U.S. Treasury offers GMAC $6 Billion in Aid

Tom Ludwick

Now that GMAC has successfully been approved to become a bank holding company, the U.S. Treasury Department will purchase a $5 billion stake in the company. Plus, the government will offer up to $1 billion to General Motors so that it can participate in a rights offering at GMAC connected to the lender's reorganization as a bank holding company. The $1 billion is separate from the $13.4 billion bailout promised by the government earlier this month.

When GMAC was approved to become a bank holding company last week its owners GM and Cerberus were required to reduce their stake in the company.

This latest move is just the most recent event in a series of government actions in an attempt to soften the worst credit crisis since the 1930s. All funds mentioned will come from the government's $700 billion Troubled Asset Relief Program (TARP) that was approved in October to rescue ailing financial institutions.

Over the last five quarters, GMAC has posted large losses of $7.9 billion. As a result of the financial crisis, the company has had to cut its leading to customers and auto dealers.

As of late September, GMAC financed 80 percent of inventory at GM dealerships worldwide. The lender is also a major source of retail financing. It provides 42 percent of combined loan and lease volume for GM dealers in North America.

The bottom line is, with the help, GMAC will expectedly be able to resume its large scale financing to dealerships and to new car buyers. If you've had your eye on that shiny new GM product, but can't afford to buy it out right, don't loose hope. Help is on the way.

Source: Automotive News

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