Federal Help Allows GM To Offer 0% and Low-Interest Car Loans to Consumers

By Michelle Krebs December 30, 2008

By Michelle Krebs

DETROIT -- In stark contrast to banks who still largely refused to give consumers loans despite receiving billions from the government to do so, General Motors wasted no time in pumping federal cash into car loans for consumers.

GM announced Tuesday morning it was offering no-interest financing for up to 60 months and low-interest loans on select 2008 and 2009 model-year cars and trucks through January 5, 2009. The loans will be provided through GMAC and be more widely available to consumers as GMAC has lowered its credit criteria.

The zero-interest and low-interest loans were made possible by GM and its financing company, GMAC, because the Bush administration Monday expanded its bailout of the U.S. auto industry by buying $5 billion in equity in auto and mortgage finance company GMAC and increasing a loan to GM by $1 billion.

The zero- and low-interest loans can be used in addition to other incentives currently on those models. Those incentives range from $500 to $4,250 a vehicle.

"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, GM North America Vehicle Sales, Service and Marketing.

"This enables even more qualified customers to finance through GMAC at their local GM dealership, and provides additional financing capacity with conventional and reduced rate APRs for our dealers to make sales. With GM's Financing That Fits, and the Red Tag Sale now under way that offers supplier pricing, customers have an opportunity to get a variety of extremely attractive offers through the end of the year," he added.

Fed Response

GMAC received government approval to become a bank holding company, which made it eligible for federal funds under the $700 billion Troubled Assets Relief Program. In a statement Tuesday, GMAC said it had modified its credit criteria to include retail financing for customers with a credit score of 621 or higher, still considered a fairly safe bet. Two months ago, GMAC tightened its terms, requiring customers have a minimum score of 700 to obtain loans.

"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," GMAC President Bill Muir said in a statement. "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. We will immediately put our renewed access to capital to use to facilitate the purchase of cars and trucks in the U.S."

Muir said the majority of GMAC's auto financing has been in the prime arena even before the credit crunch. Opening access to credit for consumers with scores of 621 or better allows GMAC to return to more normal levels of financing, he said, adding GMAC will expand financing for both new and certified used vehicles.

"Consumers who fit in the 621-700 credit score range represent nearly 40 percent of all new car buyers and a large percentage of GM buyers," said Edmunds.com's Senior Analyst Jesse Toprak. "Many consumers who recently intended to purchase a vehicle had difficulty obtaining credit and had to leave dealerships empty-handed, and now this program will bring them back and have a significant impact on GM sales."

Brian Bethune, chief U.S. financial economist for Boston-based IHS Global Insight, called "the landmark deal" to allow GMAC, as a bank, access to near zero funds from the Federal Reserve and higher capitalization "path-breaking" in scale and response.

"These developments will substantially ease the upward pressure that we have seen on auto loan borrowing spreads and provide greater access to auto loan credit for American households," said Bethune. "However, it is only one building block of many that are in the process of being put in place to restore prosperity to the U.S. economy." 

The Deals

Here are the latest deals from GM:

2008 Model Year

0% for up to 60 months on 2008 Chevrolet TrailBlazer;GMC Envoy; and Saab 9-3, 9-5 and 9-7X

0.9% for up to 60 months on 2008 Buick Lucerne

1.9% for up to 60 months on 2008 GMC Yukon and Yukon XL; Chevrolet Tahoe, Suburban and Avalanche; Cadillac CTS, SRX, Escalade, DTS, STS and XLR

2.9% for up to 60 months on 2008 Buick Lacrosse; Hummer H2 and H3

3.9% for up to 60 months on 2008 Chevrolet Equinox, Colorado Ext and Crew Cab and Light Duty Silverado; Pontiac Torrent; GMC Canyon Ext and Crew Cab; and Light Duty Sierra

4.9% for up to 60 months on 2008 Saturn Astra and Sky; Pontiac Solstice; Chevrolet Corvette and Heavy Duty Silverado; and Heavy Duty GMC Sierra

2009 Model Year Vehicles

3.9% for up to 60 months on 2009 Chevrolet Cobalt; Pontiac G5; and Cadillac CTS

4.9% for up to 60 months on 2009 Pontiac G6; Chevrolet Malibu, Light Duty Silverado and HHR; Saturn Aura; and Light Duty GMC Sierra

5.9% for up to 60 months on 2009 Chevrolet Avalanche and Heavy Duty Silverado; and Heavy Duty GMC Sierra

Government Action Taken

On Monday, the U.S. Treasury Department said it would buy $5 billion in senior preferred equity with an 8 percent dividend from GMAC as part of an effort to ensure the solvency of a company considered crucial to GM's survival.

It also said it would lend up to $1 billion to fund GM's purchase of equity in support of GMAC's reorganization as a bank holding company. That loan would come on top of assistance extended to GM earlier this month.

GM owns 49 percent of GMAC. Private equity firm Cerberus Capital Management, which also owns 80 percent of Chrysler, holds the other 51 percent of GMAC.

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