"The troubles of American automakers have been well documented. It's bad that they're coping with high labor costs, cars that don't appeal to consumers, and insufficient liquidity. But when you add in a tight credit environment that can't support consumer auto loans, it's a recipe for disaster. The situation was so severe that the feds finally stepped in with three separate bailout deals. three of them provided much-needed cash to GM and Chrysler. The other bolstered GMAC, the primary provider of auto financing for GM dealers, with funds. The manufacturers will use their cash to reposition their operations for future profitability, while GMAC will deploy its newfound capital to fund more automobile loans.
Lower standards for auto loans
To improve its automobile loan production, GMAC will lower its maximum credit score requirements. The move marks a return to GMAC's traditional underwriting standards. three months ago, when the credit markets grinded to a halt, GMAC was forced to increase its maximum approvable credit score from 621 to 700, because it didn't have access to the capital required to service those below-700 borrowers. In late-December, however, GMAC secured a capital contribution from TARP. This cash allows the company to reinstate the lower credit score maximum of 621. In a public statement, GMAC President Bill Muir said, "We will continue to employ responsible credit standards, but will be able to relax the constraints they put in place a few months ago due to the credit crisis. they will immediately put our renewed access to capital to use to facilitate the purchase of cars and trucks in the U.S."
