GM's lending arm acts to facilitate obtaining car loans
By John Letzing & Michelle Donley, MarketWatch
Last update: 4:23 p.m. EST Dec. 30, 2008
NEW YORK (MarketWatch) - General Motors Corp. shares led a rally in
the auto sector on Tuesday, advancing as much as 11% after its
traumatized lending unit said it will receive a cash infusion from the
government that will help new-car shoppers obtain financing.
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GM) shares pulled back from session highs but still finished up 5.6% at $3.80.
GMAC Financial Services will receive $5 billion in funds from the U.S.
government's $700 billion bailout program.
The Treasury Department will also lend up to $1 billion to GM so it
can take part in a transaction that will help GMAC raise additional
needed capital.
As a result of the funding, GMAC said it will lower its minimum
credit-score requirement for retail consumers to 621 compared to the
700 minimum level set two months ago.
"The actions of the federal government to support GMAC are having an
immediate and meaningful effect on our ability to provide credit to
automotive customers," 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."
The loan to GM comes in addition to the $17.4 billion in federal
assistance for domestic car makers announced by the government earlier
this month. GM and Chrysler appealed to the government for aid in
restructuring earlier this year after suffering from plummeting sales
that pushed them to the brink of bankruptcy.
"While an eventual GM Chapter 11 cannot be entirely dismissed if
various stakeholders fail to meet required concessions (we think these
stakeholders are likely to meet the requirements), federal aid to GMAC
suggests the [government] is probably now so financially entangled in
the GM-complex that a Chapter 7 liquidation of GM-Auto seems highly
unlikely," analysts at J.P. Morgan wrote in a note to clients Tuesday
morning.
The Treasury Department's purchase of $5 billion in preferred stock
from GMAC comes after the lending unit last week received approval to
become a bank holding company, a necessary step to become eligible for
federal bailout money. See related story on GMAC winning bank status.
"The company intends to act quickly to resume automotive lending to a
broader spectrum of customers to support the availability of credit to
consumers and businesses for the purchase of automobiles," GMAC said
in a statement late Monday.
Separately, The Wall Street Journal reported that Ford (F
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F) plans to offer two Lincoln models in 2009 that can park themselves.
The automatic parallel-parking system is due to be unveiled next month
at the North American Auto Show in Detroit, offered as an option on
the Lincoln MKS sedan and MKT crossover-utility vehicle, according to
the report.
Ford will also show a hybrid version of the Ford Fusion sedan, which
gets 8 more miles a gallon in city driving than Toyota's Camry hybrid,
The Journal said.
In an interview on Monday, Mark Fields, Ford's president in charge of
the Americas, said the Dearborn, Mich.-based company is counting on
technological innovations and fuel-efficient cars to set it apart from
competitors and lure more people into its showrooms, the Journal said.
Ford shares tacked on 3.2% to close at $2.29. End of Story
John Letzing is a MarketWatch reporter based in San Francisco.
Michelle Donley is a MarketWatch news editor based in New York.
