October 15, 2008
Detroit, MI (AHN) - The General Motors Acceptance Corporation Financial Services announced its implementation of a more conservative purchase policy for consumer car financing in the U.S. in the aftermath of credit instability in the global capital market.
Only potential car buyers with a credit score of 700 or above will qualify for a car loan with GMAC.
Ratings company Fair Isaac Corporation is the one that determines credit scores of American borrowers based on their ability to pay back their loans. FICO scores are from 300 to 850. A 300 is a very poor rating, while an 850 is a perfect score. Only 165 million U.S. adults have scores of 700 and above.
The stricter criterion will mean only 58 percent of U.S. consumers may possibly qualify. This may further cut GM's car sales which had plummeted by 18 percent this year. Sales of vans, pick-ups and SUVs, which comprise over 60 percent of GM's deliveries, have tumbled down by 23 percent.
Aside from changing its criterion in granting truck loans, GMAC last week also hiked by 75 basis points the rate it charges dealers who provide non-incentivized consumer vehicle financing.
In a statement, GMAC said, "These changes in pricing and underwriting are related to the current market environment, which has reduced access to funds and increased the cost of funds. The company currently expects these actions to remain in place until the credit markets stabilize and accessibility improves."
Michael Robinet, CSM Worldwide analyst, explained the rationale behind GMAC's move. "Everybody is concerned about risk, because risk has to be controlled, risk has to be conserved... This is a way they can have good risk," Robinet told Bloomberg.
It is not only GM, the U.S. largest care maker, which is suffering from a sales slump. According to Deutsche Bank analyst Rod Lache, the entire American car sales sector is on its way to its lowest yearly sales in 15 years.
GMAC, once owned by General Motors, is now controlled by Cerberus Capital Management, which handled 43 percent of GM's second quarter vehicle loans.
Source: allheadlinenews.com
