This is the bailout

[alexamenos]

'GMAC is back in the game'

GMAC said Tuesday that it would immediately resume financing to a wider range of car buyers, a day after the Treasury Department injected billions of dollars into the lender.

GMAC said it would modify its criteria to include financing for customers with a credit score of 621 or above, a significant expansion compared with the 700 minimum score put in place two months ago.

GMAC had significantly cut back on the number of loans it offered as it struggled to stay afloat.

And General Motors said Tuesday that it would begin to offer zero-percent financing on some models as it tries to jump-start sales.

"That brings a lot more customers into play for us," said Mark LaNeve, GM's vice president for North American sales and marketing.

"It's a strong signal that GMAC is back in the game and that GM dealers are back in the game of financing vehicles."

The Treasury Department injected $5 billion into GMAC on Monday as part of a deal that will let the lender convert itself into a bank holding company to reduce its borrowing costs and borrow money at low rates from the Federal Reserve.

"This is exactly what some of the government money was intended to do – stimulate credit, stimulate business," Mr. LaNeve said.

Lower credit rating = higher risk.
0% financing = very low return.

Loans with higher risk, lower return...This is exactly what the government money is intended to do. Does this soud like a good investment strategy?

So what sort of long term ramifications should we expect from a government policy which systematically encourages higher risk, lower return lending?

hmmm....

The government bailout of the financial mess is nothing more than a radical acceleration of the very policies that caused the mess in the first pace.

[Mavdog]

you are smart enough to know that "zero percent financing" is merely a marketing ploy, it translates to at most about an 8% discount on the purchase price. gm could just as easily advertise a lower price, but this has a stronger allure to buyers these days. go figure.

of course, the real bottom line cost to the program could only be determined once the true cost of manufacturing the vehicle is arrived at. with the high fixed costs that the car cos. have sunk into producing a car, the more they are able to sell, the more they are able to make, the lower each unit cost is, the lower the bottom line cost to the "zero percent financing" of a sale of the car.

as for the credit score change, I'm not too knowledgable on these relative numbers. 700 seems to be a high figure as the mean rating is mid 600s, so there is reason to believe that gmac put the minimum score very high as they were very cash short.

the question that needs to be answered to find if this is just a repeat of lending to unqualified borrowers is what other lenders are requiring. if b of a, chase and the local bank/credit union are at the same or lower ratings for a typical loan, it would stand to reason that gmac is not relaxing their standards too much. if these other lenders are not at the same rating numbers then you have a point.

[92bDad]

What kills me about the auto industry is how much that hate consumers like me.

I'm a cash only car buyer. In other words, I don't use financing, but rather after going through the Dave Ramsey approach...I purchase cars with what I have budgeted and pay for it all 100% up front, I don't need a loan.

I've learned that to negotiate a price, I should NEVER let them know I'm a cash customer...let them do their finance pitch, let them offer "Special Deals"...then come back and tell them I need a lower price...once they give me the best price possible, I ask them to initiate the paper work...when they get to the loan portion, and they ask how much I want to put down on the car, I tell them 100%.

This really pisses them off...by then it's too late, they have offered me a price and they can't jack it back up.

These companies don't want to sale cars, but rather they want to sale loans.

I used to do car loans...but never again...I'm still working to pay my one last car loan off...with income dropping, this has become a real thorn in my side.

I hate loans, I hate credit cards...they are nothing more than slave masters, while a cash world is the freedom express!!!

[dalmations202]

Originally Posted by 92bDad

I hate loans, I hate credit cards...they are nothing more than slave masters, while a cash world is the freedom

There is a massive amount of truth to this statement. You can never be truly free in the US though because you can't truly own land -- you can only lease it from the government. (if you don't believe me, just "buy" some and then refuse to pay governmental taxes on it and see how long you "own" it)

On another note, if you don't have cash, at least go out and get the car loan amount pre-approved before you go shopping. We, before I decided I hated payments, use to get an amount approved through the bank, or credit union, and then do exactly what you talked about above.

I agreed to a pickup at the dealers price, then told them that I had my own financing. I offered to just give them the truck back, but they decided that moving it was more important. It was definitely akward, but I did get very good pricing that way.