GM works with banks to fund more car sales to people with poor credit

GM looks to banks to finance more subprime buyers

DETROIT — General Motors Co. is looking to boost auto sales by lining up banks and other financial institutions to make loans and lease deals for buyers with poor credit.

The talks lessen the likelihood of GM trying to buy the auto finance business of Ally Financial Inc., its main lender. They also make it less likely that GM would start its own auto financing unit.

GM considered both options earlier in the year because Ally was reluctant to fund loan and lease deals to buyers with subprime credit. About 16 percent of loans for new cars and trucks went to subprime buyers in the fourth quarter of last year, but because of Ally’s reluctance to lend to them, GM was unable to tap that market.

Subprime buyers are customers with credit scores below 620 on a 300-to-850-point scale.

“We are developing relationships with other financial sources on a selective basis for specialized financing needs, such as leasing and subprime financing.” GM spokeswoman Renee Rashid-Merem said Wednesday.

GM continues to work with Ally, which used to be GMAC Financial Services, and it already has relationships with many banks and credit unions, Rashid-Merem said.

The automaker’s sales are up about 15 percent through the first five months of the year, but they trail the increase for the overall U.S. industry by more than 2 percent. Crosstown rival Ford Motor Co. has seen its sales rise 30 percent compared with the first five months of last year.

Mark Reuss, GM’s North American president, said in an interview last month that GM would like to tap into the subprime credit market to help lift sales. He said GM gets only 1 percent of its sales from subprime buyers, while Honda Motor Co. gets about 20 percent because it has better access to lending.

The U.S. Treasury Department would not comment Wednesday on GM’s quest for more subprime buyers or its search for other lenders.

Ally Financial, which finances about 34 percent of GM’s auto loans, lends money mainly to buyers considered to have prime credit, but it is starting to do more subprime loans as the economy recovers, said Ally spokeswoman Gina Proia. She said Ally does not normally release what percentage of its loans go to prime or subprime buyers.

Automakers with their own finance companies can tell them to make more subprime loans to boost sales, but GM has to negotiate with Ally because it’s separate company responsible for protecting its own assets. That leaves GM at a disadvantage to other automakers.

GM sold a 51 percent stake in Ally’s predecessor, GMAC Financial Services, in 2006 when it was starved for cash. The new owners, led by private equity firm Cerberus Capital Management LP, ran into trouble in 2008 with bad mortgage loans and had to be bailed out by the U.S. government, which now owns 56 percent of the former GMAC. The government named Ally the lender of choice for both GM and Chrysler.

The government loaned GM roughly $50 billion, of which GM has repaid $6.7 billion. The rest was converted to equity in the automaker, which is now 61 percent government-owned.

Associated Press Writer Ken Thomas in Washington, D.C., contributed to this report.