After GMAC Financial Services' broad retreat last week from auto lending, General Motors dealers were trying to plug the gap with banks, credit unions and independent finance companies.
GMAC said it would lend money only to consumers with credit scores of 700 or above — low-risk prime customers — and raise rates, too. The changes disqualify up to three-fourths of some dealers' shoppers.
"That, in effect, puts GMAC out of the retail finance business," says Ken Cooper, sales manager of Alex Chevrolet Inc. in Charles Town, W.Va. "GMAC used to be there for us all the time when things were good or bad. Now they float with the wind."
The GMAC pullback means opportunities for other lenders, such as banks and credit unions. But the frozen credit markets mean that whatever the source, auto loans will be expensive and availability limited for those with poor credit scores.
GMAC added three-quarters of 1 percentage point to the buy rate — the interest rate it charges dealers to provide auto loans to consumers. Rates vary around the country, but dealers say the increase pushes GMAC's buy rates to as much as 2.5 percentage points above rates of competing lenders.
In Cooper's market, GMAC's best buy rate is about a percentage point higher than competitors' — 7 percent, compared with 6 to 6.25 percent — on five-year loans for customers with an ideal credit score and profile.
Dealers make money on the deals by charging consumers a rate above the buy rate. The profit-generating spread between the two typically is between 0.75 and 1.5 percentage points.
On a five-year, $20,000 loan, 1 percentage point adds about $10 to the monthly payment.