As GMAC, Chrysler Financial, and FordCredit, the lending arms of the Big Three auto makers, tighten credit standards, auto sales have plunged to their lowest level in almost 25 years.
As GMAC, Chrysler Financial, and FordCredit, the lending arms of the Big Three auto makers, tighten credit standards, auto sales have plunged to their lowest level in almost 25 years. GMAC, for example, has all but ended its vehicle leasing program and will extend credit only to borrowers who have a FICO score of 700 or higher. That puts Detroit car makers at a disadvantage against foreign companies like Toyota, which has a far healthier credit division.
To level the auto-loan playing field, both GM and Chrysler have teamed up with credit unions in several states to provide potential car buyers with loans. GM recently announced an agreement with a consortium of close to 1,300 credit unions in Michigan, Ohio, Indiana, and Illinois to provide their 12 million members with up to $10 billion in auto loans. Chrysler has launched a similar program, expanding it to include eight more states—Oklahoma, Texas, Mississippi, New Mexico, Kentucky, Arkansas, Tennessee, and Louisiana. The program could possibly go nationwide in 2009.
In addition to landing an otherwise hard-to-get auto loan, credit union members who qualify will get other goodies. The interest rate on credit union car loans, for example, averages 5.4% compared to an average bank loan rate of 6.9%. Credit union members will also get a break on the price of their new car: both GM and Chrysler are offering them significant discounts and cash incentives.