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GM, GMAC ease lending rules to entice car buyers

(Agencies)
Updated: 2008-12-31 09:45

NEW YORK/DETROIT -- General Motors Corp and its GMAC funding affiliate launched programs on Tuesday to lure US car and truck buyers back into showrooms, as the nation's largest automaker tries to revive its sagging fortunes.

In this March 23, 2006 file photo, the General Motors Acceptance Corp. headquarters is seen in Horsham, Pa. The Treasury Department said Tuesday, Dec. 30, 2008, that it will provide $5 billion to GMAC Financial Services LLC, the ailing financing arm of General Motors Corp., in a move that's expected to stave off a bankruptcy protection filing at the company but also severely limit GM's control over it. [Agencies]

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GMAC modified its credit criteria so that it could lend to a wider range of potential customers, two-and-a-half months after significantly curbing lending.

Meanwhile, GM is offering zero-percent financing on several vehicles, and rates no higher than 5.9 percent on more than three dozen 2008 and 2009 models. The offer expires on January 5. Many eligible vehicles also carry cash discounts of $500 to $4,250.

The changes came a day after the US Treasury Department agreed to take a $5 billion stake in GMAC, and lend GM as much as $1 billion to support GMAC, in an effort to help ensure that both survive.

"The bottom line is much better access to funding," said Mark LaNeve, GM's vice president for North American sales, on a conference call with reporters.

GMAC will now extend loans to retail customers with credit scores of 621 or higher, eliminating a restriction that required a score of 700.

Many analysts consider borrowers with a credit score of 620 or lower to be "subprime." The median US credit score is 723, according to Fair Isaac Corp's myFICO unit.

GMAC has traditionally provided the bulk of financing for GM retail customers, and also financing that dealers rely on to carry vehicle inventory.

But it has struggled under the weight of $7.9 billion of losses in the 15 months ending September 30, largely tied to soured mortgages in its Residential Capital LLC unit.

Sales at GM had plunged 41 percent in November in part because many customers could not obtain financing from GMAC.

LaNeve said GMAC may now be able to fund 75 to 80 percent of new GM vehicle purchases, up from 40 percent since October.

The Treasury Department agreed to buy $5 billion of senior preferred equity in GMAC. It is lending GM up to $1 billion to let the automaker take part in a rights offering to support GMAC's reorganization as a bank holding company, which won Federal Reserve approval on December 24.

GMAC is owned by GM and private equity firm Cerberus Capital Management LP. The government financing will result in both reducing their ownership stakes.

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