Nov. 3 (Bloomberg) -- Ford Motor Co., GMAC LLC and Chrysler LLC were shut out of the market for bonds backed by auto loans for the fifth straight month, adding pressure on the automakers to consider mergers and seek taxpayer funding.

Sales of auto bonds slumped to $500 million last month, compared with $9 billion in October 2007, according to Merrill Lynch & Co. data. The cost to sell the debt surged to record highs over benchmark rates on concern that car owners won't be able to make loan payments amid job losses, higher food and fuel costs and falling property values.

The credit market seizure is forcing automakers to cut back on loans to dealers and customers, contributing to a slowdown that may cut U.S. auto sales this year to the lowest level since 1993. Facing a slump in demand and prohibitive borrowing costs, General Motors Corp. and Chrysler entered merger talks and the finance arms of the so-called Big Three sought approval to borrow from the Federal Reserve's new commercial paper program.

``They have no access to funding at reasonably economic levels,'' said Eric Johnson, president of 40/86 Advisors Inc. in Carmel, Indiana, which manages $24 billion in fixed income. ``It means a faster burn rate. It doesn't change the end game: Either the government bails them out, or they're through.''

GM Sales Tumble

GM said today its sales of cars and light trucks tumbled 45 percent in October from a year earlier in its worst sales month since World War II. Ford reported a 30 percent decline. U.S. auto sales across the industry probably fell for the 12th straight month, extending the longest slide in 17 years. New vehicles probably sold at an annual rate of 11.5 million in October, down from 16.1 million a year earlier, based on a Bloomberg survey of 21 analysts and economists.

GMAC, owned by GM and private-equity firm Cerberus Capital Management LLC, finances loans for GM customers by issuing debt. Chrysler Financial Corp. issues on behalf of Chrysler, also owned by New York-based Cerberus. Ford Motor Credit Co. issues for Ford. None have sold asset-backed debt in the public markets since May, according to data compiled by Bloomberg. Automakers began relying more heavily on the debt several years ago to lower borrowing costs after Ford and GM corporate bonds were downgraded below investment grade.

`Relatively Dim'

The difference, or spread, on three-year AAA auto asset- backed securities over the London interbank offered rate rose 50 basis points to 600 basis points in the week ended Oct. 30, according to JPMorgan Chase & Co., more than seven times the 80 basis points demanded by investors in the week ended Jan. 3. A basis point equals 0.01 percentage point.

AmeriCredit Corp., the lender to borrowers with blemished credit, completed the one sale of the month on Oct. 6 in an offering that was place with its bankers. Deutsche Bank AG and Wachovia Corp. purchased the securities, Fort Worth, Texas-based AmeriCredit said in an Oct. 7 statement.

Public sales of auto-loan securities were $15 billion this year, matching all of last year's, in part because of a single issue in May from Ford, its biggest since 2002, Bloomberg data show. Issuance of the debt from the Big Three more than doubled to $21.2 billion in 2006 as investors' appetite for the debt soared, from $9.2 billion two years earlier, according to Moody's Investors Service.

Rolling Uphill

Ford's last public sale of bonds backed by auto loans, a $5.3 billion offering on May 16, cost the automaker 47 times the interest it paid on a comparable sale a year earlier. Ford paid 142 basis points over Libor on AAA bonds maturing in three years at the May sale, compared with 3 basis points more than the benchmark on similar bonds sold in June 2007.

For any of three major U.S. automakers to sell debt in the asset-backed market today would be a ``huge rock to roll up a hill,'' said Neil McPherson, a managing director at NewOak Capital LLC, a distressed-asset advisory firm in New York.

``The non-stop flurry of bad news on the economy, unemployment rates set to rise, and the problems the Big Three are having all tell me investors are not likely to back up the truck'' to buy the bonds, McPherson said.

U.S. auto sales in September tumbled the most in any month since 1991. Detroit-based GM and Ford, of Dearborn, Michigan, have reported more than $70 billion of losses in the last four quarters. Auburn Hills, Michigan-based Chrysler isn't required to publicly report earnings.

Managing Resources

``There is clearly a lot of contraction in the market and we are taking a variety of actions to manage our resources prudently,'' said Gina Proia, a spokeswoman for Detroit-based GMAC.

At Ford Motor Credit, ``we continue to fund our business and make progress toward out 2008 funding plan,'' spokeswoman Brenda Hines said. The company has completed several private transactions since the May sale, she said.

Amber Gowen, a spokeswoman for Chrysler Financial, declined to comment.

The automakers are slashing jobs and other expenses to stem their losses. Chrysler said last month it will eliminate 25 percent of its salaried workforce, or about 4,300 jobs, starting next month and GM has said it will chop more than the 5,000 salaried jobs already targeted. Ford is considering selling some of its stake in Japan's Mazda Motor Corp. to raise cash as part of its plan to shed assets outside the U.S., according to people with knowledge of the discussions.

Below Investment Grade

GM's credit ratings have been slashed to Caa3 by Moody's and B- by Standard & Poor's, nine and six levels below investment grade, respectively. Ford is rated Caa1 by Moody's and B- by S&P. Ford and GM were rated investment-grade at both credit-ratings companies until May 2005. Chrysler is rated Caa2 by Moody's and CCC+ by S&P.

``The markets are looking relatively dim for those kinds of transactions near term,'' said Robert Schulz, an analyst at S&P in New York, which predicts GM and Chrysler may run out of cash in 2009. ``Broadly speaking, the credit markets are putting downward pressure on sales.''

Executives at GM asked Treasury for aid to help finance any agreement with Chrysler, according to people who knowledge of the matter who asked not to be identified because the talks are private. Congress also approved an automaker-loan program on Sept. 27, agreeing to lend money to help convert plants to build more-efficient vehicles.

GMAC, Ford Motor Credit and Chrysler Financial last week received approval to access the Fed's commercial paper program, which began buying short-term debt from companies to reduce interest rates and lure investors back to the market. GMAC is also seeking to become a bank holding company, which would make it easier to take part in a Treasury Department rescue plan.

``They need to sustain liquidity,'' said Mark Oline, an analyst at Fitch Ratings in Chicago. ``The federal government is probably the first, second and third option there.''

To contact the reporters on this story: Sarah Mulholland in New York at smulholland3@bloomberg.net; Caroline Salas in New York at csalas1@bloomberg.net

Last Updated: November 3, 2008 16:04 EST