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December 30th, 2008

(Update1) Auto Financing Gets a Jump Start

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The Bush Administration hasn’t let their latest investment go uncultivated. Their recent $17.4-billion investment into two of the Big Three was reinforced yesterday. Auto-loan financier GMAC (the financing arm of General Motors Corp.) received a $5 billion federal investment to increase auto sales by providing additional credit to consumers. The cash allows GMAC to ease their lending restrictions by extending financing to consumers with lower credit scores. The credit crisis required GMAC to constrict their lending requirements to consumers with a minimum credit score of 700; now the minimum has been reduced to 621.

As an added incentive to boost purchases, GM announced today that they plan to offer 0% financing to customers who qualify through January 5, 2009.

“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. We will immediately put our renewed access to capital to use to facilitate the purchase of cars and trucks in the U.S.”

On Christmas Eve the Federal Reserve approved GMAC’s application to become a bank holding company, a requirement that allowed them access to TARP funds:

In exchange for the slice of the $700 billion bank rescue package, the government will receive preferred shares that pay an 8 percent dividend and warrants to purchase additional shares in return for the money, the department said.

We applaud the intentions of this loan, but whether this arrangement actually results in increased auto sales and consumer credit has yet to be seen. Yet, it makes a lot of sense to reinforce a larger loan with a smaller one.

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5 Responses to “(Update1) Auto Financing Gets a Jump Start”

  1. Auto Finance Says: January 24th, 2009 at 1:25 am

    Most people aren’t able to purchase a vehicle without the right auto financing. This article will help them.

    Thanks for sharing.

    Rose.

  2. Tim Manni Says: January 27th, 2009 at 10:58 am

    Rose,

    Thanks for your comment. Hopefully this can help ease credit conditions, but we’ll have to wait and see just how effective the money was, and if GMAC was willing to lend it to those they promised to.

    Thanks again,
    Tim

  3. shrutika Says: March 17th, 2009 at 4:18 am

    many people are not able to perches a vehical but with help of finance company the persons dream become a true.thank for given a meaningfull artical.

  4. Tim Manni Says: March 17th, 2009 at 10:39 am

    Shrutika,
    You’re welcome and thanks for your comment.

    -Tim

  5. Online Traffic School Says: April 13th, 2009 at 6:59 am

    Hope this helps the people to find right finance for their vehicle.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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