GMAC "Tightens" Lending Policy; Domestics' Car Loan Cash Drying-Up

gmac tightens lending policy domestics car loan cash drying up

Regular readers of this site will know that America’s domestic automakers and their captive finance units are not on speaking terms with the truth. The estrangement continues with news that GMAC (a GM – Chrysler co-production) is tightening-up its lending practices. GMAC spins the announcement as some kind of reflection on their sense of fiduciary responsibility: “GMAC Financial Services today implemented a more conservative purchase policy for consumer auto financing in the U.S. as a result of the lack of stability in the global capital and credit markets. The changes include limiting purchases to contracts with a credit score of 700 or above. Additionally, the company will restrict contracts with higher advance rates and longer terms.” As Automotive News [sub] points out, this is hardly an onerous “limitation.” “For the first seven months of 2008, prime customers with scores exceeding 700 represented 74.3 percent of the U.S. auto loan market.” But the real story is the story behind the story.

The FICO score story neglects to mention two key facts. First, the “lack of stability… in the markets” is the usual smoke and mirrors. Translation: the banks to which GMAC sells whole loans don’t want high risk consumer paper. If any. Second, somone forgot to tell you that GMAC is no longer writing loans over invoice. In other words, backwards customers– and that’s just about everyone– can’t roll the loss on their last vehicle into the cost of the new one. Meanwhile, GMAC’s “platinum bonus”– thousands of dollars paid to dealers who booked a large number of GMAC loans– is dead. Connect the dots. Now that GMAC’s ability to lease is gone, killed by falling residuals, the lender is, in effect, closing down its auto loan biz. This at the exact moment that Toyota is unleashing its zero percent sale. The dominoes they are a rockin’.

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  • Landcrusher Landcrusher on Oct 14, 2008

    Canuck, That's not bolshevism, it's conservative banking. Under Bolshevism party members get 0% interest, and othere don't. Also, party members get a car, while others wait in line. But anyway, the reason bundling is a bad idea is the way they do it. They strip a lot of information out, and (at least in mortgage bundles) they even make it impossible to strip anything out of the bundle. This is stupid. Why? Because if you can't sell an individual loan out of the bundle, then each loan becomes worthless. The whole loses the value of the sum of it's parts. I suspect that future bundling will be easier to unwind because that kind of bundle will retain a higher value. The other kind are going to be junk until everyone forgets this lesson.

  • Ronin Ronin on Oct 14, 2008

    I don't see how banks and 'acceptance corporations' could stop lending. Lending is how they make their money. What I can see is returning to loan approval standards of way way long ago- way back to those of the 90s and 80s.

  • ScarecrowRepair The 1907 Panic had several causes of increased demand for money:[list][*]The semi-annual shift of money between farms and cities (to buy for planting and selling harvests)[/*][*]Britain and Germany borrowing for their naval arms race[/*][*]San Francisco reconstruction borrowing after the 1906 earthquake and fire[/*][/list]Two things made it worse:[list][*]Idiotic bans on branch banking, which prevented urban, rural, and other state branches from shifting funds to match demands. This same problem made the Great Depression far worse. Canada, which allowed branch banking, had no bank failures; the US had 9000 failures.[/*][*]Idiotic reserve requirements left over from the Civil War which prevented banks from loaning money; they eventually started honoring IOUs illegally and started the recovery.[/*][/list]Been a while since I read up on it, so I may have some of the details wrong. But it was an amazing clusterfart which could have been avoided or at least tamed sooner if states and the feds hadn't been so ham handed.
  • FreedMike Maybe this explains all the “Idiots wrecking exotic cars” YouTube videos.
  • FreedMike Good article! And I salute the author for not using the classic “Lucas - prince of darkness” trope, well earned as it may be. We all know the rap on BL cars, but on the flip side, they’re apparently pretty easy to work on (at least that’s the impression I’ve picked up). On the other hand, check the panel fits on the driver’s and passenger’s doors. Clearly, BL wasn’t much concerned with things like structural integrity when it chopped the roof off a car designed as a coupe.
  • Mongo312 Had an 89SE, 92SE and an 03SE all with stick. The 03 took almost 3 months to find because there were so few produced with a manual transmission and dealers didn't want to give them up. Ended up buying one from a dealership in San Antonio and having it shipped here to St Louis.
  • Bullnuke About 15 years before the TR-8 my brother-in-law put a 301 Chevy small block in a TR-3A. Needed a U-joint in the steering to clear the headers, a modified '59 Pontiac radiator, and a drive shaft that was basically two U-joints end-to-end. It was a scream to drive, basically a small block Chevy with 3-deuces on wheels. 142mph in the quarter - we learned that the original wire wheels were a no-go on this thing at the drags...