GMAC Aid Lifts Auto Hopes

The lending arm of GM, pumped up by billions in government aid, will also relax borrowing standards.
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Updated from 1:05 p.m. EST

General Motors

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and financing arm GMAC moved quickly Tuesday to lure buyers back to auto showrooms after the Treasury Department provided GMAC with funding.

The sharp drop in the availability of financing has been a key cause of a precipitous decline in vehicle sales, which threatens to push 2009 vehicle sales to the lowest level since 1982, when sales totaled 10.4 million. For 2007, sales totaled about 16.1 million. Sales in 2008 are expected to total about 13 million.

Mike Martin, owner of Dudley Martin Chevrolet in Manassas, Va., said he is already getting calls from customers about GMAC's financing push.

"Obviously, the loan and the immediate announcement of help on the retail side is going to help spur some activity," he says. "GMAC is doing what banks should have been doing, bringing some of this (Troubled Asset Relief Program) money to the marketplace rather than using it to shore up the balance sheet."

Late Monday, the Treasury Department said it used TARP money to purchase $5 billion in equity in GMAC, the automaker's auto and mortgage finance company. It also promised a $1 billion loan to GM, to be used to buy more equity, as GMAC seeks sufficient capital to qualify to become a bank holding company.

GMAC said Tuesday it will "immediately resume auto financing for a broader spectrum of U.S. customers as a result of expanded access to funding.

"The company will modify its credit criteria to include retail financing for customers with a credit bureau score of 621 or above, a significant expansion of credit compared to the 700 minimum score put in place two months ago," GMAC said, in a prepared statement.

"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."

Meanwhile, GM reduced rates to as low as 0% for up to 60 months for consumers who buy cars today through Jan. 5. "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 for GM North America Vehicle sales.

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, LaNeve said the cost of the incentive program is negligible for GM because "we were spending this kind of money in the market anyway." He said the program replaces other methods for channeling savings to customers.

The reduced rates apply to a variety of vehicles, including the Chevrolet Trailblazer, the GMC Yukon and the Hummer, and range as high as 4.9% for 2008 vehicles and 5.9% for 2009 vehicles. For a 2009 Chevrolet Malibu, the rate is 4.9%.

Both LaNeve and Martin indicated that December sales were showing some signs of recovering from deep troughs in October and December. Martin, a board member of the National Automobile Dealers Association who also owns Saturn of Manassas, said sales rose about 40% from November and are even with December 2008 sales.

"In October and November, there was so much negative news with the domestic automakers in front of Congress," he said. "But the last half of the month has been strong in Chevrolet and Saturn because of the stepped-up incentives out there, and also the gas station across the street has gas for $1.40 a gallon. The hottest vehicles I have now are some large SUVs."

The Treasury's move to fund GMAC "should ease constraints on consumers by improving the availability of credit for GM customers and reducing their cost of borrowing," wrote Standard & Poor's analyst Efraim Levy, in a report Tuesday. "But even so, we see '09 as a challenging year for the industry in the U.S. and globally, with GM expected to request additional government funding as losses likely mount on weaker sales."

In afternoon trading, shares in GM were up 16 cents to $3.76, while shares in

Ford

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were up 4 cents to $2.26.