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GM uses bailout to lure car buyers
General Motors Corp. and its finance arm Tuesday quickly deployed their $6 billion taxpayer infusion by offering zero-interest loans, passing on some of the benefits of the bailout to consumers while trying to clear lots full of unsold trucks and sport utility vehicles.
Unlike the banks that have received the lion’s share of Treasury’s $350 billion of bailout funds, the automaker kept an eye on popular opinion and Congress — both of which have been critical that much of the money doled out by the Treasury so far does not appear to have found its way into loans for average people.
“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, noting that the company also will start providing loans again to customers with average credit scores who were excluded from credit last fall.
“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,” the company said.
GMAC’s success at securing the government cash as well as approval to become a bank means it now can obtain funds from the Federal Reserve and financial markets at rates close to 0 percent, so it can offer its customers loans near that rate as well.
GM said loans through GMAC at 0 percent would be offered with terms of up to five years for vehicles such as Saabs, the Chevrolet Trailblazer and GMC Envoy SUVs, heavy vehicles that have not been selling well as buyers seek more fuel-efficient vehicles.
Loans with interest rates ranging from 0.9 percent to 5.9 percent will be available for more popular models. Unlike in past years, however — when GM loans were approved almost automatically — GMAC is cautioning that only “qualified buyers” with good credit scores or solid down payments will qualify.
“We’re very excited to offer this reduced-rate financing through GMAC to encourage our customers to get back into the game,” said Mark LaNeve, vice president at GM North America.
By hauling out the popular 0 percent financing, GM is hoping for a repeat of the auto-buying bonanza that was triggered by Detroit’s first widespread no-interest loan promotions after the Sept. 11, 2001, terrorist attacks. Consumers at that time flocked to auto showrooms and drove auto sales to record highs.
Edmunds.com analyst Jesse Toprak said the move promises to work some magic again and boost GM’s abysmal sales, which the company says have been running at the lowest rates since World War II.
“Many consumers who recently intended to purchase a vehicle had difficulty obtaining credit and had to leave dealerships empty-handed, and now this program will bring them back and have a significant impact on GM sales,” Mr. Toprak said.
Economists caution that the success of the program is likely to be more limited than in 2001, however, not only because GMAC is more carefully reviewing buyers’ credit qualifications, but because the economy is in much worse shape than during the 2001 recession, which was so mild it hardly dented consumers’ buying power.
“Much has been made of the recent efforts to spur consumer lending,” most recently with the GMAC bailout, said Mark Vitner, senior economist at Wachovia Securities. Credit availability is important for consumers looking to buy big-ticket items like cars and houses, he said, but “an even more important variable is consumers’ comfort about their own employment and income prospects.”
News on the employment front has been dismal, with the sudden disappearance of more than 1 million jobs this fall sending consumer confidence to an all-time low in December, the Conference Board reported Tuesday. That development must be weighed against the improved credit picture, and some consumers are simply going to be too worried about their jobs to buy cars, Mr. Vitner said.
GM’s move to offer 0 percent financing will put pressure on other automakers to follow suit. Analysts say it is not clear whether Chrysler LLC, which is also in dire financial straits, will be able to rival GM’s promotion.
About the Author
- U.S. unemployment falls to five-year low of 7 percent; 203K jobs added
- Economic growth jumped to 3.6 percent in summer
- Spending on social welfare rose as economy tanked during recession
- Treasury aims to sell off GM stock by end of year
- Janet Yellen nomination approved by banking panel
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