GMAC to Earmark $5 Billion for Auto Loans

In an effort to free up credit and boost auto sales, GMAC has announced it will earmark $5 billion for consumer auto loans over the next 60 days, while temporarily easing finance charges to auto dealerships.

"Dealers have told us that cash flow is critical right now," said GMAC President Bill Muir in a prepared statement. "We want to do everything possible to help dealers sell their inventory of cars and trucks, while preserving their working capital during the next couple of months."

For car buyers, GMAC will ease financing rules to accept applications from customers with credit bureau scores below 620, considered the dividing line between prime and subprime borrowers. Loan applicants must still meet other requirements, but the move is intended to increase the pool of potential customers.

The auto lender will also reduce certain rates on financing for new and used vehicles. The $5 billion earmark for the next 60 days is 250 percent higher than the $2 billion GMAC says it has lent to finance new and used vehicle purchases in the first three months of the year.

Aid for dealerships

GMAC also announced a number of moves intended to assist struggling auto dealers, including deferments on wholesale interest charges on inventory for qualified dealers. Known as floorplan financing, such loans are critical to auto dealers because it allows them to purchase new vehicles from the manufacturer and keep them on their lots until they are sold. Such loans have been hard to come by since the credit crunch began last fall, putting heavy pressure on dealers already suffering from falling sales.

The lender will also eliminate certain dealer payments on aged inventory for the month of April, and waive fees for dealers to post aged vehicles on SmartAuction, GMAC's online marketing site, to help reduce inventories.

Hope to spur sales

The actions are hoped to boost vehicle sales as General Motors seeks to restructure itself into a profitable and sustainable business under government supervision. GMAC, which was once a subsidiary of General Motors, is the major financer of new car purchases for GM customers. GM continues to own a minority share of the financer, which is also involved in real estate finance, insurance, commercial finance and online banking.

U.S. auto sales fell nearly 40 percent in January and February, reaching their lowest point in 27 years. Pending figures for March are expected to show another 40 percent drop.

GM has received $13.4 billion of U.S. government loans since the start of the year to help it remain viable while restructuring. Former CEO Rick Wagoner was forced to step down earlier this week after President Barack Obama became dissatisfied with the progress the company is making toward a turnaround. New Chief Executive Fritz Henderson said Tuesday the automaker could go bankrupt by June 1 if it cannot win the concessions from the creditors that the government has mandated.