GMAC Financial Services, the financing arm of General Motors, said Wednesday that it hasn't raised enough capital to become a bank holding company and qualify for aid under the government's $700 billion bank rescue plan.
GMAC , which provides both mortgage and car loans, is trying to reduce its debt and raise $30 billion in capital that regulators are requiring before it can become a bank holding company and possibly get access to government assistance.
It warned that a failure to convert to a bank holding company would have a "material adverse effect" on its business.
The finance company is raising capital by offering to exchange debt for cash, notes or preferred stock. But it said Wednesday it has only raised about $8.3 billion through the offers so far.
In a last ditch effort, GMAC extended the early delivery time under its offers by three days, to Friday.
It was the third time that the New York-based company, which is majority owned by the private equity firm Cerberus Capital Management, has extended the deadline. GM owns the remaining 49 percent of the financing company.
GMAC is trying to exchange $38 billion of debt held by its divisions and mortgage business, Residential Capital, for cash, new notes or preferred stock.
If GMAC were to become a bank holding company, it could potentially be eligible for part of the government's $700 billion rescue package for the financial sector.
GMAC has said that the aid would give it the cash needed to make loans to consumers who want to buy a car or truck but have been unable to get affordable financing.
Looser credit markets and cheaper financing also would drive consumers back to dealer lots and in theory boost automaker sales.
The move also comes as GM and fellow U.S.-based auto makers Ford Motor and Chrysler are asking Congress for their own financial bailout. Detroit-based GM has said that it could run out of cash by the end of the year if it doesn't receive financial help.
In order to approve GMAC's application to become a bank holding company, the Federal Reserve has said the company needs at least $30 billion in regulatory capital.
In order to meet that requirement, GMAC said it would have to have about 75 percent participation on its offers.
So far, only about $6.3 billion, or 22 percent, of the outstanding GMAC notes have been tendered and about $2 billion, or 21 percent, of the outstanding ResCap notes have been tendered, GMAC said.
If the offers aren't successful, GMAC said it will withdraw its application to become a bank holding company and it's unclear what its next move would be.
GMAC said that if it's unable to transform into a bank holding company and complete the GMAC and ResCap offers by the end of the year, it would have a "near-term material adverse effect on GMAC's business, results of operations, and financial position."
Calls to GMAC, GM and Cerberus were not immediately returned.
The finance company has been hemorrhaging money this year, hurt by both the crisis in the mortgage lending industry and slumping demand for vehicles. Last month, GMAC warned that ResCap could fail. The business accounted for about $1.9 billion of GMAC's total $2.52 billion third-quarter loss.
GMAC has slashed its costs in an attempt to stem the losses. In September, the company said it would close all of its 200 retail offices and lay off about 5,000 employees, with the bulk of cuts coming at ResCap.
It also has tightened its criteria for U.S. consumers seeking automotive financing, including limiting purchases to those with a credit score of 700 or above and restricting contracts with higher advance rates and longer terms.