GM, GMAC ease lending rules to entice car buyers

NEW YORK/DETROIT (Reuters) - General Motors Corp and its GMAC funding affiliate launched programs on Tuesday to lure U.S. car and truck buyers back into showrooms as the largest U.S. automaker tries to revive its sagging fortunes.

GM began offering zero-percent financing on some models, and GMAC resumed lending to a wider range of potential customers, after the government said it will inject billions of dollars to help ensure that both survive.

The changes came a day after the U.S. Treasury Department agreed to take a $5 billion stake in GMAC, and lend GM as much as $1 billion to support the lender. The measures may also bolster GM's sales, following a 41 percent plunge in November that resulted in part from customers' inability to obtain financing.

GM was forced to curb incentives as GMAC slashed lending in the wake of $7.9 billion of losses over 15 months, largely tied to soured mortgages in its Residential Capital LLC unit.

Through January 5, GM will offer zero percent to 4.9 percent financing on loans of up to five years on some 2008 model-year vehicles, and 3.9 to 5.9 percent on some 2009 vehicles. Many of the vehicles also carry cash discounts of $500 to $4,250.

GMAC, meanwhile, will extend loans to retail buyers with credit scores, known as FICO, of 621 or higher. In October, it had restricted loans to borrowers with scores of 700 or higher.

Many analysts consider borrowers with credit scores of 620 or lower to be "subprime." The median U.S. credit score is 723, according to Fair Isaac Corp's myFICO unit.

"The bottom line is much better access to funding," said Mark LaNeve, GM's vice president for North American sales, on a conference call with reporters. He said GMAC may now be able to fund 75 to 80 percent of new vehicle purchases, up from 40 percent since October.

GMAC has traditionally provided the bulk of financing for GM retail customers, and also financing that dealers rely on to carry vehicle inventory.

The lender is owned by GM and private equity firm Cerberus Capital Management LP, and the government financing will result in both reducing their ownership stakes.

GOVERNMENT HELP MAY HELP

On Monday, Treasury agreed to buy $5 billion of senior preferred equity in GMAC. It also agreed to lend GM up to $1 billion to let it take part in a rights offering to support GMAC's reorganization as a bank holding company, which won Federal Reserve approval on December 24.

GMAC is the latest non-bank financial company to qualify for help under the Treasury Department's $700 billion Troubled Asset Relief Program.

The $6 billion of financing is in addition to a potential $17.4 billion that the government committed on December 19 to help GM and smaller rival Chrysler LLC avoid possible bankruptcy. Cerberus also owns a majority of Chrysler.

"Federal aid to GMAC suggests the government is probably now so financially entangled in the GM complex that a Chapter 7 liquidation of (GM's auto operations) seems highly unlikely," JPMorgan analyst Himanshu Patel wrote.

GM's zero-percent financing is limited to buyers of the slow-selling sport-utility vehicles Chevrolet TrailBlazer and GMC Envoy, and three Saab models.

Rivals such as Toyota Motor Corp and Nissan Motor Co have offered similar financing on some vehicles.

LaNeve said GM's December sales were up "considerably" from November's depressed levels. He also said the automaker was considering a return to auto leasing, credited with supporting sales industrywide from 2000 until about 2006.

U.S. auto sales have plunged to 25-year lows. Analysts do not expect them to recover substantially before 2010.

In afternoon trading, GM shares rose 17 cents to $3.77 on the New York Stock Exchange.

The cost of insuring $10 million of GMAC debt against default for five years fell to $1.4 million upfront plus $500,000 annually, according to Phoenix Partners Group, compared with $2.15 million upfront on Monday.

Credit default swaps for Ford Motor Co's finance arm also declined.

(Reporting by Kevin Krolicki in Detroit and Jonathan Stempel in New York; Additional reporting by Dena Aubin in New York; editing by John Wallace, Patrick Fitzgibbons and Matthew Lewis)