General Motors seeking lower credit standards to boost sales

General Motors is looking to expand its potential customer base by lowering the requirements for financing their vehicles. Currently, GM is limited by its main lender, Ally Financial, which was previously known as GMAC.



Detroit News is reporting that General Motors is seeking to have the credit restrictions loosened from its primary lending source, Ally Financial, but is facing resistance from the lender which has recently struggled with failing mortgages.

Prior to 2006, GM was the majority owner of GMAC - now Ally Financial - and as a result had more control in deciding who could, and couldn't qualify to finance its vehicles. Now, as Ally Financial attempts to recover from the mortgage meltdown, it has toughened its standards. As a result, GM is feeling the drop in sales and hopes to boost sales by opening financing to subprime buyers.

Kirk Ludtke, senior vice president of CRT Capital Group, told Detroit News, "There's a real sense of urgency on GM's part to maximize its sales," when referring to the approaching initial public offering for GM.

Although GM has not officially stated its intention to either buy back a controlling portion of Ally Financial, or if it will start its own in-house finance arm, the automaker's president of North America, Mark Reuss, did suggest that the auto loan data makes a strong case for the automaker to have control over its lending.

"They're [Honda] able to finance their cars at a much lower level than we are," Reuss said. "I'm not sure what the answer is. But it would sure help my sales, the company's sales in North America, if we were able to get access."

Reuss is referring to Honda's reliance on 20 percent of its sales and leases to subprime buyers, with GM contrasting that figure drastically at only 1 percent.

Ally Financial's ties to GM and Chrysler add complexity to the problem
Further complicating matters, since GM and Chrysler filed for bankruptcy, both automakers have been tied to Ally Financial as a primary lender. Should GM attempt to buy a larger controlling interest in Ally, Chrysler could potentially face unfair lending practices.

Chrysler's CEO, Sergio Marchionne, said, "If they control the lending practices and the degree of penetration and support that they gave to Chrysler, that would make us very, very concerned."

References
1. 'GM wants more subprime buyers...' view