Filed under: Car Buying, Etc., GM
GM to dealers: There's a bonus in it for you if you don't lend them our money
General Motors is telling its dealers that there's a shiny nickel or two in it for them if they can sell cars without getting the GMAC finance arm involved. For every sale closed with outside financing, salespeople and managers will each receive $100, with an additional $50 going to someone the dealer designates. GMAC has already cracked down on borrowers with FICO scores below 700, and this looks like another move to discourage putting GM on the hook for risky loans; let someone else take that chance, the automaker seems to be saying to its dealers. Not all dealerships are happy with the plan, but GM and Cerberus Capital, which owns 49 percent of GMAC, must take steps to reduce potential losses. We can imagine that GM might lose some business to the newly tightened lending criteria, though there are plenty of third party loans out there, many even halfway reputable.
[Source: Automotive News - Sub. Req. | Photo: Justin Sullivan/Getty]
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Reader Comments (Page 1 of 2)
imoore 5:35PM (10/16/2008)
Good way to avoid another Bill Heard-style embarassment.
Let's call all those dealership meltdowns a "Bill Heard" or just a "Heard."
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mikemaj82 5:50PM (10/16/2008)
Good. Now when it's time for a new car, I can write my own numbers and just walk into the dealership with a check from my bank.
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socarboy99 7:18PM (10/16/2008)
I think that's smart; you'll know ahead of time how much you can spend. You'll also
probably be able to negociate a better price
since you will only be bringing "x number of
dollars" with you when you come on to the lot!
jg 9:08PM (10/16/2008)
What do you mean 'now'? You could always do that. That's how I bought my last car.
tankd0g 9:37PM (10/16/2008)
Walk up with just the change in your piggy bank, I doubt the salesmen have much fight left in them these days.
Level 5:50PM (10/16/2008)
yeah there's plenty of other lenders but who wants to finance a car at 18% APR ? lol and if you do something is wrong with you.....
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ryan 6:29PM (10/16/2008)
not all third party lenders deal with subprime credit (which is what you would have to be to be 18% or above. i checked with my F&I guy here at the dealership).
actually, not many truly do. there are plenty of other lending options for an automobile. and 700 isn't a small credit score, especially with the US "average" between 680-720 (this is probably not true, but a quick google gave me this, so i'll roll with it).
so say you have a score in the 680 range (which isn't bad. not good, but not bad). that means GMAC won't finance you, but now they're paying their dealerships a couple of bucks to look at different financing options so they're not as dependant on GMAC, hence moving more cars. i'd bet i could find a bank that wouldn't charge anywhere near 18% for a 680 score, but GMAC wouldn't finance them, according to this.
now, there are scores that would warrant 18% (or higher)..... and probably rightfully so, due to the risk.
Gabagool 6:37PM (10/16/2008)
@ Ryan
My buddy bough a new Civic few years ago, it just came out so it was very hot, Honda gave him 4.3% financing (he has an excellent credit score) We went to a few banks, no one would give him anything below 6.5%, we went to 5 banks and in each one they said that car companies tend to give best rates when you buy from them.
While 18% is a crazy amount, but someone who goes into a dealership now and is below 700 would have to go to a bank, and you know that they will want a very high amount which may discourage at least some people from buying a car.
ryan 8:17PM (10/16/2008)
very true gaba. banks won't give out their best terms to individuals. they actually make more money that way, through their direct lending to the consumer, than if they sign up with a dealership.
and people say that their bank has been good to them. i don't know the last time our dealership WASN'T able to beat a rate from a bank, but that's not including any sort of special financing offered from the manufacturer.
whatever, the point remains the same. i would agree, though, that the fluxuation in the markets has created a bunch of scared consumers, and those that are coming in to purchase and are less inclined to due to the volatility in the credit markets.
enough ranting. just what i see daily.
knifetramp 5:56PM (10/16/2008)
"and this looks like another move to discourage putting GM on the hook for risky loans; let someone else take that chance, the automaker seems to be saying to its dealers"
Dan, how exactly do you come up with that conclusion? GMAC is cash-strapped. They want dealers to steer all loans to outside lenders, not just those with buyers scoring below 700. Maybe stick to car discussions that you know something about.
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Jake 6:00PM (10/16/2008)
Good!
People shouldn't be financing cars anyway. It is too risky as the financing people have discovered all of the sudden. There wouldn't be any of this mess if people had the discipline to save up and not buy stuff until they could actually afford to pay for it.
I have paid cash for both of my cars and I got better deals that way anyway. And if you don't have a car note, you can save up money really quickly.
I don't think it is wize to have a debt on an asset that is rapidly losing value, like a car (or a TV, or whatever).
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tankd0g 9:38PM (10/16/2008)
So you're the one who broke the economy.... Funny thing about debt based economies, they kind of rely on people having debt.
psu48187 3:15AM (10/17/2008)
@Jake: Keep telling yourself that.
Why, when one could obtain 0%, 1.9%, or 2.9% loans on an automobile, would someone dump all of their money into something that is a rapidly depreciating asset (especially in the first year or two)? Please explain in detail, especially when that money could have been put towards something that offers a better rate of return.
I've always found it funny how self-proclaimed financial advisors scold folks for not paying cash on big ticket items such as cars, all of which fails to ignore so many variables and the fact that the average car costs somewhere around 25K.
Good for you, you paid cash. Want a cookie?
Jake 9:18AM (10/17/2008)
@psu48187
You don't seem to understand what you are saying. You think that it is good to get a loan on a car that rapidly depreciates in its first and second year and that is better than buying a car?
Buy a two year old car that someone else already lost money on, pay cash. Who wants a bank to own their car? Who wants to write a stupid check to a bank every month for their own car?
And please tell us about the investments that offer so much guaranteed return that they completely mitigate the risk and loss of a car loan.
Thank you
Polly Prissy Pants 6:04PM (10/16/2008)
So....what you're saying is that GM, the company that just launched a new ad campaign to "promote dealer financing with GMAC Financial Services" is paying it's dealers not to use GMAC Financial Services?
http://www.autoblog.com/2008/10/16/gm-launches-new-campaign-to-ease-credit-worries/
And some people wonder why Detroit continues to be a punchline...
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Gabagool 6:15PM (10/16/2008)
Polly look GMAC is just a name, Cerberus own 51%, you may as well call it CerMac.
Also as i wrote previously and i sent the article to Autoblog but they chose to ignore it. According to WSJ 60% of people who buy a GM vehicle have a credit score below 700, so that means beginning NOW 60% of all costumers will be turned down. So the only other way is to get money thru someone else that is why GM is doing this.
DC 7:55PM (10/16/2008)
The saying 'shooting your own foot' couldn't fit better if you tried.
Once again GM, bravo.
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ExMxer 10:09PM (10/16/2008)
Ha Ha! That's what I call confidence in your product!
Encore GM, Encore!
jrhmobile 8:16PM (10/16/2008)
I think GM's attitude is excellent! Cerberus, in power negotiations with GM to buy out it's mistake with Chrysler, tightens the credit reins on GM. It's a control game, pure and simple.
Cerberus is trying to give GM the high, hard one and drive a deal to take GMAC for its own before the government/us bail the finance company out of its mortgage business. Choking off GM credit is Cerberus' way to force the General to take a deal, any deal, and put these venture capitalists/suckers on the money train.
I don't blame GM for paying almost any price to cut these leeches off. In fact, I'm rooting for them to break it off and take Cerberus out. These financial dinks think they hold all the cards, but that's based on the faulty assumption that others are forced to play their game.
Cerberus thinks they're going to win because they have absolute control. It's time these "smartest guys in the room" learn that bargaining from absolute power is only beaten by those bargaining from no power at all.
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jg 9:14PM (10/16/2008)
It's smart business. Right now is not a good time to be in the loan making business.
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