Tony O'Kane | Apr 2, 2009

As part of a push to defibrillate flatlining new car sales in the USA, General Motors' financial arm GMAC has slashed fees, cut or delayed repayments and - somewhat worryingly - recommenced sub-prime lending.

Sub-prime lending, as most of you are probably aware, is the practice of approving loans for customers who would not ordinarily be approved, such as low-income earners or those with a high amount of pre-existing debt.

The practice of sub-prime lending is also widely agreed to be one of the chief causes of America's current economic woes.

GM dealership forecourt

But GM needs more showroom traffic, and if lending out money to someone who might not pay it back is one way to get 'em coming through the doors, then GMAC would seem to be prepared to take the risk.

GMAC will free up an extra $5 billion USD over the next 60 days to accommodate these new loans, with additional car financing packages made available to buyers of both new and used vehicles.

The new loan arrangements are in addition to GM's recent pledge to guarantee car buyers' loans in the event of job loss.

GMAC will also be cutting fees and repayments for dealers in order to help them clear unsold inventory, but is the finance company flirting with disaster by reviving sub-prime loans?

GMAC, owned by GM and privaty equity firm Cerberus Capital Management, recently returned to profitability after receiving a $6 billion bailout from the US Government late last year. But, as recent history tells us, lax lending practices can quickly fell even the healthiest of corporations. We'll be watching this one closely.

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