UPDATE 2-GMAC to provide financing for Chrysler dealers

Tue May 12, 2009 3:04pm EDT

* GMAC approved to offer wholesale, retail financing

* Without financing, dealers to run out of working capital

* About 60 pct of dealers used Chrysler Financial loans (Recasts, adds details on financing deal, Chrysler bankruptcy background, GM share price)

NEW YORK, May 12 (Reuters) - Chrysler dealers and customers will be allowed to obtain financing from lender GMAC, Chrysler's bankruptcy judge said on Tuesday, in a move that would help dealers boost their inventories of vehicles again.

Chrysler Financial, which provides financing to more than 60 percent of Chrysler dealers, almost entirely halted its lending after the automaker filed for bankruptcy protection on April 30. The freeze had made it extremely difficult for dealers to obtain loans to buy cars for their showrooms.

U.S. Bankruptcy Judge Arthur Gonzalez approved a motion by Chrysler requesting that GMAC, the former financing unit of General Motors Corp (GM.N), be allowed to step in and provide wholesale, retail and other product-related financing for an initial four-year term.

Documents finalizing the details of the deal are expected to be filed with the court later on Tuesday and are subject to review.

DEALER REVIEW

There are about 3,200 Chrysler dealers, and between 60 percent and 70 percent used Chrysler Financial for financing, said Michael Keegan, Chrysler vice president for volume planning and sales operations, at the hearing.

Without the financing allowed by the judge, "the general dealer body would run through working capital immediately or within weeks," said Keegan.

In addition, some 50 percent of all Chrysler customers financed their car and truck purchases through Chrysler Financial.

GMAC will conduct dealer credit assessments over the next 180 days to determine which dealers are eligible for long-term credit lines, and will notify dealers that do not pass the assessment so they can find alternative financing sources, according to court documents.

GMAC has operations in about 30 countries and had assets of $189 billion as of February, according to court documents.

Chrysler is seeking quick sale of most of its assets to a new company held by Italy's Fiat SpA FIA.MI, a United Auto Workers union-aligned healthcare trust and the U.S. and Canadian governments.

GM shares were down 33 cents at $1.12 in late-afternoon trading.

The case is In re: Chrysler LLC, U.S. Bankruptcy Court, Southern District of New York, No. 09-50002. (Reporting by Chelsea Emery, editing by Gerald E. McCormick, Dave Zimmerman)