GMAC seeks bailout
General Motors' finance arm seeks capital infusion from Treasury as it files to become bank holding company.
NEW YORK (CNNMoney.com) -- GMAC Financial Services announced Thursday that it is seeking government assistance, trying to access the $700 billion set aside for banks that its parent General Motors has so far been denied.
GMAC also announced that it has submitted an application to the Federal Reserve to become a bank holding company. Under the Troubled Asset Relief Program (TARP), Treasury has invested $158.5 billion in 23 banks in an effort to stabilize the financial system.
GMAC did not say how much money it is seeking.
A company spokeswoman said the money would be strictly for GMAC, and not be passed along to GM (GM, Fortune 500), which still owns 49% of the finance firm.
The CEOs of GM, Ford Motor (F, Fortune 500) and Chrysler LLC spent two days on Capitol Hill this week seeking $25 billion in loans from TARP to solve a looming cash crisis that could lead to bankruptcy filings for GM and Chrysler later this year or early next year.
So far Treasury and the Bush administration have opposed the idea, despite a push from Democratic leaders in Congress.
The Bush administration and some top congressional Republicans said they are open to making other federal funds available to the automakers.
Making TARP funds available to GMAC could give a lift to General Motors by making credit more available for potential car buyers and dealers.
General Motors sales plunged 45% in October, largely because of tight credit for buyers. GMAC announced its lack of capital was forcing it to only make loans to buyers who had credit scores of 700 or greater.
"This should allow us to provide greater access to credit for our customers," said the spokeswoman, Toni Simonetti.
GMAC, once a profit-generating life raft for GM, has had its own problems in the past year due to problems in financial and automotive markets. It reported a $2.5 billion loss in the third quarter, bringing its losses in the past five quarters to $7.9 billion.
In 2006, GM sold 51% of GMAC to private-equity firm Cerberus Capital Management in an effort to unburden the finance arm from GM's low credit ratings. GM's junk status forced GMAC to pay higher rates to raise capital. In addition, the sale of the stake to Cerberus gave GM a much-needed $14 billion.
GMAC had moved away from a focus on auto finance and by 2005, mortgage lending and insurance accounted for 57% of its income.
In 2005, before the housing bubble burst, GMAC had originated $25.3 billion in subprime mortgages, making it the 11th largest firm in that field, according to rankings from trade publication Inside Mortgage Finance.
In 2006, subprime lending slipped 16%, but GMAC made a big push into so-called Alt. A loans, those made to borrowers who did not provide full documentation of their income. That year, GMAC became the No. 3 lender in that field.
As the housing and mortgage markets crumbled, results turned south for GMAC as well. At the time of the Nov. 30, 2006 closing of the sale to Cerberus, GM had to refund about $1 billion to GMAC to restore capital that had evaporated during the eight months it took to close the deal. And the firm has lost money in six of the seven quarters since the closing. 
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