Entries Tagged 'car loan news' ↓

General Motors Corp. received the second piece of its government loan package today, a $5.4-billion installment that will allow the giant automaker to pay its bills and avoid running out of cash.

The latest installment, which came five days later than scheduled, brings to $9.4 billion the amount that GM has received in loans from the U.S. Treasury Department. The company is to get another $4 billion Feb. 17 when it submits a plan to the government to show how it will become viable.

Fritz Henderson, GM’s president and chief operating officer, said Tuesday night that without the second installment, the company would run out of cash.

In December, the Treasury Department authorized $13.4 billion in loans for GM and another $4 billion for Chrysler LLC to keep both automakers out of bankruptcy.

Henderson told the Automotive News World Congress in Detroit that the money is critically needed to pay its bills. He attributed the delay in receiving the second installment to the Treasury Department’s workload and the transition between the Bush and Obama administrations.

Henderson also disagreed with United Auto Workers President Ron Gettelfinger who said on Monday that that a mid-February deadline for General Motors and Chrysler to complete their restructuring plans may be “almost unattainable” and that the automakers may have been set up to fail.

Henderson said the Treasury Department wouldn’t have worked as hard as it did to provide the loans to GM and its financial arm GMAC LLC if it was setting up failure, and he said he’s confident GM can meet the Feb. 17 deadline to turn in its viability plan.

“It’s a tight time frame. We’re confident we can achieve all our milestones. Not everything has to be done by Feb. 17,” he said.

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General Motors Corp. received the first $4 billion of a $13.4-billion lifeline from the Bush administration on Wednesday, while Chrysler LLC continued to craft final details with U.S. Treasury officials.

The Treasury also released guidelines for how it would help other parts of the auto industry, suggesting that suppliers could be next in line for aid but making no commitments and warning that companies would need to show how their failure would hurt the economy nationwide.

GM Chief Financial Officer Ray Young signed the loan agreement around 4:30 p.m., capping three months of intense lobbying and public miscues by the nation’s largest automaker to craft a survival plan in a global economic downturn.

“We appreciate the administration extending a financial bridge to GM at this critical time for the U.S. auto industry,” GM spokesman Greg Martin said.

Without the first loan, and an additional $9.4 billion, which GM can draw in the coming months, the company would have run short of cash in a matter of days, threatening bankruptcy for itself and many of its suppliers and dealers.

Chrysler’s $4-billion loan is seen by several analysts as too small to stave off collapse; the company had sought $7 billion.

With the money in hand, GM now faces weeks of intense talks with bondholders and the UAW to meet the terms the Bush administration demanded as part of the $17.4-billion rescue of GM and Chrysler.

Treasury officials have said they would get the money to the automakers before they needed it, but with the close of the fiscal year, it’s not clear how much longer Chrysler can go without its $4-billion payment.

“We’re working expeditiously with Chrysler to finalize that transaction, and we remain committed to closing it on a time line that will meet near-term funding needs,” Treasury spokeswoman Brookly McLaughlin said.

“Chrysler LLC is continuing its discussions with the Treasury Department and is working tirelessly to complete the loan requirements,” the company said in a statement.

Before the deal was signed, the Treasury set out guidelines for what it called the Automotive Industry Financing Program, which will offer aid to companies similar to the $6 billion injected into GMAC on Monday under the $700-billion financial industry bailout.

The guidelines allow Treasury officials to move case by case, saying officials will weigh how important a company is to the auto industry, whether its failure would hurt U.S. employment and “cause major disruptions to credit markets and significantly increase uncertainty or losses of confidence” in the U.S. economy.

While the terms appear focused on financial firms, they also are broad enough to encompass other automakers and suppliers, which have asked for federal aid but have been passed over so far.

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The federal loans for General Motors Corp. and Chrysler LLC mean cash-strapped parts makers will get paid and offers them some breathing room heading into next year, when they’ll confront their next challenge as automakers slash production.

But some suppliers won’t make it until then.

Cadence Innovation, a Troy supplier of plastic interior parts that filed for bankruptcy in August, plans to close its doors by the end of the month, according to a company memo the Free Press obtained.

The company counted GM and Chrysler as its largest customers and had about 4,000 workers when it filed for Chapter 11 in August; 1,500 of those workers were in Michigan.

A Cadence spokesman did not respond to requests for comment Friday.

Having failed to sell its assets, Cadence is among dozens of automotive firms in bankruptcy, and could be joined by more despite the federal loans announced Friday, industry experts say.

The next major challenge will be surviving production cuts early next year, as automakers limit their products to meet weak demand for vehicles amid the recession. But the cuts will threaten to drain already low cash reserves for suppliers, said Craig Fitzgerald, auto analyst and partner at Plante & Moran.

Financial pain in the supply base has spread from small to large suppliers.

Federal-Mogul Corp. said Friday that it will cut about 4,600 jobs, following the 4,000 job cuts it announced in September.

Even in their weak state, suppliers are among the many stakeholders that are expected to offer concessions in exchange for the loans.

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Toyota Motor Corp will offer zero-interest loans on its new cars across Europe to revive sagging sales, the Nikkei business daily reported on Monday.

The world’s No.1 car maker, which launched zero-interst loans in the United States in October, will likely use the scheme in Europe, especially to promote the sales of models to be replaced soon by new products, the paper said.

The newspaper cited Tadashi Arashima, president of Toyota Motor Europe but said he did not reveal further details.

The U.S. auto parts industry asked the Bush administration Monday to set up a loan-guarantee plan for auto suppliers as part of the $700-billion financial bailout plan, as well as to speed $25 billion in loans for retooling.

The request from the Motor & Equipment Manufacturers Association means that the entirety of the U.S. auto industry — automakers, suppliers and dealers — has now asked for government help to survive the economic downturn.

In a letter to President George W. Bush, MEMA Chairman Charles Johnson said suppliers were facing “massive upheaval,” and noted that partsmakers are the largest employers in seven states: Indiana, Michigan, Kentucky, Missouri, Ohio, South Carolina and Tennessee.

MEMA, along with Detroit automakers, has been pressing the U.S. Department of Energy to move quickly on loaning $25 billion to the industry approved by Congress in late September. While Energy officials have said it could take 18 months for the money to reach the industry, industry officials say the administration has sped up the process, and hope to see some loans made early next year.

The association also asked the Treasury Department to set up a loan guarantee program, saying a lack of capital and access to commercial credit had driven layoffs in recent weeks.

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Michigan lawmakers asked the government on Thursday to make it easier for car buyers to get loans, in hopes of helping U.S. automakers ride out the financial crisis.

The state’s congressional delegation wants Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke to use their powers under the $700-billion bailout to buy troubled assets quickly from auto finance companies.

U.S. Rep. John Dingell, D-Mich., also said automakers were considering asking the Fed for access to a program that provides low-cost credit.

“We are not ashamed to point out that this crisis that we have on credit did not begin in the auto industry; it began in the financial industry,” Dingell said.

Dingell, a longtime advocate in Congress for automakers, declined comment on whether the financial crisis could lead to a bankruptcy filing by any of the Detroit Three — General Motors Corp., Chrysler LLC or Ford Motor Co.

“The situation is very serious with regard to all three of the manufacturing companies,” Dingell said. The situation is equally serious for auto suppliers and dealerships, he added.

In their letter to Paulson and Bernanke, the lawmakers said the lack of liquidity in credit markets could cripple the auto industry. Many banks and auto finance companies have tightened credit standards because they cannot borrow money to lend or they have been reluctant to lend and risk defaults.

“They need to do for autos what they’re doing for the mortgage industry,” said Sen. Carl Levin, D-Mich.

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White House officials should push hard, using emergency measures if needed, to ensure that $25 billion in low-cost loans start flowing to U.S. automakers before the Bush administration leaves office, former Michigan Gov. John Engler said in a speech Monday at the Detroit Economic Club.

Engler, now president of the National Association of Manufacturers, said he was alarmed to hear that the money may not be released until mid-2009 or later.

Delays would be dangerous to the future of the automakers, Engler said, referring to dwindling cash reserves of General Motors and Ford Motor Co., whose stock prices fell sharply last week. The loans, approved by Congress to help automakers retool to build more fuel-efficient vehicles, were signed into law Sept. 30.

“The administration has an obligation to get the money to these companies,” Engler said, suggesting that White House Chief of Staff Joshua Bolten or other high-ranking officials get involved to expedite the process.

“They’re using all kinds of emergency powers at Treasury in the financial crisis,” he said, declaring that the auto loans are critically important, too.

Last week, U.S. Energy Secretary Samuel Bodman said his department would write a rule within 60 days regarding allocation of the auto loans, but said it could take another six to 18 months before the money is actually dispensed.

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Top-level White House officials should push hard, using emergency measures if needed, to make sure that $25 billion in low-cost loans start flowing to U.S. automakers before the George W. Bush administration leaves office, former Michigan Gov. John Engler said in a speech today at the Detroit Economic Club.

Engler, now president of the National Association of Manufacturers, said he was alarmed to hear that release of the funds — for retooling to produce more fuel-efficient vehicles — may not take place until mid-2009 or later.

Delays would be dangerous to the future of the automakers, Engler said, referring to dwindling cash reserves of General Motors Corp. and Ford Motor Co. and the sharp drops in their stock prices last week.

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GMAC Financial Services said Monday that it tightened its criteria for consumer automotive financing, citing the continued upheaval in the lending industry.

GMAC, the financing arm of General Motors Corp., said the changes include limiting purchases to contracts with a credit score of 700 or above and restricting contracts with higher advance rates and longer terms.

The moves come on the heels of GMAC’s decision last week to increase by 75 basis points the rate it charges dealers for providing non-incentivized consumer auto financing.

GMAC said the current market environment has made it harder and more expensive for it to obtain the funds it needs to make automotive loans. The changes are expected to remain in place until credit markets stabilize and accessibility improves, GMAC said.

GMAC said its wholesale automotive finance business is unaffected by Monday’s changes.

New York-based GMAC is controlled by Cerberus Capital Management, but GM still holds a 49 percent stake in the business.

GMAC, the finance arm of auto maker General Motors Corp. (GM), said it is implementing Monday “a more conservative purchase policy” for consumers. The lending unit will extend auto loans to borrowers with a credit score of 700 or higher. In addition, it will scale back longer-term loans, or those longer than 60 months, and demand higher down payments from borrowers.

The lending unit said it had also increased last week by 0.75 percentage point the standard rate it charges dealers for providing auto loans to consumers. This rate increase doesn’t include lending charges on loans related to special programs, such as 0% financing.

“It’s common to make rate adjustments,” said Gina Proia, a GMAC spokeswoman.

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Auto dealers are hungry for customers: Worried consumers are putting off buying big-ticket items, and buyers on the market are finding it harder to get a loan. So if your credit is solid, now is a great time to say, Let’s make a deal.

“What you may not realize is that there’s equal desperation on the other side,” said Phil Reed, consumer advice editor at the automotive Web site Edmunds.com.

With few customers buying, there are deals to be had. And with inventories jamming dealer lots, you may be surprised to find that you can even find super-low interest rates.

“The discounts are almost unprecedented,” said Reed.

Toyota (TM) recently announced a nationwide 0% financing incentive on many of its most popular models. General Motors (GM, Fortune 500) wrapped up its “Employee Pricing” incentive at the end of last month, but it is now offering 0% financing and other incentives on many models.

But unless you’re prepared to pay cash for your car, you need to make sure you qualify for a loan.
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