Midwest credit unions pledge $10B in car loans

11-dec-2008

A consortium of credit unions in four Midwestern states is pledging $10 billion in loans to car buyers and teaming with General Motors (GM) to offer special discounts to boost car sales.

The group, made up of 1,200 credit unions in Michigan, Ohio, Indiana and Illinois, said Wednesday that it will offer its members a "supplier discount" plus $250 off the price of GM vehicles.

"Access to credit is a huge deal in America right now," said Mark LaNeve, GM vice president for North American sales, in a conference call with reporters. "Our industry has been hard hit, which runs on credit all the way through to the consumer."

A supplier discount is about 5% off the sticker price of a vehicle, LaNeve said, and can be applied in addition to any other discounts and incentives offered.

The program runs through June 30 and, depending on the results, may be launched nationwide in early 2009, the credit union group said.While the supplier discount is exclusive to GM, the $10 billion the credit unions are pledging can be used to finance a car purchase from any automaker, said David Adams, chief executive of the Michigan Credit Union League.

GM has been working furiously to lift its vehicle sales, which are down 22% for the first 11 months of the year. It launched its annual Red Tag sale earlier than normal this year, and it's allowing salaried workers and retirees to extend employee discounts to non-employees.

Adams said credit unions have proved less vulnerable to the credit crisis, and financing rates from credit unions run about 1 percentage point less than rates from conventional banks. Borrowers who want to buy a car now from the group's credit unions can expect rates of 4.5% to 5.5%, he said.

"It's tough for banks and other lenders to extend credit to consumers with lower credit scores," Adams said, adding that credit unions are "better positioned to offer access to credit to many people who otherwise would not be able to qualify for a loan."

LaNeve said the credit union loans will not compete with loans offered by GMAC, which is struggling to raise capital to become a bank holding company and qualify for the government's $700 billion bank rescue plan. "If GMAC fully recovers from the distress that they're in right now … we'll still love this partnership and would have done it."

source: http://www.usatoday.com