What the GMAC bailout means for GM

A sign for GMAC Mortgage Corporate Headquarters in Horsham, Pa.

TEXT OF STORY

Kai Ryssdal: If you've been trying to buy a car made by General Motors but couldn't qualify for the loan, why don't you go ahead and call the dealer to see if your luck has changed. Late last night GM's financing arm got a $6 billion shot in the arm thanks to the Treasury Department.

Today it announced five-year, no-interest loans to a lot of prospective buyers whose credit scores were too low until now. For now the GMAC bailout is a way for the stuggling carmaker to buy some time. But our Senior Business Correspondent Bob Moon reports it might also be buying some trouble over the long term.


Bob Moon: When GMAC set the magic number to qualify for a car loan at a credit score of 700 or above, it shut out millions of prospective buyers.

Brendan Moore: Very few people would qualify at that FICO score. GMAC just wasn't in the game.

Brendan Moore works as an auto-financing industry consultant and publishes the Web site Autosavant.com. He says by loosening up and qualifying buyers with credit scores above 620, GMAC is suddenly back in the marketplace.

Moore: They can now go after deals that they couldn't go after just 48 hours ago.

The government rescue doesn't just free up money for would-be buyers. Last year, GMAC financed about three-quarters of GM's dealership inventory. Erich Merkle is lead auto analyst at Crowe-Horwath.

Erich Merkle: Very few people are going to drive to the plant to pick up their car. So it's important that GM keeps their dealerships viable going forward.

But the deal with the government means GM is losing even more control of the financing arm that was set up decades ago specifically to promote sales of its cars. GM had already sold a 51 percent share of GMAC in 2006 to Cerberus, the private-equity firm that owns Chrysler. Now, Automotive News Publisher Keith Crane says GMAC is becoming its own business with its own goals.

Keith Crane: GMAC is going to want to make money, and they're not going to want to subsidize the sales of General Motors, and lose money on that end for the good of GM.

Crane points out Ford Motor Credit remains under Ford's control. And he says this deal could put GM at a real disadvantage if GMAC strays too far from its original mission.

In Los Angeles, I'm Bob Moon for Marketplace.

About the author

Bob Moon is Marketplace’s senior business correspondent, based in Los Angeles.

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