updated 11/20/2008 2:06:07 PM ET 2008-11-20T19:06:07

GMAC Financial Services, the financing arm of General Motors, said Thursday it applied to become a bank holding company, making it eligible for aid under the government’s $700 billion bank rescue plan.

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GMAC said the change in status would shore up its capital position and help it to continue to provide automotive and mortgage financing.

GMAC is majority owned by New York-based private equity firm Cerberus Capital Management LP, which also owns most of Chrysler. General Motors Corp., which itself is running out of cash, owns a 49 percent stake in GMAC and the unit provides financing for GM vehicles along with home mortgage loans.

GMAC also is launching cash tender offers to buy or swap $38 billion of debt held by its divisions and mortgage business, Residential Capital LLC, for cash, new notes or preferred stock. The move is intended to boost capital levels and reduce debt as part of its attempt to become a bank holding company.

The financing arms of Ford Motor Co. and Chrysler LLC may also apply to become bank holding companies, and therefore become eligible for a piece of the financial bailout being administered by the Treasury Department.

The companies say funding would give them the cash they need to make loans to consumers who want to buy a vehicle but have been unable to get affordable financing.

Looser credit markets and cheaper financing would drive consumers back to dealer lots and in theory boost automaker sales.

GMAC has also warned that its mortgage lending division, ResCap, could fail. The business, which has been hurt this year by the ongoing problems in the lending industry, accounted for about $1.9 billion of GMAC’s total $2.52 billion third-quarter loss.

In recent months, 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.

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