One of the strongest criticisms issued in the Congressional TARP Oversight Panel’s most recent report on the auto bailout concerned GM’s lack of effort to bring its former captive lender GMAC (now called Ally Financial) back to the fold, an omission the Panel termed “disconcerting.” After all, Ally’s business is still closely intertwined with GM’s, as the financial firm provides 82% of GM’s dealer floorplanning and 38.2% of GM’s consumer loans. And, as bailed-out businesses (Ally is now 73.8% owned by the US Treasury), any competition between GM and Ally will result in a lose-lose scenario for taxpayers. In recent months it seemed that the two firms were moving towards a deal at the initiative of GM CEO Dan Akerson (and likely motivated to some extent by the COP’s criticisms), but now Bloomberg reports that there are no negotiations between GM and Treasury about a reconciliation of the two firms… in fact, with an Ally IPO planned for this year, it seems the two firms are going to war.

According to the Bloomberg report, GM’s purchase of AmeriCredit last year and its ongoing attempts to expand in-house financing to a number of areas are the big sticking points between GM and Ally, and the conflict is building.

[Ally’s] Chief Executive Officer Michael Carpenter held dealer meetings in several cities and broke custom by scheduling a first-ever event at the National Automobile Dealers Association in San Francisco this month that didn’t include executives of GM, the biggest U.S. car manufacturer, or Chrysler Group LLC, said Gina Proia, an Ally spokeswoman.

GM acquired AmeriCredit to help the automaker offer credit to more consumers, Dan Ammann, GM’s vice president of finance, said last year. Renamed General Motors Financial Co., the unit has expanded since the takeover and may increase loans to borrowers with lower credit scores.

GM Financial started a trial leasing program in Ohio late last year and expanded to seven states in the Northeast in January. GM may also challenge Ally’s hold on dealers by lending them cash to purchase inventory, said Duane Paddock, chairman of GM’s National Dealer Council.

Of course, Ally insists that GM’s efforts to cut into its business haven’t changed the fact that its relationship with The General

is an important and mutually beneficial strategic alliance.

But, says analyst Maryann Keller

The number one question Ally will have to answer on the roadshow is how they can go public if their number one customer is moving away from them. They’re going to have to tell a story about what their business model is going to be.

Ally is still the largest auto lender in the country in terms of consumer loans, and as a bank-holding company it claims it can borrow money at cheaper rates than other finance firms. But if Ally is going to fight off GM’s attempts to expand its in-house lending business through cheap leverage, it could exacerbate the already-heated competition for sales volume in the US car industry, which is already eroding gains in pricing and profitability. A cheap-credit arms race between two bailed-out firms is hardly a foundation for future success and viability.