Treasury will give GMAC $5 billion

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By Patrice Hill

UPDATED:

The Treasury Department on Monday night provided General Motors' financing arm with a $5 billion cash infusion to prevent GMAC from nose-diving into bankruptcy.

The stock investment in GMAC comes on top of $9.4 billion in loans that the Treasury already is providing to the nation's leading auto manufacturer and is part of a new emergency financing program for Detroit's Big Three that the Treasury is setting up within the $350 billion bank bailout program.

The move brings the total of bailout funds committed to automakers to $23.4 billion, including loans already announced for Chrysler and GM. Potentially more automakers and their finance arms could apply for assistance under guidelines that the Treasury said it will publish this week.

In a maneuver that is aimed at assisting GMAC in its bid to become a bank, the Treasury said it is providing GM with an additional $1 billion loan that it expects the automaker to use to purchase stock in the finance company after it reorganizes into a bank.

Treasury's latest in an unprecedented series of bailout measures more than depletes the funds that Congress has made available so far. The move was aimed at averting a collapse at the GM finance arm only days after Treasury pledged to prevent the largest automaker from falling into bankruptcy.

The Federal Reserve approved GMAC's application to become a bank-holding company last week but made the approval contingent on GMAC raising $30 billion in capital from existing stock and bond investors.

Though GMAC has a troubled mortgage affiliate, the two businesses are closely tied together in galvanizing millions of auto sales each year, and analysts say the failure of either would lead to the downfall of the other.

GMAC "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," the company said on receiving the Treasury cash.

Ironically, Monday's disbursement for GMAC came before the Treasury's first loan installment for GM, which was scheduled to go out no earlier than Tuesday.