Auto financing just got easier for consumers with less-than-stellar credit scores.

Do you want a piece of the federal bailout action? Now may be your chance. GMAC, the financing unit of General Motors, is passing Troubled Asset Relief (TARP) funds onto its consumers, in the form of looser credit standards on auto loans. There's just one tiny catch-you must buy GM.

Auto industry secures bailout funding for car loans

The troubles of American automakers have been well documented. It's bad enough that they're coping with high labor costs, cars that don't appeal to consumers, and insufficient liquidity. But when you add in a tight credit environment that can't support consumer auto loans, it's a recipe for disaster.

The situation was so severe that the feds finally stepped in with two separate bailout deals. One of them provided much-needed cash to GM and Chrysler. The other bolstered GMAC, the primary provider of auto financing for GM dealers, with cash. The manufacturers will use their money to reposition their operations for future profitability, while GMAC will deploy its newfound capital to fund more car loans.

Lower standards for auto loans

To improve its car loan production, GMAC will lower its minimum credit score requirements. The move marks a return to GMAC's traditional underwriting standards. Two months ago, when the credit markets nearly grinded to a halt, GMAC was forced to increase its minimum approvable credit score from 621 to 700, because it didn't have access to the capital required to service those below-700 borrowers.

In late-December, however, GMAC secured a capital contribution from TARP. This money allows the company to reinstate the lower credit score minimum of 621.

In a public statement, GMAC President Bill Muir said, "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. We will immediately put our renewed access to capital to use to facilitate the purchase of cars and trucks in the U.S."

Aggressive auto financing promotions

GMAC also ran an aggressive 0 percent car loan promotion between December 30 and January 5. Inclusive of that promotion, GM's December sales were still down more than 31 percent. Full-year sales were down 22.9 percent.

TARP was established in early October when Congress passed the Emergency Economic Stabilization Act of 2008. To participate in the program, GMAC applied for bank holding company status in November; that application was approved by the Federal Reserve Board in the following month. GMAC subsequently received $6 billion in government bailout funds. Auto manufacturers GM and Chrysler received bailout financing under a separate arrangement by President Bush.

If your credit score is between 621 and 700, you can technically take a slice out of the bailout pie. Just head over to your nearest GM dealer, and finance an auto purchase.

    Published on February 9, 2009