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GM cuts financing costs as GMAC expands lending

NEW YORK (Reuters) - General Motors Corp and its financing affiliate GMAC on Tuesday announced programs to make it easier for car and truck buyers to get financing, a day after GMAC agreed to sell the government a $5 billion stake.

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Through January 5, GM will offer interest rates of zero percent to 4.9 percent on loans of up to five years on various 2008 model year vehicles, and 3.9 percent to 5.9 percent on some 2009 vehicles. Many of the vehicles also carry cash discounts of $500 to $4,250.

The move is a bid to capitalize on GMAC’s separate plan to provide auto financing to more U.S. consumers. GMAC will extend loans to retail buyers with credit scores of 621 or higher. In October it had restricted loans to borrowers with scores of 700 or higher.

Many analysts consider borrowers with credit scores of 620 or lower to be “subprime.” Dealer wholesale financing is unchanged, GMAC said.

GMAC is owned by GM and private equity firm Cerberus Capital Management LP.

The changes may help bolster sales at GM, the nation’s largest automaker, following a 41 percent plunge in November.

GMAC has traditionally provided the bulk of financing for GM’s retail customers and the floorplan financing that dealers rely on to carry car and truck inventory.

Mark LaNeve, GM’s sales and marketing chief, said the lower financing costs will encourage customers to “get back into the game.”

The zero percent financing is limited to buyers of the slow-selling sport-utility vehicles Chevrolet TrailBlazer and GMC Envoy, and three Saab models.

On Monday, the U.S. Treasury Department agreed to buy $5 billion of senior preferred equity in GMAC, and lend up to $1 billion to GM to aid in GMAC’s reorganization as a bank holding company. That reorganization won Federal Reserve approval on December 24 and should reduce GMAC’s borrowing costs.

GMAC is the latest non-bank financial company to qualify for help under the Treasury Department’s $700 billion Troubled Asset Relief Program.

The sums are in addition to the possible $17.4 billion that the government committed on December 19 to help GM and Chrysler LLC avoid possible bankruptcy. Cerberus also owns a majority of Chrysler.

“Federal aid to GMAC suggests the government is probably now so financially entangled in the GM complex that a Chapter 7 liquidation of (GM’s auto operations) seems highly unlikely,” JP Morgan analyst Himanshu Patel wrote.

U.S. auto sales have plunged to 25-year lows and are not expected to recover substantially before 2010.

In morning trading, GM shares rose 38 cents, or 10.6 percent, to $3.98.

The cost of insuring $10 million of GMAC debt against default for five years fell to $1.6 million upfront plus $500,000 annually, from $2.15 million upfront, according to CMA DataVision. Credit default swaps for Ford Motor Co’s finance arm also declined.

Reporting by Kevin Krolicki in Detroit and Jonathan Stempel in New York; Additional reporting by Dena Aubin in New York; editing by John Wallace

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