Implications
General Motors and General Motors Acceptance Corporation, once joined together at at the hip were the most powerful combination of carmaker and car financier. Now they have both had to teeter on the brink of bankruptcy before getting a cash lifeline from the federal government.
Analysis
At one time GM ruled the retail auto business in the U.S. Their corporate cousins, GMAC provided retail financing and floorplanning for virtually all General Motors dealers.
Over the past three decades they both have struggled, with GM having its lowest market penetration in its 100 year history. GMAC, over the past several years has seen its role a a finance provider drop to an all-time low. GMAC even went so far as to say in the past year that they would not accept any credit applications with scores under 700, a figure that disqualifies over 60% of GM"s customers.
Along with the economic slump and the consumer switch to more fuel efficient vehicles, the lack of available credit from lenders has played an important role in slumping auto sales.
Now, given an opportunity to recover some lost business, GM & GMAC are launching an all-out effort to invest some of that government money into selling and financing cars.
In stark contrast to banks who still largely refuse to give consumers loans despite receiving billions from the government to do so, General Motors wasted no time in pumping federal funds into car loans for car buyers.
GM announced Tuesday morning it was offering no-interest financing for up to sixty months and low-interest loans on select 2008 and 2009 model year cars and trucks. through Jan. 5 2009. They are also offering lower rates on many other 2008 & 2009 models
Perhaps more importantly, GMAC announced that minimum credit scores for retail financing will be lowered to 621, down from 700! Dealers all over the country are contacting previously rejected buyers in hopes the new credit availability will spur sales.
These zero and low interest loans can be used in addition to incentives of between $500 and $4,250 a vehicle.
In October, GMAC financed just 25% of the sales of GM vehicle, down from 40% last year.
The impact of these programs remain to be determined. While it is sure to spur showroom traffic, dealers are concerned about advance amounts and what credit scores will be required to qualify for the new rates. Also, the announcement did not address the floorplan issue. If dealers cannot finance their vehicle inventories, the number of vehicles available to buyers will be affected. As of October, GMAC provided about 80% of GM dealers their floorplan financing.
