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GM: Lack of credit arm holds back U.S. car sales

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GM: Lack of credit arm holds back U.S. car sales

Dan Strumpf and Tom Krisher / Associated Press

Detroit -- Even if your credit isn't good, General Motors Co. wants to sell you a car.

The problem is, it can't. At least not in big numbers. That's why the automaker wants more control over its lending again.

GM's top North American executive, Mark Reuss, under pressure to quickly sell more cars and boost GM's value as it gets ready to sell stock to the public, said a shortage of subprime lending is holding back sales in the United States

But the automaker's main lender, Ally Financial Inc., has little appetite for risky loans, having spent the last few years cleaning up its own financial mess caused mainly by its failing mortgage lending business. Both companies are majority-owned by the U.S. government.

For decades, GM owned Ally, writing its own loans through the "captive finance arm." Nearly every automaker makes loans in such a fashion. But a cash-starved GM sold most of Ally -- formerly known as GMAC -- in 2006.

GM and Ally now have a loose partnership that gives Ally control over who gets a car loan. If GM returned to auto lending -- either through buying Ally's auto business or starting its own in-house lending unit -- it could set lending standards itself. That could benefit the automaker by allowing it to extend loans to people with weaker credit and to more lease customers.

"There's a real sense of urgency on GM's part to maximize its sales" as it gets closer to the stock offering, said Kirk Ludtke, senior vice president of CRT Capital Group in Stamford, Conn.

About 16 percent of new-vehicle loans written in the fourth quarter of 2009 were to customers with below prime credit, according to credit agency Experian. That means they went to customers with credit scores below 620 on a 300-to-850-point scale.

Reuss, president of GM North America, would not say outright if the automaker was looking to set up its own financing operation. But he said last week that one need only to look at auto loan data to find plenty of good reasons for GM to have control of its own financing.

For example, Honda Motor Co. gets 20 percent of its sales and leases from subprime buyers, he said. GM, on the other hand, gets only 1 percent because it can't access the money to lend to those customers.

"They're 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."

During the recession, lending to subprime customers tumbled as the credit markets froze and delinquencies spiked. Leasing also ground to a halt as the resale values of cars plunged.

Ally has been wary of resuming lending to risky customers. After GM sold a majority stake in Ally, the lender became heavily involved in the subprime mortgage boom, a move that nearly bankrupted the company when the housing market collapsed. Ultimately, the federal government has spent $16.3 billion to bail out the lender, leaving taxpayers with a 56 percent stake in the former GMAC.

From The Detroit News: http://www.detnews.com/article/20100517/AUTO01/5170333/1148/GM--Lack-of-credit-arm-holds-back-U.S.-car-sales#ixzz0oBxEgxDu

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