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GMAC Quiet On Fed Deal

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The Associated Press

Published: December 28, 2008

GRAND BLANC, Mich. - Even after a crucial deadline came and went, the financing arm of General Motors Corp. remained silent Saturday on whether it cleared a final hurdle to become a bank holding company and gain access to billions in federal bailout money.

Analysts have speculated that if GMAC Financial Services doesn't obtain financial help it would have to file for bankruptcy protection or shut down, which would be a serious blow to parent GM's own chances for survival.

GMAC received the Federal Reserve's approval to become a bank holding company last week, but the approval was contingent on the ailing auto- and home-loan provider completing a complicated debt-for-equity exchange by 11:59 p.m. Friday.

In an e-mail early Saturday, GMAC spokeswoman Gina Proia did not provide any specifics.

"The offer did expire yesterday at 11:59 p.m. as planned. We have not yet issued final results but intend to in the near term. I have no further comment on the exchange until then," she wrote.

Becoming a bank holding company would qualify GMAC to access the government's bank rescue funds, while supporting GMAC loans to car buyers and GM dealerships. GM owns 49 percent of GMAC.

The Federal Reserve apparently needed to see that bondholders were willing to inject more capital into GMAC. The bondholders needed reassurance that the Fed would approve GMAC's application to qualify for federal aid.

If the auto lender failed to meet the exchange deadline, the repercussions for General Motors could be dire, said Erich Merkle, an auto industry analyst with Crowe Horwath.

General Motors' ownership of GMAC has kept open an avenue for lending for dealers and car buyers, even as credit from banks has dried up. If GMAC goes under, other institutions aren't likely to step in to replace the credit lost by GM's dealers and customers, Merkle said.

"It would make a difficult selling environment for GM that much more difficult," Merkle said Saturday.

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