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GMAC Receives $6 Billion From Federal Government

Dec 31, 2008

On Monday, December 29, 2008, GMAC received a commitment of $6 billion from the federal government because it met the requirements for “bank holding company status.” The Treasury Department is setting up a separate program within the Troubled Asset Relief Program (TARP) to make investments directly in the automotive industry. This is welcomed and, finally, good news for the automotive retail industry. The credit crunch that has negatively impacted the nation’s overall economy has been particularly hard on the automotive industry. Traditional lending sources, which were open to both consumers and dealerships previously, have instituted more stringent underwriting standards and have made borrowing money much more difficult for many people. This challenge, coupled with a pronounced decline in vehicle sales, created a vicious cycle that continues to feed itself—until now. This massive cash infusion into GMAC gives the industry some liquidity and should loosen up the lines of credit for both consumers and dealers. In another positive sign, GMAC also announced that minimum credit scores for retail financing will be lowered to a credit bureau score of 621—down from a previous minimum score of 700. The promise of expanded availability of credit for potential vehicle buyers with credit scores under 700 is seen as a major opportunity for dealers to sell more vehicles. Time will tell if GMAC’s loosening of the credit restrictions has an impact on the showroom floor and whether or not this move helps buoy consumer confidence.