Daily Auto News Government Launches Plan to Thaw Consumer Credit
Daily Auto News
USA Today reports, “The Federal Reserve is launching its much-awaited program aimed at boosting the availability of credit to consumers and small businesses. The Fed will lend up to $200 billion to spur consumer lending – for autos, education, credit cards and other things. The program, dubbed the Term Asset-Backed Securities Loan Facility, [TALF] was first announced late last year and originally scheduled to start in February..
The plan is designed “to solve one of the toughest riddles at the heart of the financial crisis — how to value the toxic assets weighing down the books of banks — by setting up several funds to vie for these securities,” according to the Washington Post. “By competing to buy assets, the funds could set a market price that would finally allow banks to sell them off.” With such toxic assets off of their balance sheets, the banks could then loosen credit standards – making it easier for consumers to qualify for loans. The Post cites Ford Motor Credit as one example, saying the automaker’s lending arm “is expected to announce today its intentions to use TALF to sell new securities that would allow people to get loans to buy Ford cars.”
The tight credit market has been cited as a leading cause of the auto industry’s struggles. Auto sales fell to new lows last month, with millions of consumers unable to qualify for new car loans.
Some analysts, however, doubt the TALF will help automakers. CNN Money explains, “The final terms of its Term Asset-Backed Securities Loan Facility, or TALF, eliminate a broad swath of securities that help finance auto dealers and U.S. consumers. This blocks a form of funding that auto companies had hoped would provide immediate relief as they fight for survival. In addition, the TALF requirements may concentrate lending to consumers with strong credit, leaving limited financing options for borrowers with lower credit scores that make up a large part of the consumer base for auto makers.”
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