Articles Directory | Free Articles | New Articles Daily

Car shoppers hoping to obtain a car lease from General Motors without high credit scores might be getting some traction, according to news reports about shifts in lending practices from the big carmaker.

GM’s new captive finance company, GM Financial, announced in February that it is looking to expand its prime lease program to near-prime and subprime customers, Car Finance News (AFN) reports.

By providing car loans and leases to consumers with a broader range of credit scores, GM will sell more cars, according to the carmaker’s release on the news, which dovetails with GM’s announcement last year that a shortage of subprime car loan lending was holding back sales in the U.S, according to AFN.

At that time, GM's top North American executive Mark Reuss said that Honda was getting 20 percent of its sales and leases from subprime buyers. GM was getting only 1 percent because it couldn't access the money to loan to those customers.

"They're able to finance their cars at a much lower level than we are," Reuss said in May, 2010. "I'm not sure what the answer is. But it would sure help my sales, the company's sales in North America, if we were able to get access."

Now that GM has purchased AmeriCredit to help fund car loans for its subprime buyers, it makes sense that GM Financial would want to expand leasing options for subprime shoppers as well. With the economy still in a holding pattern across much of the U.S., more borrowers are dealing with attempting to obtain personal loans for cars and mortgages on less than good credit, and often with little more than an unemployment check to show for income.

"We recently launched our prime lease program for GM dealers in December 2010, and it was very well-received by dealers," Caitlin DeYoung, VP of investor relations, told SubPrime Car Finance News. "We have since made the program available to GM dealers in 15 additional states and look for the lease program to be available nationally by this summer. We are looking to expand our prime lease program to near-prime and subprime customers and plan to expand the program to Canada this year. We are committed to providing dealers more financing options and will continue to look to develop other programs and products to help dealers sell more vehicles."

It's no secret that GM executives want to give customers more borrowing options as a way to spur sales. Since emerging from bankruptcy in July 2009, GM has trailed rivals—most of whom own an in-house lender—in selling cars to consumers with subprime credit and in leasing. AFN says this is precisely why GM bought Fort Worth subprime lender AmeriCredit in July and renamed it GM Financial. The unit more than doubled loan origination in the fourth quarter, to $935 million. "We're beginning to close this [gap] because we have competition between GM Financial and Ally," GM North American President Mark L. Reuss said at a January investor conference, noting that the presence of GM Financial was spurring Ally to make more subprime loans.

For those not familiar, Ally Financial is a former subsidiary of GM. Ally, GM officials say, doesn't want to drive Ally out of the business. Its dealers rely on Ally to lend to their customers. More important, Ally provided 82.1 percent of the money GM dealers used to stock showrooms in the fourth quarter—so-called floor-plan loans. Currently, Ally offers dealers rates as low as 2.25 percent on such loans, says Durant, the dealer in Grapevine. With a junk credit rating and no access to bank deposits, GM would have a hard time offering such low rates, Keller says.

At the same time, GM is starting to boost its leasing and subprime lending, according to AFN. GM Financial started a trial leasing program in Ohio in December and expanded it to seven Northeastern states in January, GM Vice-President of U.S. Sales Don Johnson said on Feb. 1.