Major GM Lender Granted Access to Bailout Funds

Posted: Dec 26, 2008 10:06 a.m.

The U.S. Federal Reserve has granted GMAC LLC's application to become a bank holding company. This gives GMAC, which is a major lender for General Motors dealers, access to $700 billion in bailout funds through the Troubled Asset Relief Program -- "which should increase the ability of prospective GM customers to obtain financing and bolster sales of GM cars and trucks," explains the Detroit News. For GMAC to obtain bank-holding status, GM and majority owner Cerberus Capital have agreed to relinquish their holdings. "To comply with the rules on who can own an American bank, Cerberus agreed to distribute its stake to its investors, and GM will cede control and reduce its stake to less than 10 percent," adds the Detroit News.

So how does this move affect consumers? Since GMAC has been unable to obtain financing, the lending firm has had to turn away most auto buyers looking for loans. Now, that may begin to change. "GMAC's shift to a bank eases the threat of a default that threatened to dry up credit for GM dealers who used the company to finance about three-quarters of their inventory," says Bloomberg, adding that GMAC "also handled loans for about 35 percent of GM's 2007 retail buyers." The Atlanta Business Chronicle concludes, "The move by the Fed likely saves GMAC from potentially having to file for Chapter 11 bankruptcy protection."

While awaiting federal aid, GM and other automakers are trying to sell cars as fast as possible with deep discounts. Research the best car deals available in this market.