Car dealers hoping for a pickup in sales from deals juiced with bailout money


January 04, 2009|By JAY HANCOCK | JAY HANCOCK,

Credit markets for housing are loosening up a bit. Will automobile lending be next?

Car dealers certainly hope so.

Thanks partly to the decline in consumer spending power and partly to the evaporation of credit, 2008 was the worst year for auto sales in a very long time. Maryland dealers sold 16,842 new cars in November, down 38 percent from November 2007 and the worst result for any month in more than a decade.

But dealers hope that federal bailouts will do for car loans what they're starting to do for home loans. Mortgage rates have fallen more than a percentage point on news that Washington will start buying mortgage-backed securities. On Wednesday Freddie Mac announced that interest on a 30-year, fixed-rate house loan had fallen to 5.1 percent, the lowest at least since 1971.

Automobile loans got a boost last week when GMAC, the affiliate that accounts for most of General Motors Corp.'s financing, got a $6 billion capital injection from the government.

GMAC immediately said that it would start making car loans to borrowers with credit ratings higher than 620 - a subprime score that illustrates the difficulty of reviving lending without creating new bad debt.

In another bailout facility, Washington intends to lend money to hedge funds and other investors who buy securities backed by auto and other consumer loans. The idea is to provide capital for new loans by taking the old ones off primary lenders' books.

Car dealers are already offering pretty good financing. In coming weeks the deals should get even better.

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