- The Washington Times - Monday, December 29, 2008

The Treasury Department on Monday night provided General Motors Corp.’s financing arm, GMAC, with a $5 billion cash infusion to prevent it 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.

Potentially, more automakers and their finance arms could apply for assistance from the new program.

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.

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.

GMAC apparently fell short of raising the required cash through repeated bids to replace large portions of its $38 billion in debt with stock. Some big company bondholders reportedly balked at the proposition, which was GMAC’s main way of raising the capital that the Federal Reserve required.

GMAC has lost $7.9 billion in the past five quarters.

Meanwhile, GM and the finance company’s other joint owner, Cerberus Capital, had committed to providing $750 million in equity to the struggling finance company, but that was insufficient to meet the Fed’s requirements.

With the additional Treasury loan, GM can now help the company clear the hurdles laid down by the central bank. Cerberus also apparently agreed to contributed an additional $250 million to the reorganized company.

With its bank status now secure through the convoluted series of transactions, GMAC said it will work to revive quickly its role of providing leases and loans to the company’s customers and dealers. Much of its lending has been in a state of suspension since the severe credit crunch hit in September, contributing the GM’s abysmal sales this fall.

“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.

The Treasury said its new $6 billion cash commitment to GM and its finance arm means that it has committed more than the $350 billion first installment it received for the bailout fund from Congress.

That means Congress and President-elect Barack Obama will have to quickly approve the second $350 billion installment next month, the Treasury said.

The Treasury was able to fund the GMAC stock purchase because not all of the funds it committed to previous programs like the Fed’s consumer credit program have been spent. But without quick action by Congress, the Treasury could face a cash crunch next year.

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