White House Throws GMAC $6 Billion Rescue Line
Remember when the Bush administration was opposed to tapping the $700 billion Wall Street bailout to help Detroit’s Big Three?
The Treasury Dept. announced last night that it will spend $6 billion from that fund to bail out GMAC, the flailing auto finance company whose reluctance to lend to riskier loan applicants has contributed significantly to the drop in car sales this year. (In the third quarter, GMAC issued 22 percent fewer loans worldwide than it did a year before, Dow Jones reports.)
The $6 billion — $5 billion of which yesterday went directly to purchase shares in the company — comes on top of the $17.4 billion that the Treasury agreed to provide to the Big Three from the Wall Street bailout earlier this month. GMAC, a majority of which is owned by Cerberus Capital Management, the private investment firm that owns Chrysler, said today that it will immediately relax its lending standards — from a minimum credit bureau score of 700 two months ago down to a score of 621. From a statement from GMAC President Bill Muir:
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. [...]
[O]pening access to credit for those with CB scores of 621 or better will allow us to return to more normal levels of financing volume, and should help in efforts to stabilize the U.S. auto industry.
It’s not only the U.S. auto industry praying Muir is right. Everyone is struggling to sell cars — whether they be Hummers or Priuses — and a primary reason has been the credit freeze that’s made it tougher for consumers to finance new car purchases.