General Motors Co is considering options that would give it a captive auto financing arm and allow its dealers to offer more competitive loans and lease deals, two people with knowledge of the plans said.

Such a move would mark a nearly complete reversal of the process that started in late 2006 when GM sold off a controlling stake in GMAC to Cerberus Capital Management in order to raise cash for its own restructuring.

Detroit-based GMAC, now known as Ally Financial, is 56-percent owned by the U.S. Treasury after the government injected $17 billion as part of a restructuring that also saw the finance company become a commercial bank.

The U.S. Treasury also owns 61 percent of GM after providing nearly $50 billion to restructure the top U.S. automaker in a 2009 bankruptcy.

One option being considered would have GM take back the auto finance portion of GMAC, which provided financing for about 30 percent of GM's U.S. retail customers in the first quarter, said the sources who did not want to be identified because the discussions are preliminary.

Another option would have GM pair up with an outside bank in a partnership that would create a new auto financing company under its wing before it looks to sell its own shares in an initial public offering, according to the sources, who were not authorized to discuss the preliminary discussions.

GM Chief Executive Ed Whitacre, who is pushing GM toward an IPO as soon as this year, has argued in favor of taking back the auto finance portion of GMAC and retaining the GMAC name, the sources said.

We have no comment on such speculation, said GM spokesman Selim Bingol.

Gina Proia, a spokeswoman for Ally Financial, said the current relationship has benefits for GM. Ally also provides financing for Chrysler. Proia said because Ally is a bank-holding company it has access to lower-cost funding than a captive auto financing company would.

A manufacturer cannot own a bank, she said. By doing business with us, our (automotive partners) do not need to invest the billions of dollars of equity capital necessary to maintain a large balance sheet of loans.

But some GM dealers said they would welcome a move by the automaker to bring back its own finance company.

GM still owns the trademark on the use of the name GMAC, which expires in 2016. GMAC was founded in 1919 and GM was credited with pioneering auto financing, a major source of dealer profits.

It's been difficult to get financing deals through GMAC, and we've had problems getting floorplan financing also, said Raymond Ciccolo, a Cadillac dealer in Boston.

A captive financing arm will be absolutely terrific. We can't get anything done now, he said.

Jim Dollinger, an auto sales consultant based in Flint, Michigan, and a former general manager for GM dealerships, said GM had made a strategic blunder by selling GMAC to raise cash.

Selling GMAC was like burning the furniture to have heat, he said.

GM sold 51 percent of GMAC Financial to private equity investors Cerberus Capital Management CBS.UL in 2006. Cerebus later bought 80 percent of No. 3 U.S. automaker Chrysler.

GMAC converted to a bank holding company in December 2008 to become eligible for bailout money under the Troubled Asset Relief Program.

The company, a traditional lender to GM dealers and car buyers, has taken three tranches of funding from the U.S. government totaling more than $17 billion, most recently a $3.8 billion tranche of funding in late 2009.

Home loans through its ResCap unit fueled GMAC's growth earlier this decade, but have since triggered billions of dollars of losses for the company.

Ally reported an operating profit of $162 million for the first quarter versus a year-ago loss of $675 million.

GM's consideration of plans to create a new captive finance arm was first reported by Bloomberg.

(Additional reporting by John Crawley in Washington, editing by Bernard Orr)

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