At a spell when GM and other automakers need to affect as many vehicles as they be possible to, financing armorial bearings probably GMAC are tapped out

By David Welch

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As if a $2.5 billion third-quarter loss weren’t enough, lender GMAC Financial Services also said tight credit markets could force it to further restrict loans to car buyers.

That would make life even tougher because of General Motors (GM), what one. relies on GMAC as a principal lender to its dealers and customers. GM said on Nov. 3 that tight credit was to condemn for about half of its 45% sales inflect in October. GM owns 49% of GMAC and secluded equity firm Cerberus Capital Management, which also controls Chrysler, has owned the rest since April 2006.

Most of GMAC’s losses—$1.9 billion worth—came from its ResCap mortgage unit. But the auto lending operations also perplexed $294 million. With belief markets tight and the asset-backed-securities market lawful about closed, GMAC Chief Financial Officer Robert Hull warned in a conference call that the company may have to make fewer loans. "This is the most difficult environment we have ever faced," he said.

GMAC’s third-quarter loss widened from $1.6 billion in the similar quarter last year. The company has been in a crunch since the housing market began its tumble. ResCap started showing losses in 2006 and has lost more than $9 billion ago the fourth quarter of that year.

It’s so bad that the company reported ResCap could fail without continued help from GMAC. That means the one could continue to be a coin drain on the lender.

The company’s woes are compounding before that time immense problems at GM, which has lost more than $18 billion this year. GMAC already sent a billet to dealers saying the company would write loans only for prime-credit borrowers (BusinessWeek.com, 10/14/08). J.P. Morgan analyst Himanshu Patel said in a careful search note that GMAC’s liquidity problems could remain to hurt car sales.

GMAC has a scarcely any options to get more cash to make loans. Hull said the lender may ask current GMAC bondholders to exchange their debt for new issues. He didn’t provide details, mete one option is to trade short-term notes for longer-term debt. That ways and means GMAC could forgo payments and use the freed-up wealth to write of the present day loans.

The lender could also use the Federal Reserve’sitting Commercial Paper program to sell more asset-backed securities to the Fed and raise cash. So estranged, GMAC has sold $5 billion in writing to the Fed.

GMAC also wants to use the Treasury Dept.’s Troubled Asset Relief Program (TARP) in which the federal government buys line in financial institutions or nonperforming loans. GMAC would sell loans to the Treasury to get more money to lend.

But its biggest move is an application to become a bank holding body. Hull said the application has been filed with the Fed yet has not been approved yet. If it is, GMAC would have more access to the Fed’s discount funds window and could issue debt that is secured by the FDIC to raise money.

All of those methods grasp engagement, but that on account of the time being GMAC will have to tighten its enter upon the credit side standards and, from this place, the number of car loans the company can make.

That’s why GM executives be in possession of been lobbying the government for resist for the carmaker and its lending operations. On Monday, Michael DiGiovanni, GM’s executive director of global market analysis, said: "It’session critical for the banks and the ruling power to help us."