By Matt Underwood FDIC clears way for Ford, General Motors to set up industrial banks, and this is where things get interesting, maybe even a little unsettling. The basic idea is that these automotive giants, Ford and General Motors, are now cleared to establish their own industrial banks. This essentially means they can offer financial services, specifically auto loans, directly to their customers. On the surface, it seems straightforward: more financing options, potentially better deals. But when you dig a little deeper, the implications raise some eyebrows.
One of the first things that pops into mind is the specter of the “company store” – that historical relic where corporations controlled both jobs and finances, often at the expense of their employees. It’s a reminder of a time when companies held a significant amount of power over individuals’ lives, including the ability to influence their finances. While the modern world is vastly different, the potential for a similar kind of power dynamic is a valid concern.
This also brings to mind what happened with GMAC, General Motors’ financial arm. GMAC, a once-booming business division, nearly collapsed during the 2008 financial crisis, requiring a massive government bailout. This history makes us question, and rightfully so, what safeguards are in place this time around. The worry is that these new industrial banks might be susceptible to the same risks that led to the near-collapse of GMAC and might once again put taxpayers on the hook.
It’s reasonable to ask what the benefits are for Ford and GM in setting up their own banks. They already have finance divisions that provide financing for their vehicles. The appeal might be the ability to capture more of the financial pie, offering loans directly and potentially pocketing the difference between the bank rate and what they charge customers. It’s also possible this move is a signal of anticipated higher interest rates, allowing them to capitalize directly on the increased cost of borrowing. This has the potential to become incredibly profitable, especially with the high prices of new vehicles.
Moreover, the lack of transparency in auto financing is something to keep in mind. Car dealers often have the ability to mark up interest rates on loans without the customer’s knowledge, and this could further be taken advantage of. Customers might get approved for a lower rate by a bank, only to be charged a higher rate by the dealer. While this is not new, a shift like this has the potential to exacerbate such issues. The fact that the dealer can pocket this difference highlights the need for consumers to be well-informed and to shop around for the best rates.
The mention of the Japanese “Keiretsu” system – where companies are intertwined through cross-ownership and strong business relationships – is relevant. It reminds us of a possible future where the automotive industry becomes even more tightly knit with its financial arms, creating a network where risk and responsibility might be blurred, if one business begins to struggle.
What’s also important to consider is the competitive landscape. Credit unions are a solid alternative, and many people have good experiences with them. They offer financial services and are member-owned, meaning that their focus is on their members, not just on profits. The introduction of these industrial banks raises questions about whether they’ll operate differently from existing institutions or simply contribute to an already complex financial market.
The general sentiment seems to be one of concern, if not outright dread. The historical context of company towns and the near-collapse of GMAC is impossible to ignore. There’s a feeling that we might be seeing a replay of past mistakes, or at least a situation where the risks are concentrated in a few powerful hands. The feeling of “too big to fail” hangs in the air, with the potential for massive bailouts, once again placing the burden on taxpayers.
In conclusion, this move by the FDIC to clear the way for Ford and GM to set up industrial banks is a significant development, raising serious questions. While there might be potential benefits for consumers, the history of the auto industry’s financial dealings, coupled with the potential for increased control and risk, should give us all pause. We should be vigilant, informed consumers who actively seek the best financial deals.