GMAC says it's using $5 billion from rescue plan to loosen credit on auto loans
NEW YORK -- The struggling financing arm of General Motors, rescued by $5 billion in federal aid, plans to use some of the money to make cars and trucks more affordable to a larger pool of customers.
GMAC on Tuesday promised to loosen its tight lending standards that have made loans harder to get for would-be buyers of GM vehicles. It's the first time that a financial institution has said it will use money from the $700 billion bank bailout to offer more affordable credit to consumers.
As a result, Detroit-based GM is offering zero-percent or low-interest financing on some slower-selling 2008 and 2009 models as part of a year-end sales push -- a move made possible by the billions made available to GMAC.
The government funds, on the heels of the $17.4 billion automaker bailout approved by the Bush administration earlier this month, could provide relief to auto dealers who had blamed the industry's steep drop in sales partially on a lack of affordable credit.
Michael Martin, who owns Chevrolet and Saturn brand dealerships in Manassas, Va., said he thinks the loans will be key to turning around the auto industry, adding that GMAC's lifting of credit restrictions sets an example for banks that have yet to use their bailout funding to free up consumer loans.
"I think these things really spur consumer confidence, too," said Martin, who had already seen customer traffic pickup at his dealerships Tuesday. "People are saying it's good to see GMAC back in the marketplace. Whether it's just a euphoric feeling or not, at least it's a positive."
Vehicles sales have declined sharply this year, plunging 37 percent in November to their worst level in more than 26 years, with every major automaker reporting a drop of more than 30 percent. GM was among those worst hit, reporting a 41 percent slide for the month.
GMAC said Tuesday that as a result of the government aid it will resume offering automotive financing to customers with credit scores as low as 621, eliminating restrictions put in place two months ago as a result of the tight credit markets that mandated a minimum score of 700, an exceptionally good score.
Marc Cannon, a spokesman for AutoNation, a Fort Lauderdale, Fla.-based auto retailer that encompasses 264 dealerships including 73 GM franchises, noted that consumers can faithfully pay their bills for years, but if they miss one or two payments along the way, their credit score can drop into the 600s.
"They're not lowering standards, they're bringing more people into the game," Cannon said of GMAC. "These people are still customers and they're still good people you want to help get into the right vehicle."
Other dealers weren't as optimistic.
Joe Piane, general sales manager at Ostrom Chevrolet in the Los Angeles suburb of Montebello, said his dealership's sales had been "devastated" since mid-October, when GMAC's lack of money prompted it to tighten credit.
And even if the credit crunch eases, Piane believes consumers will be less likely to spend money they don't have.
"I'm a believer that we never had a big economic boom. We just had a lending quagmire," he said. "I don't think business is ever going to be back to usual."
Mark LaNeve, GM's vice president for North America vehicle sales, service and marketing, said GMAC's $5 billion in loans was crucial for the company to afford the zero-percent and low-interest financing on some vehicles.