GM, GMAC ease lending rules to entice car buyers

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(Agencies)
Updated: 2008-12-31 09:45

Government Injection May Help

GMAC is the latest non-bank financial company to qualify for help under the Treasury Department's $700 billion Troubled Asset Relief Program.

In this Dec. 23, 2008 photo, some of the last Chevrolet Trailblazers drive into the shipping lot at GM Moraine Assembly plant in Dayton, Ohio. General Motors Corp. said Tuesday, Dec. 30, 3008, it is offering financing as low as zero percent over the next week for several 2008 and 2009 models in a big year-end sales push. [Agencies]

Unlike many lenders that received TARP funds, GMAC said it will use its money to provide affordable credit to consumers.

The $6 billion of financing is in addition to a potential $17.4 billion that the government committed on December 19 to help GM and smaller rival Chrysler LLC avoid possible bankruptcy. Cerberus also owns a majority of Chrysler.

"Federal aid to GMAC suggests the government is probably now so financially entangled in the GM complex that a Chapter 7 liquidation of (GM's auto operations) seems highly unlikely," JPMorgan analyst Himanshu Patel wrote.

GM's zero-percent financing is limited to buyers of the slow-selling sport-utility vehicles Chevrolet TrailBlazer and GMC Envoy, and three Saab models.

Rivals such as Toyota Motor Corp and Nissan Motor Co have offered similar financing on some vehicles.

LaNeve said GM's December sales were up "considerably" from November, and that the automaker might return to auto leasing, credited with supporting sales industrywide from 2000 until about 2006.

US auto sales have plunged to 25-year lows. Analysts do not expect them to recover substantially before 2010.

GM shares rose 20 cents or 5.6 percent to close at $3.80 on the New York Stock Exchange on Tuesday.

The cost of insuring $10 million of GMAC debt against default for five years fell to $1.4 million upfront plus $500,000 annually, according to Phoenix Partners Group, compared with $2.15 million upfront on Monday. Credit default swaps for Ford Motor Co's finance arm also declined.

GM's deeply distressed 8.375 percent bonds maturing in 2033 rose 1.8 cents on the dollar to 16.8 cents, yielding 49.9 percent to maturity, according to bond pricing service Trace.

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