GM gets boost through GMAC bank approval

General Motors Corp., days from receiving its first installment of at least $9.4 billion in U.S. aid, won another victory with the Federal Reserve’s approval of lender GMAC LLC’s bid to become a bank holding company.

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. GMAC also handled loans for about 35 percent of GM’s 2007 retail buyers.

“This has a positive impact on GM and also the auto market,” Tatsuya Mizuno, director of Fitch Ratings in Tokyo, said today in a Bloomberg Television interview. “The problem is how they can prepare for next-generation vehicles, to restore their competitiveness.”

The Fed used emergency powers on Dec. 24 to grant GMAC’s bank conversion, citing turmoil in financial markets and the potential impact on Detroit-based GM as the biggest U.S. automaker taps emergency federal loans to stay in business.

That decision was the second lift for GM in less than a week, after President George W. Bush said Dec. 19 that GM and Cerberus Capital Management LP’s Chrysler LLC were eligible for U.S. aid to help them avoid running out of cash by early next year, threatening a collapse that would cost millions of jobs.

GM is due an initial $4 billion in loans by Dec. 29, and $5.4 billion more by Jan. 16. That second payment will come before the inauguration of President-elect Barack Obama, who will inherit responsibility for Bush’s rescue effort next month as GM and Chrysler craft permanent survival plans by March 31. Chrysler will get $4 billion.

GM, which owns 49 percent of GMAC, and Cerberus, which leads the group holding the rest, will give up control of the Detroit-based lender to comply with federal rules on who can own banks.

Converting GMAC to a bank “would benefit the public by strengthening GMAC’s ability to fund the purchases of vehicles manufactured by GM,” the Fed said in its order. GMAC was shut out of credit markets this year after piling up $7.9 billion in losses dating from the middle of 2007.

“We’re clearly very pleased,” said GMAC spokeswoman Gina Proia. “We think this is a significant positive step in GMAC’s history.” GM spokesman Greg Martin said the automaker was pleased, while Cerberus spokesman Peter Duda declined to comment.

GM gained 25 cents, or 8.3 percent, to $3.25 on Dec. 24 in New York Stock Exchange composite trading. The shares have plummeted 87 percent this year, worst among the 30 companies on the Dow Jones Industrial Average.

GM owned all of GMAC until it sold a 51 percent stake in 2006 to a group led by Cerberus, the New York-based private equity firm. Cerberus funds that hold GMAC stakes will distribute them to their investors, the Fed said. Cerberus’s voting control will be cut to less than 15 percent, or 33 percent of GMAC’s total equity. None of the recipients will have more than 5 percent of the votes or 7.5 percent of the total equity. The Fed also required Cerberus to sever ties between its people and GMAC. GMAC has been unable to raise cash by selling bonds backed by auto loans since May. The gap, or spread, on auto asset- backed debt relative to benchmark interest rates has soared to record highs as concerns mount that cash-strapped households won’t be able to pay bills.

Fed approval of GMAC as a bank “is a big relief for GM dealers,” said Martin NeSmith, a member of GM’s National Dealer Council, who has three outlets in Georgia selling Chevrolets, Buicks and Pontiacs. GMAC cut financing for consumers by about 90 percent and banks aren’t taking up the slack, NeSmith said. He has said previously that a GMAC default might wipe out as many as 40 percent of GM’s dealers. GM’s U.S. sales tumbled 22 percent this year through November, which the automaker blamed in part on buyers’ dwindling access to credit.