Cash bailout for US auto industry is expanded

THE BUSH administration has expanded its bailout of the US auto industry, saying it was buying $5 billion (€3.5 billion) in equity in auto and mortgage finance company GMAC and increasing a loan to General Motors (GM) by $1 billion.

The action is the latest in a lengthy series of emergency government moves aimed at easing the worst credit crisis since the 1930s, and limiting the severity of a year-long recession.

The Treasury Department said it would buy $5 billion in senior preferred equity with an 8 per cent dividend from GMAC as part of an effort to ensure the solvency of a company considered crucial to GM's survival.

It also said it would lend up to $1 billion to fund GM's purchase of equity in support of GMAC's reorganisation as a bank holding company.

That loan would come on top of assistance extended to the biggest US carmaker earlier this month.

GM said it expected to see a boost to sales as low-cost loans made possible by the federal bailout reached showrooms.

"The bottom line is much better access to funding," GM vice-president for North American sales Mark LaNeve said in a conference call with reporters.

GMAC has also been cleared to operate as a bank holding company after a restructuring that will reduce GM's ownership stake to less than 10 per cent from its current 49 per cent.

Although those changes will make GM the first major automaker to operate without the support of a captive finance company, Mr LaNeve said the more immediate impact would come as a better-capitalised GMAC relaxed credit for consumers.

GMAC said yesterday it would begin offering financing to consumers with credit scores of 621 or higher, an easier standard than the 700-score limit it had imposed in October as credit tightened.

Mr LaNeve said the easier lending standard would allow GMAC to finance vehicles for about 75 per cent to 80 per cent of new car shoppers, up from just 40 per cent under the tighter standard it had applied for the past two months. He said GM was also considering a return to auto leasing, a form of financing credited with having supported sales across the industry from 2000 until 2006. - (Reuters)