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GMAC Freeing Up Credit, But Will It Make More People Buy?

This is the bailout that won't get nearly as much attention as it should. Monday night, the Treasury Department agreed to lend GMAC $6 billion out a new TARP fund set up to specifically help the struggling auto industry. This move, along with GMAC getting bank holding status last week are two huge steps in reviving a struggling auto industry. They may not be sexy moves, but they are critical moves.

Why?

Well, this is the start of unfreezing the credit markets that have kept people from buying cars and dealers from expanding their inventories. The additional capital gives GMAC flexibility to offer auto loans to a wider number of people. In fact, GMAC has immediately dropped the minimum credit rating customers needs for an auto loan. It's now 621 or above. That's a substantial improvement compared to the 700 minimum score GMAC has required the last two months.

While more people may be eligible to get a loan through GMAC, it doesn't mean auto sales will immediately rebound. Sure, there should be more people getting cars and trucks through GM dealers. Heck, it's estimated GMAC's tighter credit requirements cost GM dealers at least 25,00-45,000 sales in the last two months. So there is no doubt, more people will be driving off the lot, but this is just the start of what GM and dealers need.

The biggest impact on sales will happen when consumer confidence improves. That will take much longer to fix than unfreezing GMAC's credit lines. Potential buyers are spooked, and who can blame them? The steady drum beat of job cuts, falling house prices, and a stock market on the fritz have people afraid to pony up for a new car or truck. Frankly, I can't blame them. A few months ago, I paid off my car loan and right now, the idea of getting a new car and loan payment is something that makes me cringe.

I'm sure that will change at some point in the future. When? Who knows. For now, I'll take the news of GMAC's new status and lending plans as a hopeful sign things will improve for auto makers and dealers in '09.

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