GMAC to limit auto loans to customers with high credit scores
Getting a car loan easily may be a thing of the past in these tough times of the credit squeeze. The finance wing of General Motors Corporation, GMAC LLC, is going to place curbs on its lending activities. Only customers with credit scores of at least 700 may be eligible for an auto loan, making it more difficult for many buyers to purchase a vehicle.
Detroit-based GMAC hiked the rate auto dealers pay for making loans outside of GM incentive programs by 0.75 percentage points. In a letter sent to dealers today, the company also said that most loans would not extend beyond a period of 60 months at the maximum. The curbs on customer credit come even as GM and GMAC stave off rumors about their own futures.
According to Standard & Poor’s analyst Robert Schulz, GM’s sales slumped by 18 percent in 2008, and a further slide due to the credit crisis may see the automaker facing bankruptcy if business shows no signs of recovery. In June this year, GMAC had to come up with $60 billion of credit to bail itself out, as the company’s home mortgage came under severe pressure from foreclosures.
GMAC has seen some turbulent times as it posted $5.4 billion in losses owing to depressed auto sales and seven losing quarters with its Residential Capital LLC business. About 5,000 ResCap employees lost their jobs, and about 200 GMAC Mortgage retail offices were closed down because of weak responses in the real estate sector. GM holds a minority stake in GMAC after its 2006 sale to majority owner Cerberus Capital Management LP. Cerberus, a New York-based private equity firm, also owns Chrysler Financial, which has so far not changed its auto lending criteria. Spokeswoman for GMAC, Gina Proia said that the company’s focus was to manage the business prudently in the days of turbulent markets.