Washinton : The US Federal Reserve Wednesday approved General Motor’s financial arm GMAC Financial Services’ request to become a bank holding company, allowing it to tap into the $700 billion federal bailout funds.
As a bank holding company, GMAC Financial Services will also be able to get emergency loans directly from the central bank of the US.
Analysts had speculated that without financial help, GMAC would have had to file for bankruptcy protection or shut down.
GMAC provides financing for both GM dealers and customers as well as home mortgage loans through its Residential Capital LLC division. The company is 51 percent owned by Cerberus Capital Management LP, the investment fund that also owns Chrysler. GM owns the remaining 49 percent of the company.
The Fed’s decision comes five days after the Bush administration said it would tap the bailout fund to provide emergency loans to General Motors and Chrysler LLC to buy them time to reorganize and avoid having to file for bankruptcy.
On Dec 19, US President George W. Bush announced that the government will provide $13.4 billion in short term loan to bailout the country’s crippled auto industry from bankruptcy.
The $13.4 billion loan, drawn from the $700 billion financial rescue fund, would be available this month and next. Of it General Motors will get $9.4 billion while $4 billion has been earmarked for Chrysler LLC.
An additional $4 billion will be available in February.
Of the country’s biggest three automakers, General Motors Corp. and Chrysler LLC have warned they could be weeks from collapse, while Ford Motor Co. said it may not need the fund right now.