Feb. 5 (Bloomberg) -- General Motors Corp. and Chrysler LLC, blaming tight credit for exacerbating sales declines, are counting on a new federal program to help provide financing to consumers.

The Term Asset-Backed Securities Loan Facility is planned to start this month and will lend as much as $200 billion to investors to purchase securities backed by auto loans, credit cards and student loans. The commercial market for these loans is almost inactive.

GM and Chrysler risk exhausting the $17.4 billion in U.S. loans that are propping them up as industry sales slump to levels not seen since the early 1980s. Even with government efforts to expand credit, consumers are finding it hard to borrow to buy new cars and trucks, the automakers say.

“This is what is choking us to death,” Mark LaNeve, GM’s sales chief, said in an interview Feb. 3 after the biggest U.S. automaker posted a 49 percent drop in January sales in its home market. “If you can’t get credit, you can’t sell vehicles.”

GMAC LLC, GM’s lending arm, received $6 billion in direct aid in late December from the Troubled Asset Relief Program and Chrysler Financial got $1.5 billion last month. The Treasury Department’s actions allowed the companies to resume no-interest loan offers and expand the range of customers who could qualify for financing.

Still, buyers are being turned away for lack of loans, LaNeve and Steve Landry, Chrysler’s sales chief, said this week.

“Consumer credit is horrendous,” Landry said Feb. 3, when Chrysler announced that its U.S. sales fell 55 percent last month.

New York Fed

The TALF program, orchestrated by the Federal Reserve Bank of New York, comes after the U.S. has committed $24.9 billion in direct aid to automakers and their finance arms. Auto suppliers this week requested as much as $10.5 billion to prevent widespread bankruptcies in their industry that could endanger the automakers.

Details on how the TALF program will function haven’t been announced. The New York Fed will give an update soon, said spokesman Andrew Williams, who didn’t elaborate.

TALF is designed to lend money to investors to buy highly rated bonds backed by auto loans, a market that has been frozen by the credit crunch. Without the ability to sell those loans to investors, auto lenders are using up their capital and can’t offer new credit to car buyers.

The New York Fed will make three-year loans based on the bonds, which have to be originated Jan. 1 of this year or later on top-rated debt.

GM, Chrysler

GM and Chrysler have suffered more during the credit crunch than healthier automakers such as Toyota Motor Corp. and Honda Motor Co., which have active credit arms that aren’t constrained by lack of capital.

“We believe automakers with relatively weaker captive finance arms would benefit the most, as limited credit availability has left those automakers unable to close deals,” said Brian Johnson, a Barclays Capital analyst in Chicago, in a note to investors yesterday.

GM and Chrysler face a Feb. 17 deadline to demonstrate to the Treasury Department that they are viable and will be able to repay the loans. Their plans may be judged by a “car czar” team that may include Steve Girsky, president of Centerbridge Industrial Partners LLC, and led by Steve Rattner, co-founder of Quadrangle Group LLC.

The TALF program may be generating interest from investors. Yields on bonds backed by credit-card payments and auto loans fell last month from record highs on anticipation that the program will improve the market.

“We hope that it not only works for us, but the commercial market will step in,” said James Press, president of Auburn Hills, Michigan-based Chrysler.

Limits on newly issued bonds may mean that the program won’t go far enough, according to James Grady, managing director in New York at Deutsche Asset Management, which has about $240 billion in assets under management.

“It’s a good sign they are attacking the issue,” Grady said. “If this isn’t effective, the thought is that they will tweak the program to make it work.”

To contact the reporter on this story: Mike Ramsey in Southfield, Michigan, at mramsey6@bloomberg.net

Last Updated: February 5, 2009 00:01 EST