GM shares jump after GMAC won bank holding status
DETROIT, Dec 26 (Reuters) - Shares of General Motors Corp GM.N jumped more than 18 percent on Friday after its auto-finance affiliate, GMAC, achieved eligibility for government loans, easing the risk of a failure that threatened to kill credit for GM dealers and buyers.
GMAC, which finances three-quarters of the inventory held by GM dealers, won approval from the Federal Reserve on Wednesday to become a bank holding company, gaining access to government lending programs and staving off bankruptcy.
The news came less than a week after GM and Chrysler LLC were promised $17.4 billion of government loans from the Treasury-run financial bailout fund.
"It's significant in terms of GM's ability to move cars," said Erich Merkle, an analyst at Crowe Horwath.
"Things are still pretty ugly out there (in terms of sales) but in terms of GM possibly filing for bankruptcy, in my mind that's not going to happen. The reason I'm saying this is what they're going with GMAC right now."
GM Chief Executive Rick Wagoner said last week that GMAC's difficulties were "hammering" the carmaker's ability to sell vehicles.
GMAC has struggled as the credit crunch lifted its borrowing costs sharply and the value of many of its assets plummeted. It has lost $7.9 billion over the last five quarters.
The lender's difficulties forced it to severely curtail financing for dealerships and for consumer purchases of new GM cars and trucks in recent months. Cutting back financing compounded the sales slump at GM, the No. 1 U.S. automaker, whose sales fell an eye-popping 41 percent in November.
A majority of GM dealers has depended on GMAC, the largest auto finance company in North America, for financing of their own inventory and consumer purchases even after GM sold a 51 percent stake in GMAC to Cerberus in 2006 for $7.4 billion. GM retains the remaining 49 percent.
GM and Cerberus will have to trim back their stakes to no more than 10 percent and 14.9 percent, respectively, to comply with Fed rules that are meant to prevent companies from using banks to fund their businesses.
Shares of GM were up 18.5 percent, or 60 cents, at $3.85 on the New York Stock Exchange. (Reporting by Soyoung Kim)
