The US Treasury Department said last night it will pour another $7.5 billion into auto lender GMAC, a further lifeline to embattled carmakers Chrysler and General Motors.
The action is intended to counter a scarcity of credit and a 1-½ year-long slump in car sales that has pushed the US auto industry to the wall and thrown hundreds of car dealers out of business, swelling jobless rolls.
The Federal Reserve also offered help in the form of an exemption to let GMAC keep lending to GM dealers and customers, something it normally would be barred from doing now that the lender is a bank holding company in which GM has an interest.
Treasury Secretary Timothy Geithner said the aid, which takes taxpayer support to GMAC up to about $13.5 billion, "will offer strong credit opportunities, help stabilize our auto financing market, and contribute to the overall economic recovery.”
Chrysler filed for bankruptcy on April 30th and GM likely will do so on or before June 1st Administration officials who briefed reporters sounded glum about the GM's ability to come up with a viable restructuring plan on its own.
“GM faces a number of hurdles and it may well be that a court process is necessary to effectuate the restructuring,” an official said.
The new capital for GMAC is on top of $5 billion the Treasury put into it last December and $884 million the Treasury lent GM to purchase GMAC stock.
The Treasury said that in the “very near future” the government would convert its $884 million in preferred GMAC shares into common stock, which would give taxpayers a 35.4 percent stake in the lender.
The new investment is also in the form of preferred shares, so it does not immediately increase the government's common equity stake. However, those shares could also be converted in the future and taxpayers could theoretically come to hold a majority interest in GMAC.
The latest capital infusion includes $4 billion to help GMAC lend to Chrysler dealers and customers. The remaining $3.5 billion will help plug a capital shortage regulators found when they conducted “stress tests” at the 19 largest US banks.
Regulators ordered GMAC to plug an $11.5 billion capital hole, the third-largest of the 10 lenders found to need more capital, and by far the biggest shortfall relative to the company's size. It has until June 8th to come up with a plan to fill the gap.
Reuters