GMAC nears bank status, federal help

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NEW YORK (CNNMoney.com) -- Auto finance firm GMAC has doubled the amount of capital it has raised from its creditors, moving it closer to qualifying for much needed federal funds.

Still, the company remains short of its capital target of $30 billion, forcing it on Tuesday to again push back the deadline for raising the money.

GMAC is hoping to raise the capital so it can become a bank holding company, which would allow it to tap into the $700 billion bank bailout fund. Bank status would also allow it to borrow money directly from the Federal Reserve. But GMAC had only $9 billion on hand at the end of the last quarter.

Embattled automaker General Motors (GM, Fortune 500) will get a boost if GMAC meets its capital goal and gains access to federal money. More GM customers and dealers would get financing they need. GMAC is 49%-owned by GM and 51%-owned by private equity firm Cerberus Capital Management.

GMAC is trying to raise money from investors who own its debt. It wants to swap up to $38 billion in current notes for a combination of new notes, preferred stock and a limited amount of cash. The preferred stock will give the firm the capital it needs to meet bank regulations.

Late Tuesday, GMAC announced that $20 billion in notes had been tendered by its current debt holders -- more than double from $9 billion as of last Friday. It said an unspecified amount of additional debt is in the process of being submitted.

But because GMAC has yet to meet the $30 billion target, it extended the deadline for investors to tender their notes to 5 p.m. Friday, from its previous deadline of 5 p.m. Tuesday. This was the third extension in the past week.

The struggle to raise funds has cut into GMAC's ability to make car loans and mortgages. In turn, the dearth of credit is making the plunge in car sales at GM even worse. On Friday, GM announced it was essentially shutting down its North American assembly lines for the month of January because of weak demand.

A majority of GM's U.S. sales typically were financed by GMAC before the economy slowed down. But in November, less than 2% of its sales were financed through the unit.

For most GM dealers, GMAC is the prime source of operating funds. If it can't get the capital it needs for bank status, it could cause widespread failures among GM's dealership network and cut even more deeply into sales.

GMAC, once a major source of profits for GM, reported a $2.5 billion loss in the third quarter, bringing its losses in the past five quarters to $7.9 billion. The financing firm, which is also a home mortgage lender, has been hit hard by both the decline in auto sales and turmoil in the housing market.

GM sales have plunged in recent months and it has warned that it will run out of the cash it needs to continue to operate without an immediate $4 billion in federal help. Despite its warnings and support from congressional Democrats and the Bush administration, the Senate failed to pass a stopgap bailout of the auto industry last Thursday.

The Bush administration is considering using the bank bailout money to directly help GM avoid bankruptcy. But it is still working on the details of such a rescue plan.