FEDs cut prime, Banks lower rates, What about GMAC?

[MCMLXIX]

NEW YORK (Reuters) - U.S. banks on Wednesday began to lower their prime rate, a borrowing rate that lenders charge their best customers, to 4 percent from 4.50 percent.

Bank of America Corp and JPMorgan Chase & Co, the nation's largest retail lenders, were the first to announce cuts, and rivals are expected to follow.

The decreases came after the Federal Open Market Committee, the policymaking body of the U.S. Federal Reserve, lowered its key overnight rate on loans between banks by 0.5 of a percentage point to 1 percent.

It cited a marked slowdown in economic activity, "owing importantly to a decline in consumer expenditures," in announcing its unanimous decision to cut rates.

Most lending institutions use the overnight rate, known as the federal funds rate, as a benchmark for what they charge consumers for everything from credit cards to home loans.

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If GM wants to sell cars, why wouldn't they offer lower APR rather then raise them. I guess I can understand "better qualified buyers" with a "higher credit score". I am one of the lucky ones with a good score, so why not offer 1.9% or 2.9% right from the beginning. I saw Capitol One offers 5.54% for up to 60 months now but they stipulate excellent credit only. www.bankrate.com

[GOLDDOG]

Yes, GM wants to sell cars. However, GMAC no longer wants to finance cars due to the current economic conditions. This is why GM's current marketing strategy is "We have over 100 banks and credit unions willing to finance". Also, my dealer told me that they receive an extra $50 for people financing elsewhere.

[Inspector 17]

In addition, it was lending to buyers with sub-par credit and their inability to pay when rates and payments went up that go us into this economic mess anyway. For a car company that is struggling a bit to begin with, it makes sense to finance only to those buyers who are low-risk and will be sure to make their payments. GM doesn't need a bunch of defaulted loans on their hands and used Camaros that they need to offload (which will also bring down the value of the new ones they are trying to sell).

Personally, one of the coolest financing options I have ever used is Capital One's Blank Check (http://www.capitalone.com/autoloans/...heck/index.php). You pre-qualify for a specified amount (say $40k). They send you a blank check that you take to the dealer, make it out with the final selling price and put the car's VIN number on. A few weeks later they send you all the final paperwork with you monthly payment based on the amount you wrote the check for (say $32k). Their rates were the best I could find and the process was very easy.

[card21doc]

GMAC is basically out of money, hence they will only loan 700+ scores, and then only invoice, NO EXCEPTIONS. If the money crunch lessens, you will see a gradual lowering of these guidelines as money flows through the system.

As far as the rates go, keep in mind that GMAC pays more for their money than a bank. This is in part to GM's credit rating. They will never be able to compete with a bank. The only way to have 0% etc is if GM subsidizes the rate. In other words a $2000 rebate or a special interest rate. If you elect the special interest rate instead of the rebate, GM will send GMAC money up front to buy the rate down. In most cases, you are financially better off to take the rebate and secure bank financing elsewhere. In any case, I don't expect GM to subsidize the Camaro for quite some time; so secure financing elsewhere on more favorable terms. The money IS out there, and you do not need perfect credit to get it.

[Mr. Wyndham]

GM doesn't control GMAC's actions, as they don't own majority stake....

[card21doc]

Trust me, that's exactly how it works. GM and GMAC"s credit rating is not such that they can get the cheapest money. As far as incentivzed rates, who do you think incentivzes them? GM! Do you think you can go into a bank and get 0% or 2.9% etc?

I would have to go look at my rate sheet at work, but I think the absolute best rate for 60 months through GMAC is 8.75% to the dealer (it is ususally marked up from there.) You can probably get a bank loan for around 5%.

Cerberus controls 51% GM 49%, but when push comes to shove GM controls how GMAC will interact with GM. Witness that while Chrysler (owned by Cerberus) no longer offers leases, GM through GMAC still does. Why? Because that's what GM wanted.

[Dom]

The rest of GMAC might be sold to Ceberus in exchange for Chrysler.

[card21doc]

You're correct. GM is trying to find an alternate way because they do not want to lose GMAC. If the government would have financed the merger, GMAC would have been saved. Now, I'm not so sure.

[Tom Henry Racing]

Originally Posted by card21doc

Trust me, that's exactly how it works. GM and GMAC"s credit rating is not such that they can get the cheapest money. As far as incentivzed rates, who do you think incentivzes them? GM! Do you think you can go into a bank and get 0% or 2.9% etc?

I would have to go look at my rate sheet at work, but I think the absolute best rate for 60 months through GMAC is 8.75% to the dealer (it is ususally marked up from there.) You can probably get a bank loan for around 5%.

Cerberus controls 51% GM 49%, but when push comes to shove GM controls how GMAC will interact with GM. Witness that while Chrysler (owned by Cerberus) no longer offers leases, GM through GMAC still does. Why? Because that's what GM wanted.

GMAC does offer leases but the rates are so high that in effect they are useless. GM is offering the dealers more rebate money so we can use outside banks to accomplish the same payment as a subvented rate.

[card21doc]

Bingo! Correct on both counts. Of course I don't look for the Camaro to have rebates for at least the first year.

[350 HRSS]

Originally Posted by camaropete

In addition, it was lending to buyers with sub-par credit and their inability to pay when rates and payments went up that go us into this economic mess anyway. For a car company that is struggling a bit to begin with, it makes sense to finance only to those buyers who are low-risk and will be sure to make their payments. GM doesn't need a bunch of defaulted loans on their hands and used Camaros that they need to offload (which will also bring down the value of the new ones they are trying to sell).

Personally, one of the coolest financing options I have ever used is Capital One's Blank Check (http://www.capitalone.com/autoloans/...heck/index.php). You pre-qualify for a specified amount (say $40k). They send you a blank check that you take to the dealer, make it out with the final selling price and put the car's VIN number on. A few weeks later they send you all the final paperwork with you monthly payment based on the amount you wrote the check for (say $32k). Their rates were the best I could find and the process was very easy.

Thanks for that link, that is very cool...I may look into that option!! Hope it sticks around for a while!

[Croathlete]

If you can find a good credit union close by, they usually have lower rates than banks.

[Inspector 17]

Originally Posted by 350 HRSS

Thanks for that link, that is very cool...I may look into that option!! Hope it sticks around for a while!

You are welcome! I used it in 2003 to buy a Harley. Since it has been around for at least 5 years, then I would guess it will make it at least another year or so.

[350 HRSS]

My local credit union is doing 5% on all 07+ models....I will probably wait until Feb. before I do anything w/ a loan....I am hoping rates will be even better by then....