Automobile Industry Financing

Over the last few weeks I have read many posts on blogs about the upcoming financial bailout of the Big 3 Automakers. Many good points have been made, but none sum up the true meaning of what this bailout truly is. Until now. Again Israel's premier political cartoonist, Yaakov Kirschen and his cartoon Dry Bones, combines the truth and humor into an easy to understand explanation of the problem at hand.




This whole business of giving loans to the car manufacturers rather that getting car loans from them made me curious about how and when automobile financing first began.

Turns out that when the industry was young, car dealers had to pay cash to buy the cars that they intended to sell... but the demands of trying to keep the assembly lines running regularly forced a rethink of that arrangement. The new idea was to allow the dealers to finance the vehicles they bought from the manufacturers and to offer financing to the consumers to whom they sold the vehicles.

William Durant, the founder of General Motors, was the first to introduce the concept of automobile financing – car loans.

"Durant gave ordinary people a way to buy a car when the manufacturers of the time, including Henry Ford, believed that financing a new car would be the end of America. Boy, were they wrong! Billy was a man of vision, and his vision of automobile financing materialized in the form of General Motors Acceptance Corporation (GMAC), the first large non-bank financing source for automobile loans. In 1919, GMAC branches were opened in Detroit, New York, Chicago, San Francisco and Toronto. In 1920, they expanded to Great Britain. By 1928, they’d written their 4 millionth retail contract."-more