Auto finance giant GMAC and its former parent General Motors unveiled plans Tuesday to expand lending to jump-start the sputtering auto sector a day after a six-billion-dollar US government rescue.
GMAC, which has long been the financial arm of General Motors, said it would modify its credit criteria two months after placing tight restrictions on loans to only the most creditworthy borrowers.
General Motors separately said it would offer zero percent financing on many new vehicles in an effort to rev up sales.
“The actions of the federal government to support GMAC are having an immediate and meaningful effect on our ability to provide credit to automotive customers,” said GMAC president Bill Muir.
“We will continue to employ responsible credit standards, but will be able to relax the constraints we put in place a few months ago due to the credit crisis. We will immediately put our renewed access to capital to use to facilitate the purchase of cars and trucks in the US.”
GMAC, which won approval last week from the Federal Reserve to become a bank holding company with greater access to Fed credit lines, said it would now approve loans to borrowers with a credit bureau score of 621 or above, compared to the 700 rating (based on a maximum level of 800) put in place two months ago.
GM said loans through GMAC at zero percent would be offered for up to 60 months for many vehicles, with other loans ranging from 0.9 percent to 5.9 percent.
“We're very excited to offer this reduced rate financing through GMAC to encourage our customers to get back into the game,” said Mark LaNeve, vice president at GM North America.
The actions come amid a collapse in sales on new US vehicles linked in part to problems obtaining credit. US new vehicle sales dropped 37 percent in November.
GMAC faced possible bankruptcy, jeopardizing financing for GM car dealers and customers, and its demise could have dragged down the Detroit automaker's fortunes with it.
Edmunds.com analyst Jesse Toprak said the moves will boost GM sales: “Many consumers who recently intended to purchase a vehicle had difficulty obtaining credit and had to leave dealerships empty-handed, and now this program will bring them back and have a significant impact on GM sales.”
Brian Bethune, economist at IHS Global Insight, said the GMAC rescue should perk up auto sales and provide some support to the recession-bound US economy.
“The landmark deal announced today is indeed path-breaking in terms of the scale of the response of the Treasury and the Federal Reserve to the economic and financial crisis that has enveloped the US economy,” he said.
“However, it is only one building block of many that are in the process of being put in place to restore prosperity.”
But Douglas McIntyre of the financial website 24/7 Wall Street said it may be too little, too late.
“It may help the operation for a few months, but what happens as the value of the GMAC loan portfolio continues to slide?” McIntyre said.
“In all probability, the federal government will have to throw more money into the pot.”
The US Treasury said late Monday it would purchase five billion dollars in shares of GMAC to help support the company seen as critical to the auto sector.
The Treasury also announced a one-billion-dollar loan to General Motors so GM can can buy additional equity in GMAC, which the Treasury could take on demand.
The money for the injection comes from the 700-billion-dollar financial industry bailout.
The action comes on top of a 13.4-billion-dollar rescue loan package the US government approved this month for GM and Chrysler to stave off collapse amid tight credit and dismal sales. GM would receive an additional four billion dollars from February pending congressional approval.
