GM ads to tell buyers they can still get loans

updated 8:04 p.m. ET Oct. 15, 2008

DETROIT - With October auto sales expected to fall short of September’s 15-year low, General Motors Corp. is launching a campaign this week to reach people who have stopped looking for cars out of fear that they can’t get a loan.

Many banks and finance companies, including GM’s own GMAC Financial Services, have tightened credit standards because they can’t borrow money to lend, or they’re reluctant to lend and risk defaults. “But that doesn’t necessarily mean you can’t get a car loan if you want to get a car loan,” GM spokesman John McDonald said. “We just want consumers to know that you have options that you may not be aware of.”

GM will promote its financing options with radio, newspaper and digital advertising from Friday through Nov. 3. The program, called “Financing that Fits,” will publicize a 6-year-old computer database that lets dealers locate banks, credit unions and other lenders willing to make loans based on a particular buyer’s credit information.

GMAC said Monday it would only make auto loans to people with credit scores of 700 or above. That, coupled with numerous news stories about people getting turned down for car loans, has kept customers away from showrooms, according to industry analysts.

Several analysts are projecting October U.S. sales to be lower than in September, when automakers sold fewer than 1 million vehicles for the first time in 15 years. Some dealers have reported losing 20 percent of their sales as buyers get turned down for loans after agreeing to purchase vehicles.

“I think the industry has been so paralyzed by the mistaken impression by the public that they can’t get an auto loan that they have to go to pretty drastic measures to counter that,” said Jack Nerad, executive market analyst for Kelley Blue Book.

GM, analysts say, has to fight the overall impression that there’s no credit, plus tighter credit standards from GMAC. GM sold 51 percent of GMAC to Cerberus Capital Management LP in 2006 but still owns the rest.

“They can’t really rely on GMAC any more,” said Rebecca Lindland, an auto industry analyst with the consulting company Global Insight. “That’s where the dealer has to be able to step up and get local financing, using their local contacts.”

GMAC appears to be abandoning dealers and getting out of the auto loan business altogether, said John Clark, president of Avenue Chevrolet in Batavia, Ill., a Chicago suburb.

“In the past, GMAC was there rain or shine. As of now, I don’t feel that way. I feel that they may not be around because they can’t borrow,” he said.

Clark said he’s upset that GMAC strayed from auto loans into mortgages that have defaulted, leading to its current financial problems.

GMAC spokeswoman Gina Proia said the auto loan changes it has made “are related to the current market environment, which has reduced access to funds and increased the cost of funds.”

GMAC as well as the “captive” finance arms of Ford Motor Co. and Chrysler LLC, face major hurdles because of the credit market downturn, and those problems are unlikely to end this year, according to a report issued Wednesday by the Standard & Poor’s ratings service.

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