Tight money could send GM into bankruptcy

The head of the California Auto Dealer Association warned that as many as 40 percent of California consumers wouldn't qualify for an auto loan under new stricter guidelines announced by GMAC last week and that many General Motors Corp. dealers could be forced into bankruptcy. If they lose 40% of their sales GM may as well file for bankruptcy now.

In a letter late Monday to GMAC CEO Alvaro G. de Molina, the California auto dealers president and CEO Peter Welch warned that GMAC's curtailment of financing for dealers stock — called floor plan financing — would put dealers out of business. "Unless immediately stopped, GMAC's actions will directly lead to insolvency of a number of our GM dealer members and will significantly erode GM's California market share," Welch wrote in the letter that also went to Treasury Secretary Henry Paulson and a top Cerberus Capital Management LP official, William Richter. "At a time of their greatest need, our GM dealers feel completely abandoned by GMAC's rogue actions," according to the letter

GMAC said last week it was hiking interest rates it provides dealers for non-incentivized loans by 75 basis points.

The company said the decision to limit loans to the most creditworthy customers was based on "the lack of stability in the global capital and credit markets." GMAC's decision to restrict financing to customers with credit scores of 700 or higher "will leave 40 percent of Californians with no GMAC financing option. A large number of California's ethnically diverse population is contained within the 40 percent market share that GMAC has decided to shun."