GMAC Gets $6 Billion from Treasury
The government announced Monday that it will inject $6 billion into GMAC Financial Services, an automotive financing, insurance and mortgage firm seen as essential to the survival of General Motors Corp.
The Treasury Department will give $5 billion directly to GMAC for equity shares paying an 8% dividend. The Treasury will also lend $1 billion to General Motors to invest into GMAC, which was formerly the financing arm of the auto giant.
The money will allow GMAC to convert to a bank holding company and also to jumpstart its lending operations.
“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 in a statement.
This money comes less than two weeks after President George W. Bush announced a $17.4 billion rescue package for General Motors and Chrysler. The president took that step after Congress voted not to fund an auto industry bailout, and after Ford declined any bailout funds.
GMAC is the biggest lender to GM’s 6,500 dealers nationwide. They provide financing for dealers to purchase inventory from the automaker. Without such financing, they would be unable to fill their lots with actual cars. If GMAC were to fail, it could trigger a complete collapse of the dealer system in place, crippling the auto giant.