Auto companies gamble on subprime mortgages
– let THEM pay!

Aug 6, 2007

In preparation for contract negotiations with the UAW, the Big Three have been crying loudly about losses from their automotive units. But it turns out GM and Ford have an interesting little sideline that they lost money on – the speculation in home mortgage loans!

GMAC, GM’s finance arm, reported losses in the first six months from its home lending unit, Residential Capital, of almost 1.2 billion dollars. Ford doesn’t say how much it lost – only that earnings and profits from Ford Credit were down due to “losses related to market valuations from derivatives.”

The auto companies invested in companies that gave out subprime mortgages, betting that the real estate markets would just keep going up, or they bought up bonds based on these mortgages.

They took money away from the production of vehicles – cutting back production of small cars and fleet sales – thinking they could make more money on financial speculation.

The auto company bean counters gambled. And now they’re losing.

There’s no reason auto workers should agree to cover their bets!