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’.