Oct. 30 (Bloomberg) -- GMAC LLC, the lender partly owned by General Motors Corp., is telling some GM dealers it will no longer provide them with financing to buy vehicles because of its own reduced funding, according to letters sent to the retailers.

Some dealers also are being told that they will have to start repaying such loans after vehicles have been on lots for at least 180 days, according to one of the three letters. Gina Proia, a GMAC spokeswoman, yesterday declined to confirm them.

Hundreds of the retailers may have received such letters in recent weeks, Denny Fitzpatrick, chairman of the California New Car Dealers Association, said in an interview. The Detroit-based automaker has about 6,500 U.S. dealerships.

``Turbulence in the markets reduced our access to funds and increased the cost of funds where available,'' GMAC Chief Executive Officer Al de Molina said in a letter sent Oct. 21 to the California group. ``In response, we adjusted our credit policy to reflect the reduced level of funding availability.''

The letters reflect more tightening of funding to back GM sales by Detroit-based GMAC, which has posted $4.5 billion in losses in the past four quarters. GMAC also has set tougher standards on loans for customer auto purchases, excluding about 42 percent of U.S. consumers. GM, whose U.S. sales declined 18 percent through September, began an advertising campaign this month to assure buyers that loans are still available.

Increasing Payments

``You're increasing their payments or you're taking away financing altogether for a lot of dealers, which basically has the effect of shutting many of them down,'' said Fitzpatrick, owner of Fitzpatrick Chevrolet Hummer in Concord, California. ``Dealers just don't have that cash lying around.''

Dealers use the financing to buy vehicles from GM, paying interest while the cars and trucks are awaiting sale and then repaying the principal when a vehicle is sold. GMAC's Proia wouldn't comment on contents of the letters, such as how the 180-day repayment policy differs from its current standard.

``We continue to implement credit-risk management,'' Proia, who is based in New York, said in an interview. ``That includes working with our dealers, regularly assessing creditworthiness and appropriately taking action to reduce risk.''

Under the new arrangements, dealers in November will be required to begin paying down their principal balance on the loans at a rate of 5 percent monthly for 2008 models and 10 percent monthly for 2007 vehicles, according to the letters.

Used-Vehicle Loans

GMAC said it will also cut the size of the loans to dealers for used vehicles to between 70 percent and 90 percent of the cost, starting Jan. 1. The lender will require 30 percent of the initial advance to be paid off by the sixth month the vehicle is on the lot. After six months, it expects full payment, GMAC said.

GM in 2006 sold 51 percent of GMAC to a group led by Cerberus Capital Management LP. Cerberus also owns Chrysler LLC and is in talks with GM about combining the two automakers, people familiar with the discussions have said.

GMAC is seeking to become a bank holding company after gaining access to the Federal Reserve's new program designed to unlock short-term commercial credit markets. Becoming a bank holding company would make it easier for GMAC to participate in the Treasury Department's banking-industry rescue and quell doubts about the lender's survival.

De Molina told employees this month that GMAC had ``limited if any access to funding'' for its mortgage and auto-lending units.

GM Losses

The lender's problems come as GM is trying to stem its own losses and conserve cash. The automaker has reported almost $70 billion in losses since 2004, the last year it had an annual profit. GM, Ford Motor Co., Chrysler and their suppliers are seeking part of $25 billion in low-interest funding from the U.S. government to retool plants.

GM said yesterday that its worldwide sales fell 11 percent in the third quarter. The company is poised to end 77 years as the world's largest automaker, as it trails Toyota Motor Corp. by almost 400,000 vehicles in this year's first nine months.

GM fell 69 cents, or 10 percent, to $6.07 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have declined 76 percent this year, the most among the 30 companies in the Dow Jones Industrial Average.

To contact the reporter on this story: Greg Bensinger in New York at gbensinger1@bloomberg.net

Last Updated: October 30, 2008 16:23 EDT