GMAC LLC has gotten the much-awaited go-ahead from the Federal Deposit Insurance Corp. to sell cheaply priced debt insured by the FDIC, according to a person familiar with the matter.

In addition, GMAC, the lending affiliate of General Motors Corp. (GM), has been granted exemptions from federal officials that widen the scope of its lending activities to GM, the source said.

The moves underscore the extraordinary lengths the government is going to in order to prop up the U.S. auto industry. GMAC, as a financier of GM, and now Chrysler LLC, vehicles, is vital to federal efforts to resuscitate the ailing auto makers because it provides crucial funding to their dealers and consumers.

GMAC makes loans to auto dealers who use the funds to stockpile their inventory of new vehicles. GMAC also lends to consumers buying these vehicles.

The ability to issue cheap FDIC-backed debt was a central plank in GMAC's transformation to a bank holding company in December.

The amount of FDIC-backed debt that GMAC may issue isn't known. But earlier this month, a company official estimated that this amount could be between $5 billion and $10 billion.

"When we applied for bank-holding-company status," said Robert Hull, GMAC's chief financial officer, in an interview earlier this month, this federal program "was definitely something we were seriously considering."

In addition, the Federal Reserve granted GMAC waivers on rules that separated the lending activities of GMAC Bank from GMAC's auto-finance business. Before the waiver, GMAC Bank was limited in its ability to make loans to both a GM dealer and consumers who bought GM cars from that dealership, because the auto maker is a major stakeholder in GMAC. This exemption removes that constraint, widening the scope of GMAC's lending to GM customers.

The U.S. Treasury Department is also poised to inject more than $7 billion into GMAC, the first installment of a new government aid package that could reach $14 billion, according to a Wall Street Journal report Thursday.

Earlier this month, the government said it would provide more federal funds to GMAC after the company assumed the mantle of lender for Chrysler vehicles. Chrysler is in the midst of a restructuring in bankruptcy court.

In addition, GMAC, on the heels of its bank registration in December, received $5 billion under the Treasury's Troubled Asset Relief Program, or TARP. In exchange, the Treasury received GMAC preferred stock.

GMAC is jointly owned by GM and an investor group led by private-equity firm Cerberus Capital Management LP. The auto maker and the investor group will significantly scale back their ownership in GMAC by the end of this month as a condition of the lender becoming a bank holding company.

-By Aparajita Saha-Bubna, Dow Jones Newswires; 617-654-6729; aparajita.saha-bubna@dowjones.com