Tuesday, December 30, 2008

Trying to Re-inflate the GMAC Bubble...

Yet another shining example of government actions creating more and bigger purposeful misallocations…

Just what people with credit scores less than 700 need – as if they don’t already have more debt than their income can service! History will not look down on these actions in a favorable light, that’s for certain.

Does anyone reading this believe this will truly help GM or re-inflate the bubble? Not only do I not think so, again it only speeds the destructive force of math that works against you. Don't look for better, more efficient cars to come out of this process.

GMAC Widens Lending as U.S. Injects $6 Billion to Help Save GM

By Rebecca Christie and David Mildenberg

Dec. 30 (Bloomberg) -- GMAC LLC, bolstered by a $6 billion federal bailout, resumed lending to General Motors Corp. customers with lower credit scores as the U.S. widened its effort to keep the automaker in business.

The Treasury said yesterday it will take a $5 billion stake in Detroit-based GMAC, the financing arm of GM, and lend $1 billion to the automaker so it can support GMAC. Within hours, GM was offering no-interest loans for as long as five years to counter this year’s 22 percent drop in sales, caused in part by the inability of its customers to get financing.

Reviving GM’s sales has become a priority for U.S. policymakers including the Federal Reserve because of concern that the automaker and its suppliers might go bankrupt and deepen the year-old recession by firing millions of workers. The funds for GMAC are on top of $13.4 billion the Treasury agreed earlier this month to lend to GM and Chrysler LLC.

“The economy has stopped on a dime, and the Fed is looking anywhere there are large markets they can affect in big ways,” said Greg Prost, chief investment officer at Ambassador Capital Management in Detroit, which manages about $800 million. “If they are going to save the car companies, there is going to have to be financing.”

GMAC will now offer financing to vehicle buyers with credit scores of 621 or higher, compared with a previous standard of at least 700, according to a company statement. The higher threshold had excluded about 42 percent of U.S. consumers.

The company said it won’t finance “higher-risk transactions,” instead concentrating on prime customers who are more likely to repay using “responsible credit standards.” The relaxed policy “will allow us to return to more normal levels of financing volume, and should help in efforts to stabilize the U.S. auto industry,” GMAC President Bill Muir said in today’s statement.

Helping GM

The lender financed about 35 percent of GM’s retail customers and about three-quarters of dealer inventory last year. GM, which sold 51 percent of GMAC in 2006 to a group led by private equity firm Cerberus Capital Management LP, is seeking a permanent federal bailout to avert bankruptcy. Cerberus also owns Chrysler, which it acquired last year.