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GMAC resumes subprime lending

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GMAC has loosened the purse strings, with General Motors' finance arm allocating $6 billion for auto loans for the next 60 days. The 60 day mark is critical to GM, as it is the government's drop-dead date to satisfy Auto Task Force viability requirements. The cash infusion will help struggling dealers with dried up credit channels, but it will also be used to finance cars and trucks to people with credit scores under 620. The under 620 crowd is referred to as subprime, a term that is now synonymous with the words "bailout" and "recession."

Back in October, GMAC restricted lending to customers with scores over 700, and when the U.S. government provided a $6 billion in loans, the minimum score was lowered to 620. GMAC insists that the under 620 score would be approved sparingly, and buyers would still be required to qualify for financing. NADA chairman John McEleney says that the lowered credit score minimum could result in the ability to help 30-35% more Americans get into a new car or truck. And while overplaying the subprime card can lead to more trouble, at this point, the General clearly has to do something to get metal moving again.


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At this point, does it matter?

Not quite as much. The leading indicators indicate an economy that is pulling itself out of a recession (hence the strong stock market performance). This means that this sub prime lending may not cause all that much harm provided they reign in the ties relatively soon.

This will be beneficial to GM for the time being.

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