering lower rates and flexible terms for borrowers to compete with Ford Motor Co. and Toyota Motor Corp."
Taxpayers should be concerned that the federal government is putting money into yet one more company where the return is uncertain. If the auto industry does not recover to the level of sales that it had four years ago, GMAC may have trouble making money. The only benefit to taxpayers is that they can get car loans that they do not want.
Douglas A. McIntyre is an editor at 24/7 Wall St.