GMAC Ceases Auto Loans, Leases In Parts of Europe

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NEW YORK -(Dow Jones)- GMAC Financial Services said Tuesday it is tightening its lending standards in Europe, making it harder for financially-strapped consumers to get loans to buy cars and trucks.

Starting November, GMAC, the finance arm of auto maker General Motors Corp. ( GM), will no longer extend auto loans or leases to consumers in over half-a- dozen countries in Europe. The move comes on the heels of stricter lending standards in the U.S.

The tightening is fueled by a combination of losses at the once-lucrative financing unit and its efforts to shore up capital amid the current funding drought. The credit crunch is likely to further dent already tepid new auto sales, as borrowers have restricted access to funds. U.S. auto sales for October are expected to tumble about 29% to their lowest level in nearly 17 years, according to car-shopping Web site Edmunds.com.

GMAC said Tuesday it will cease lending to consumers in Czech Republic, Finland, Greece, Norway, Portugal, Slovak Republic and Spain.

"These are actions we didn't take lightly but due to constrained access to funding, we've taken steps to better align operations with available funding sources," said Gina Proia, a spokeswoman at GMAC. "We're taking measures to manage capital and funding resources in the face of extremely difficult market conditions."

The finance arm will continue lending to borrowers in 11 other countries in Europe, including U.K., Poland, Italy, France, Switzerland and Belgium - but will implement a more conservative pricing policy.

In addition to tightening credit to consumers, GMAC has also increased the rates it charges on loans to its European dealers. These rate hikes will be effective Nov. 1.

These moves come amid merger talks between General Motors and Chrysler LLC and concerns that the firms could run out of cash.

Earlier this month, GMAC tightened lending standards for U.S. borrowers, restricting auto loans to consumers with a credit score of 700 or higher. In addition, GMAC is also scaling back on longer-term loans, or those longer than 60 months, and demanding higher down payments from borrowers.

In recent quarters, the value of GMAC has fallen dramatically due to its exposure to risky home loans, car loans and leases. Because of constrained capital, GMAC and other lenders, such as Chrysler Financial, which finances Chrysler vehicles, have tightened lending standards in recent months. As these once-lucrative financing units are racking up losses and struggling to raise funds themselves, they are scaling back in an effort to shore up their balance sheet.

The credit tightening happened just as these lenders, along with Ford Motor Credit, the financing arm of Ford Motor Co. (F), decided to pull out or curtail the risky practice of leasing vehicles, which had long represented about 20% of new-vehicle financing arrangements. The combination of tougher-to-get loans and absence of leasing stung auto makers during the summer selling season.

The growing credit crunch has also prompted these finance companies to get tougher on dealers with weak finances, raising their rates and fees for some. This makes it costlier for dealers to buy cars, eroding their margins. In addition, dealer inventories are getting leaner, meaning potential car buyers have fewer options to choose from.

GMAC is part-owned by GM after a consortium led by private-equity firm Cerberus Capital Management LP, parent of Chrysler, bought 51% of GMAC from the auto maker in 2006 for about $14 billion.

Shares of GM closed Tuesday at $6.25, up 14.68% or 80 cents, while Ford Motor shares traded at $2.15 up 12 cents or 5.91%.