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

Robert Farago
by Robert Farago

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’.

Robert Farago
Robert Farago

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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.

  • 3-On-The-Tree Son has a 2016 Mustang GT 5.0 and I have a 2009 C6 Corvette LS3 6spd. And on paper they are pretty close.
  • 3-On-The-Tree Same as the Land Cruiser, emissions. I have a 1985 FJ60 Land Cruiser and it’s a beast off-roading.
  • CanadaCraig I would like for this anniversary special to be a bare-bones Plain-Jane model offered in Dynasty Green and Vintage Burgundy.
  • ToolGuy Ford is good at drifting all right... 😉
  • Dave Holzman A design award for the Prius?!!! Yes, the Prius is a great looking car, but the visibility is terrible from what I've read, notably Consumer Reports. Bad visibility is a dangerous, and very annoying design flaw.
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