U.S. expands auto bailout, throws 6-billion-dollar lifeline to GMAC

The Treasury said in a statement it would purchase five billion dollars in senior preferred equity with an eight percent dividend from GMAC, which is also partially owned by Chrysler parent company Cerberus Capital Management, and make a one-billion-dollar loan to General Motors.

In exchange, Treasury would receive warrants from GMAC in the form of additional preferred equity equal to five percent of the preferred stock purchase and would be paid a nine-percent dividend if used.

GMAC said the sale of its preferred membership interests and warrants to Treasury was completed Monday.

"GMAC Financial Services ... has sold five billion dollars of GMAC’s preferred membership interests and warrants to the U.S. Department of the Treasury as a participant in the Troubled Assets Relief Program (TARP) established under the Emergency Economic Stabilization Act of 2008," GMAC said in a statement.

The GM loan comes on top of a 13.4-billion-dollar rescue loan package the U.S. government approved this month for GM and Chrysler to stave off collapse amid tight credit and dismal sales. GM would receive an additional four billion dollars from February pending congressional approval.

Treasury said it agreed to the additional one-billion-dollar loan "so that GM can participate in a rights offering at GMAC in support of GMAC’s reorganization as a bank holding company." The reorganization was approved by the U.S. Federal Reserve on December 24.

GMAC faced possible bankruptcy, jeopardizing financing for GM car dealers and customers, and its demise could have dragged down the Detroit automakers fortunes with it.

GMAC has lost five billion dollars over the past six months in investments in the plagued automobile and real estate sectors.

But the company has stressed that acquiring bank holding company status -- and access to federal TARP bailout funds -- would help restore stability to the company seen as crucial to GMs survival.

"The company intends to act quickly to resume automotive lending to a broader spectrum of customers to support the availability of credit to consumers and businesses for the purchase of automobiles," GMAC said.

Treasury said the GMAC plan is "part of a broader program to assist the domestic automobile industry in becoming financially viable." Under the agreement, GMAC must also comply with enhanced restrictions on executive compensation.

The funds for all automaker loans were to come from the TARP, the 700-billion-dollar government bailout plan initially introduced earlier this year to shore up financial firms, Treasury said.

The Treasury announced on December 19 a massive rescue of cash-strapped GM and Chrysler, facing a threat of imminent bankruptcy that could create economic chaos and throw millions out of work across the country.