Bailout of GMAC Could Boost GM Car Sales The federal government is stepping up its efforts to save the auto industry by committing $6 billion to stabilize GMAC, the financing arm of General Motors. Already, GMAC is offering new deals and looser credit standards for car loans, which should help GM dealers and their customers.
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Bailout of GMAC Could Boost GM Car Sales

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Bailout of GMAC Could Boost GM Car Sales

Bailout of GMAC Could Boost GM Car Sales

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From NPR News, this is All Things Considered. I'm Robert Siegel.


And I'm Melissa Block. GMAC says it can start making loans to more people who want to buy cars - that's after the Treasury Department said last night it is investing $6 billion in GMAC, which is the financing arm of General Motors. That money comes in addition to the $17 billion emergency loan that GM and Chrysler received earlier this month. NPR's Yuki Noguchi reports.

YUKI NOGUCHI: For the last few months, GMAC's car loan business had slowed to a crawl. But this morning, within hours of Treasury's announcement, things started flowing again.

Mr. BARRY WILLIAMS (Chevrolet Dealer, Elkton, Maryland): Already - it's already trickled down to us.

NOGUCHI: Barry Williams is a Chevrolet dealer in Elkton, Maryland. He arrived at work to find notes from GMAC touting new financing deals and looser credit standards for car loans. It was the first such message he'd seen from the company in months.

Mr. WILLIAMS: GMAC went from my biggest player to nothing. I haven't sent a deal to GMAC in three months, just because they really didn't want the business because they didn't have the funds.

NOGUCHI: GMAC is the financing arm of General Motors, though its majority owner is private-equity firm Cerberus which also owns Chrysler. It helps finance dealers like Williams to get cars to show in their stores. It also provides loans to consumers looking to buy cars.

But GMAC ran into major trouble after it ventured into subprime home lending, which, as we all know now, turned out to be toxic. And then GM, which owns nearly half the company, ran out of cash. And that left GMAC hamstrung. In order to help GM, the government also had to help GMAC, says University of Maryland professor Peter Morici.

Dr. PETER MORICI (Professor, International Business, University of Maryland): You can't make cars without engines, you can't make cars without credit. Giving money to GMAC provides General Motors with the credit to make cars.

NOGUCHI: But Morici says giving GMAC the money won't mean cars will suddenly start flying off GM dealers' floors. It is just part of the government's attempt to help the car industry on multiple fronts.

Dr. MORICI: This will not make a huge difference in General Motors' sales. This is one piece of a puzzle for solving the General Motors problem. General Motors needs financing for its dealers, financing for its customers. It needs a new labor contract. It needs to restructure its debt with its bondholders. And all these things are dependent on one another.

NOGUCHI: Car dealers say they're heartened by the immediate actions by GMAC - in particular, the looser credit requirements. GMAC's minimum credit score is now 621, down from 700.

Mr. MARC CANNON (Senior Vice President, AutoNation): The consumer's psyche has been, I don't know if I'm going to qualify. And really, what's been holding them back is the whole credit issue.

NOGUCHI: That's Marc Cannon, senior vice president at AutoNation, which runs the biggest chain of auto dealerships in the country. He says the previous credit restrictions blocked almost two-thirds of potential clients from buying.

Mr. CANNON: So, I think it's clearly going to help, but it's going to take time, by the way. It is not going to be the quick fix, you know, suddenly - all of a sudden, boom. Sales are going to skyrocket.

NOGUCHI: Barry Williams, who runs that Chevy dealership in Maryland, says consumers still need to recover from a really harsh downturn. They need to feel more secure about GM's future and their own jobs.

Mr. WILLAMS: The real issue is just the general economy, and these are just little pieces of the whole issue. And consumer confidence is the biggest issue, in my opinion.

NOGUCHI: Williams says his family has been working with GMAC for 45 years. And in that half century, he's never seen anything slow down so quickly. Yuki Noguchi, NPR News.

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