2nd UPDATE:GMAC Eases Dealer Fin Charges,Expands Retail Credit
01 April 2009 - 9:20PM
Dow Jones News
GMAC LLC, the financing arm of General Motors Corp. (GM),
announced Wednesday measures aimed at bolstering sagging sales of
new vehicles while providing cash-strapped dealers some relief.
Increasing limp sales is crucial for GM, which is in the midst
of a restructuring, to clear stockpiles of new vehicles sitting in
dealership lots. GMAC's offer comes a day after GM - along with
rival Ford Motor Co. (F) - announced incentives that go beyond
traditional cash rebates and financing deals, in an effort to
jump-start sales.
For March, the auto maker reported Wednesday afternoon a 44.7%
decline in light vehicle sales from a year ago. GM shares recently
traded down 3.5% at $1.87. The stock has lost about 40% of its
value this year.
GMAC's move will also benefit the lender as the volume of auto
sales determine the amount of loans it originates to consumers and
dealers. GM currently owns a 49% stake in GMAC after a group of
investors led by private-equity firm Cerberus Capital Management
LP, parent of Chrysler LLC, bought 51% of GMAC in 2006 for about
$14 billion. But the auto maker will cut its ownership of GMAC to
less than 10% next month, as part of conditions attached to GMAC
garnering a bank registration in December. The investor group would
also have to scale back its ownership. The bank registration rules
also dictate that GMAC, which has traditionally provided the bulk
of funding to GM's dealers and retail buyers, diversify its
business.
"We announced these actions to reduce stress on auto dealers and
to help spur auto sales in the U.S.," said Gina Proia, a GMAC
spokeswoman. The move will "hopefully get retail credit moving
again."
Proia declined to comment on whether the measures announced
Wednesday were prompted by the administration of President Barack
Obama in its efforts to keep GM afloat. Turning itself into a bank
holding company gives GMAC access to federal funds. The lender
received a $5 billion infusion from the U.S. Treasury under the
Troubled Asset Relief Program after its bank registration.
As part of the measures Wednesday, GMAC cut certain charges to
dealers, including payments through April that dealers had to make
to the lender on aging unsold new vehicles. The lender also will
allow qualified dealers the option to defer interest charges on
loans for two 30-day periods during the next 120 days. Typically,
dealers use these loans from GMAC to stockpile new vehicles on
their showroom floors.
For potential buyers of GM vehicles, GMAC's offer includes
reduced rates for new and used vehicle financing. The lender also
is entertaining loan requests from buyers with credit scores below
620. The median U.S. consumer credit score is 723. GMAC said it was
earmarking $5 billion to lend to consumers in the next 60 days. It
will fund these loans from deposits at GMAC Bank and credit from
banks.
On Tuesday, GM said it would offer, through April, recourse to
buyers who lose their jobs in the first 24 months of ownership. For
buyers who lose their income, the auto maker will make up to nine
months' worth of payments for up to $500 a month.
These measures "are all aimed at alleviating financial strains
associated with holding excessive inventory," said Paul Taylor,
chief economist at the National Automobile Dealers Association.
The steps taken Wednesday will also benefit GMAC.
"If GM's sales volume is significantly lower, GMAC's own
potential business will shrink considerably," said Christopher
Wolfe, an analyst at Fitch Ratings. "It's a symbiotic
relationship."
In 2008, GMAC funded 32% of retail sales at GM and provided 81%
of the financing to the auto maker's dealers. Prohibitive borrowing
costs fueled by the funding freeze in credit markets and losses
piling up at GMAC and its mortgage unit forced GMAC to drastically
shrink its lending operations last year. To survive, GMAC sought
bank registration, which it received on Dec. 24, giving the
cash-strapped lender access to federal funds and allowing it to
borrow at cheaper rates.
GMAC is also exploring financing options under the government's
Term Asset-Backed Securities Loan Facility, or TALF, aimed at
reviving lending to consumers. The lender also is awaiting the
green light from the Federal Deposit Insurance Corp. to issue cheap
FDIC-backed debt. This new debt will refinance GMAC debt maturing
this year.
-By Aparajita Saha-Bubna, Dow Jones Newswires; 617-654-6729;
aparajita.saha-bubna@dowjones.com
(Mike Barris contributed to this report.)