GMC loosens credit squeeze to entice buyers, but will it be enough?

Though the federal bailout of General Motors has attracted most of the country’s attention, the company’s financing arm – GMAC Financial Services – also received $5 billion in assistance from the federal government in the last week of December to stay afloat.

The Bush administration approved a $17.4 billion bailout of GM and Chrysler earlier in December, though none of those funds went to GMAC. Analysts believe the aid to GMAC could help GM stay out of bankruptcy.

The infusion of aid for GMAC two weeks ago has been good news for GM dealerships in the Tri-parish area.

Beginning around October, GMAC had stopped lending to customers with below-average to average credit scores, lending only to those with scores of 700 or higher.

Because of the tightened credit, the use of GMAC Financial Services by Tri-parish GM dealers plummeted, in some cases to zero.

But GMAC lowered the acceptable credit score – called the FICO Beacon score – to 621 on Dec. 30, with positive results for dealers.

In a statement, GMAC representatives said that the company “intends to act quickly to resume automotive lending to a broader spectrum of customers.”

“GMAC Financial Services was able to get lower borrowers’ costs,” said Maurice Guidry, co-owner of Golden Motors in Cut Off. “They’re now buying lower. Before, they were only buying the best credit.”

“For the past three or four months, we did no business with GMAC Financial Services,” he said.

“Before the financial crisis hit, through around August, we were using GMAC Financial Services on 80 percent (of sales),” he said. “That went down to zero percent. Then it went back up to 20 to 30 percent in the past couple of days… We’re using GMAC Financial Services much more now.”

Ty-Cye Adams, general manager of Barker Buick Pontiac GMC in Houma, said the assistance GMAC received allows the loan agency to extend credit to a much broader swath of customers.

“At the 700 credit rating, 20 percent of our customers were eligible for financing,” Adams said. “With the 621 credit rating, 75 percent of customers are eligible.”

Before the financial crisis of 2008 struck, Adams said the dealership financed 65 percent of its vehicles through GMAC. After the financial crisis, lending through GMAC plunged to virtually nothing, he said. But since the loosening of credit, Barker is doing more financing via GMAC.

“It made it a good December,” he said. “We met most of our objectives.”

Down payments have also become an issue, Adams said.

Before credit was tightened last year, he said, customers having a 700 rating or higher could finance all of a vehicle’s cost. When the financial crunch arrived, more customers had to come up with down payments.

“People were used to not having to put down payments,” Adams said.

Dwight Lott, sales manager at Morgan City Courtesy Pontiac Buick GMC Truck, pointed to south Louisiana being a relatively poorer area.

“Most people in south Louisiana don’t have the 700 Beacon score,” Lott said. “GMAC said not to loan to anybody with a score below 700. Now they’ve lowered it to 621. It’s our economy. There’s nothing wrong with the people.”

“The lower (acceptable) credit rating, now GMAC will look at it,” he said. “In the past, anything under 700 they would throw in the garbage.”

The dealership used GMAC financing on six of the 28 vehicles it sold in August. Lott said GMAC was offering zero-percent financing at the time.

In October, November and December, the dealership averaged 20 to 30 truck sales a month, not using GMAC for any of the sales.

Lott said his dealership still is not using GMAC financing, unless someone requests using it, or if special low-interest deals and rebates are involved. The dealership goes to banks to obtain financing for its customers.

“Banks have better rates than GMAC, but I’m not knocking GMAC,” he said. “It got itself into a bind with no money to lend out.”

However, Adams said the financial assistance received by GMAC will benefit customers because one more lending institution is staying in the game. GMAC has been offering financing as low as 2.9 percent on some of Barker’s used cars, he said.

“It’s more competition, not so much for local banks, but the ones doing the automobile financing,” he said. “Now, that’s one more player they have to fight. With the credit crunch, no one was fighting for business.”

GMAC had to convert into a bank holding company to become eligible for the federal bailout. GM has a minority interest in GMAC, owning 49 percent of the lending unit. Cerberus Capital Management bought a 51 percent stake in GMAC from General Motors in 2006 for $14 billion.

The U.S. Treasury Department is seeking to finalize a $1 billion loan as well for GM by Jan. 16.

Not unexpectedly, sales of and vehicles have slowed a bit since the country’s recession at the Tri-parish’s GM and GMC dealerships, though they have been affected unevenly.

The Geri LeBlanc dealership in Schriever stopped selling Buick, Pontiac and GMC vehicles late last year, but Guidry said Golden Motors has stayed fairly busy, partly because of economic activity brought on by the oil industry, he said.

Nationally, GM had closed 283 stores through January 2008, but still had 6,753 dealerships operating.

GM was hit badly in November, reporting a 41 percent decline in sales for the month.

Sales for most dealers, Adams said, have been off between 35 and 42 percent, but sales have declined only 15 to 18 percent at Barker.

According to Adams, “that’s because, locally, banks are healthy, the economy is strong, plus fuel prices are going down.”

The Associated Press contributed to portions of this article.

Barker Buick Pontiac GMC salesperson Jerome Fabre (left) discusses rebates on a GMC Sierra truck with Bayou Blue residents Craig Kiser (right) and Penny Wyman. * Photo by KEYON K. JEFF