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.
“We felt these actions were necessary, based on the current market environment,” said Proia. “We are focused on prudently managing business during this turbulent time.”
Rival Ford Motor Credit (FCJ), however, said its lending practice for consumers remains unchanged. “We continue to have money available for financing.” said Meredith Libbey, a Ford Motor Credit spokeswoman. “We’re using the same credit practices [for consumers] we have for years.”
A Chrysler Financial spokeswoman was unavailable for comment.
In recent quarters, the value of GMAC has fallen dramatically due to its exposure to subprime home loans, car loans and leases. Because of constrained capital, GMAC and other lenders, such as Chrysler Financial, which finances Chrysler vehicles, have tightened lending standards in recent months. As these once-lucrative financing units are racking up losses and struggling to raise funds themselves, they are scaling back in an effort to shore up their balance sheet.
The credit tightening happened just as these lenders, along with Ford Motor Credit, decided to pull out of the risky practice of leasing vehicles, which had long represented about 20% of new-vehicle financing arrangements. The combination of tougher-to-get loans and absence of leasing stung auto makers during the summer selling season.
The growing credit crunch has also prompted these finance companies to get tougher on dealers with weak finances, raising their rates and fees for some. This makes it costlier for dealers to buy cars, eroding their margins. In addition, dealer inventories are getting leaner, meaning potential car buyers have fewer options to choose from.
GMAC is part-owned by GM after a consortium led by private-equity firm Cerberus Capital Management LP, parent of Chrysler LLC, bought 51% of GMAC from the auto maker in 2006 for about $14 billion.
GM and Cerberus have discussed a possible transaction that would swap GM’s minority stake in GMAC for Cerberus’ 80% stake in Chrysler.
GM shares closed up more than 33% to $6.51 after Monday’s stock market rally, while Ford Motor Credit gained 7.6% to $6.94.
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