WASHINGTON -- The U.S. Treasury Department late today said it will commit $6 billion of taxpayer money to GMAC LLC as part of a broader program to assist the domestic automotive industry in becoming financially viable.
The action was 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.
In an announcement, the department said it will purchase a $5 billion stake in the lender, which has been jointly owned by Cerberus Capital Management LP and General Motors.
In addition, the government is lending up to $1 billion more to GM so that it can participate in a rights offering at GMAC connected to the lenders reorganization as a bank holding company. The $1 billion comes in addition to $13.4 billion the government has promised GM by mid-February to keep it from running out of cash.
Separately, GMAC said it had raised enough capital through a debt-for-equity offering to satisfy Federal Reserve requirements under today's agreement. The company had hoped to raise $30 billion in capital through the offering. GMAC did not indicate how much capital it raised.
The Federal Reserve Board on Dec. 24 approved a GMAC application to become bank holding company.
All of the funds come from $700 billion Congress and President Bush approved in October to rescue financial institutions.
The Treasury Department said GMAC must comply with the same conditions as other recipients of aid from the rescue funds, including limits on executive pay and requirements for corporate governance.
The bonus pool available to the top 25 GMAC executives was cut by 40 percent from 2007 levels, a Treasury official told reporters on a conference call.
GMAC over the last five quarters has posted losses of $7.9 billion. The credit crunch has forced the company to reduce its lending both to auto dealers and their customers.
As recently as Sept. 30, GMAC provided dealership inventory financing for 80 percent of GM vehicles worldwide. Two months ago, an unscientific Automotive News survey of U.S. GM dealers found that four-fifths floorplanned with GMAC. Of those dealers, half said they were looking for new lenders.
In addition to providing dealer inventory financing, GMAC remains a major source of retail financing. Through Sept. 30, the company says it financed 42 percent of combined loan and lease volume for GM's North American dealers.
GMAC, in a statement, said it will be able to resume lending to a broad spectrum of automotive customers.
Reuters contributed to this report