GM Aims To Drive Sales With Incentives
Wednesday, December 31, 2008
No longer teetering on the brink of bankruptcy, General Motors is tackling its next financial challenge: convincing people to buy cars again.
GM's financing arm, GMAC, detailed plans to increase lending to a broader range of car buyers yesterday, just hours after the Treasury Department said it would invest $6 billion to stabilize the troubled company. Meanwhile, the automaker announced that it would offer financing as low as zero percent for up to five years on select new cars and trucks in a year-end push to lift sales. Some vehicles will have cash rebates of as much as $4,250.
The announcements come as GM attempts to battle a severe slump in sales. That slump -- sales dropped by 41 percent in November -- has been blamed on a host of factors, including the country's economic downturn and consumer fears about buying brands that the ailing U.S. automakers might soon be forced to eliminate.
Consumers interested in buying cars often have had difficulty obtaining necessary loans because of the credit crunch.
Yesterday, GMAC said it would try to make those purchases easier by offering financing to customers with credit scores above 620, ending a policy announced in October of lending only to customers with credit scores above 700. The change expands eligibility for GMAC loans from about 60 percent of the adult population to about 80 percent, based on the distribution of credit scores.
The announcement also marked an attempt by GMAC to demonstrate that the investment from the government would help the broader economy. Other recipients of government investments, mostly banks, have declined to provide such detailed accounts of how they would increase lending.
"The actions of the federal government to support GMAC are having an immediate and meaningful effect on our ability to provide credit to automotive customers," GMAC President Bill Muir said in a statement.
As the economy improves, GM said in a separate statement, the company would consider returning to the leasing business. Automakers have scaled back their leasing programs because the practice became too expensive, thanks to the plummeting resale value of gas-guzzling trucks and sport-utility vehicles.
GM stock jumped about 6 percent to close at $3.80 yesterday.
"Little things like this help," said Michael Martin, owner of two Virginia dealerships and a board member of the National Automobile Dealers Association. "I'm not saying this will be fixed overnight, but this is a step forward for us."
Indeed, the automaker still faces a host of challenges. In accepting as much as $13.4 billion in emergency aid from the government earlier this month, GM agreed to undertake what could prove to be a painful corporate restructuring. Plus, the market for automobiles is expected to remain tough. Many analysts say consumers won't be buying vehicles at normal levels until 2010.
Chrysler, the other recipient of the Treasury Department's bailout, has concentrated on saving its cash. Yesterday, the company said it had canceled its annual reward meeting for top dealers for the first time in decades. The meeting had included an all-expenses paid trip to Mexico in March.
"It was a decision made by the dealer council and our leadership together in fall," said Chrysler spokesman Stuart Schorr. "Based on a shared recognition of the difficult market conditions and challenges the company faces, both sides thought it was prudent not to have the meeting."
Ford, which currently is financially stable without federal aid, unveiled technology yesterday that can parallel-park Lincoln MKS sedans and crossovers with the touch of a button -- without a driver touching the steering wheel.