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GMAC to Resume Car Loans to Subprime Borrowers

NEW YORK/DETROIT – GMAC Financial Services said it will resume making car and truck loans to subprime borrowers and will lower inventory financing costs for cash-strapped auto dealers, part of a series of moves intended to spur sales at General Motors Corp.

by Staff
April 3, 2009
2 min to read


NEW YORK/DETROIT – GMAC Financial Services said it will resume making car and truck loans to subprime borrowers and will lower inventory financing costs for cash-strapped auto dealers, part of a series of moves intended to spur sales at General Motors Corp.

The moves came as the embattled automaker races to restructure and get customers back into its showrooms amid growing risk that it will be pushed into bankruptcy by the Obama administration.

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GM, whose U.S. sales fell 51 percent in the first two months of this year, also began rolling out a program that will cover some payments for customers who lose their jobs after buying a car, an incentive intended to bring back shoppers worried about job security amid the recession.

GMAC, which provides financing to many GM vehicle buyers, said it would make at least $5 billion of credit available to customers over the next 60 days, a period during which GM has to prove to U.S. officials it can win sweeping concessions from bondholders and its major union.

The finance company plans to resume accepting finance applications from car and truck buyers who have credit scores below 620, a line dividing prime borrowers from less creditworthy subprime borrowers. The median U.S. credit score is 723, according to Fair Isaac Corp's myFICO unit.

GMAC also will cut borrowing costs for some new and used vehicle purchases.

In addition, it eased a variety of fees and payments imposed on dealers, giving them more breathing room to lower both costs and inventory of unsold vehicles.

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Floorplan financing, or inventory loans, is the lifeblood of U.S. auto dealers because it allows them to pay for vehicles when they take delivery from automakers and carry them on their lots until they find buyers. Access to that credit has been frozen since late 2008, putting a further squeeze on dealers already pressured by plunging sales.

U.S. auto sales fell nearly 40 percent in the first two months of the year to their lowest level in 27 years. Auto sales for March, to be released later on Wednesday, are expected to show another 40 percent drop.

GM has relied on $13.4 billion of U.S. government loans to stay in operation since the start of the year.

GM Chief Executive Fritz Henderson said the automaker could go bankrupt by June 1 if it cannot win the concessions from the creditors that the government has mandated.

GMAC received a $6 billion government bailout in December that required GM and private equity firm Cerberus Capital Management LP to slash their 49 percent and 51 percent stakes in the company. GMAC was once wholly-owned by GM.

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