For the auto industry, the good news is that
will make credit more widely available.
The bad news, which came the same day as GMAC's announcement, is that consumer confidence is at an all-time low, according to a Conference Board report.
"People are pinning a lot on credit, but the shortage of credit is just an issue compounding a bad economy," says George Pippas, market analyst for
. "Fundamentally, you have a very cautious consumer."
"Consumers aren't pessimistic about credit," Pippas says. "They are pessimistic about whether they will have a job next month."
The combination means most experts continue to expect a dreary month for auto sales in December, potentially followed by a dreary 2009.
December sales picked up a bit from their dismal November levels, according to J.D. Power and Associates. "We are forecasting that total December U.S. light vehicle sales will be up vs. November, but down substantially from December a year ago," says Tom Libby, senior director of industry analysis at J.D. Power. The increase is in the low double digits, he says.
Some of the increase is likely attributable to aggressive sales incentives by
. "Sales are improving in December, but it's all relative," Mark LaNeve, vice president for GM North America Vehicle sales, told
Mike Martin, owner of Dudley Martin Chevrolet in Manassas, Va., says his December sales recovered from deep troughs in October and December. Martin, a National Automobile Dealers Association board member, credited "stepped-up incentives" by GM, lower gasoline prices and the absence of televised congressional hearings, accompanied by daily speculation over a potential GM bankruptcy. "The hearings were a negative cloud over the industry," says Pippas.
Looking ahead, bankruptcy speculation is likely to resume. In the short term, a $13.4 billion bailout from the Troubled Asset Relief Program is expected to tide GM over for the first quarter, while it seeks to restructure. During this period, GM will no doubt be immersed in negotiations, in which the threat of bankruptcy will be the surest method to secure needed concessions from labor, bondholders, suppliers and others.
In other words, the bankruptcy chatter is literally just beginning. No wonder Standard & Poor's maintains a sell rating on GM stock, which traded early Friday afternoon at $3.69, down 11 cents. Shares in
were trading at $2.26, down three cents.
Meanwhile, the outlook for 2009 vehicle sales remains grim. Most experts forecast sales at the lowest level since 1982, when sales totaled 10.4 million. For 2007, the total was 16.1 million, while 2008 sales are expected to total about 13 million. "It took us several years to get to this point," Pippas says. "In the economy and consumer spending and auto sales, I think we are a ways from recovery."
At the same time, every new year begins with promise. It is reasonable to assume that the stock market will perform better in 2009 than it did in 2008 and that the Obama administration will implement far-reaching economic recovery programs, and that both could boost confidence. After years of reading about 1932, many people will actually have a chance to live through it. Note to baseball fans: The Yankees beat the Cubs in the 1932 World Series.
In that context, GMAC's move to relax credit standards could make a difference. GMAC finances 43% of GM's new-car sales. After the Treasury Department provided $5 billion in funding on Monday, GMAC promptly reduced the credit score required to get a loan to 621, which is just above subprime. In October, because of the credit crisis, the company had raised the required score to 700.
Now, GMAC can lend to 90% of those consumers it has historically financed before the restrictions were imposed: it still must avoid the sub-prime market. Says spokeswoman Sue Mallino: "With this lower credit score, we consider ourselves pretty much back in business."