GMAC, General Motors' struggling car finance business, is expected to give an update today on its negotiations with bondholders to swap $38 billion (£26 billion) in debt for GMAC equity.

The deal is vital to GMAC's plan to become a bank holding company, which would give it access to the US Government's $700 billion bank bailout fund as well as the ability to issue government-guaranteed debt.

There was an 11.59pm deadline on Friday for the completion of the swap. That came after an announcement on Wednesday that the US Federal Reserve had given permission for GMAC to become a bank, contingent on the debt-for-equity swap going through. Yesterday a GMAC official said that the company intended to issue an update “in the near term”.

GMAC, which provides finance to General Motors car dealers so that they can stock their showrooms, got into trouble after moving into the mortgage sector, losing $7.9 billion in the past five quarters. This has forced GMAC to cut back on financing for dealerships and for customers who buy new GM cars and trucks, which is further damaging GM's already recession-hit sales figures.

GM sales fell by 41 per cent in November, forcing the car company and Chrysler, a rival, to accept $17.4 billion in government aid.

GMAC has asked bondholders to convert 75 per cent of their debt into a smaller amount of new debt, preference shares and cash to reduce the company's debt load. The swap is key to GMAC's plan to stockpile $30 billion of new capital, which it requires to satisfy the Fed that it could be a viable bank holding company.

However, bondholders have complained that GM and Cerberus Capital Management, which hold stakes of 49 per cent and 51 per cent in GMAC respectively, have not put enough cash into the company. The two have promised to pay $750 million towards the $30 billion target.

Last week Pimco, the giant bond fund manager, was holding out against the swap. Bill Gross, the chief investment officer of Pimco, accused GMAC's owners of trying to bully bondholders by threatening to go bust if the swap did not go through.

Other bondholders, however, are resigned to the swap taking place because of GMAC's desperate need for more capital. Analysts for CreditSights, the research company, said on Friday that they expected GMAC to apply for up to $6 billion in aid from the $700 billion bailout fund. It could also issue $17.5 billion in government-backed debt.

Shares in GM rose by 13 per cent to close at $3.66 on Friday.

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