By Truman Lewis
ConsumerAffairs.com
October 15, 2008
First it was the run-up in gas prices that left car dealers standing in empty showrooms, whistling and jingling the loose change in their pockets. Then, manufacturers cut back their financing for the cars backed up on dealers' lots.
Now, GMAC Financial Services says it will only lend money to prime borrowers -- those with credit scores of more than 700. That rules out one out of every four new car loans, leaving dealers wondering how they're supposed to stay in business.
Dealers say the new policy leaves them with no place to send would-be buyers whose credit is good but not outstanding. Banks and other lenders don't want dealers to send them just the so-so borrowers -- they want them all.
GMAC attributes the new policy to "the lack of stability in the global capital and credit markets." A spokeswoman said GMAC faces shrinking access to capital -- the same problem that's tied other sectors of the economy in knots.
It's the second body blow dealers have taken from GMAC. Last month, the lender cut back its "floorplan" financing of dealer inventory, thought to have been a major factor in the collapse of Bill Heard, the nation's largest chain of Chevrolet dealers.
GMAC's tightened lending standards could also throw used car sales into reverse. Industry officials say fewer than half of all used car sales qualified as prime during the second quarter of 2008. down markedly from the same period last year.
GMAC is widely identified in consumers' minds with GM, although the auto maker sold its majority control of GMAC to Cerberus Corp., which owns Chrysler LLC, in 2006. GMAC could be key to a possible merger between GM and Chrysler, The Wall Street Journal reported recently.
