GMAC gets $3.8 billion infusion

Associated Press

The government Wednesday provided $3.8 billion more to stabilize GMAC Financial Services as it struggles with hefty losses in its home mortgage unit.

The Treasury Department said the new aid, which comes from a taxpayer-financed bailout fund, is less than the roughly $6 billion the government had thought GMAC would need.

The money is on top of $12.5 billion GMAC has already received from the government. The new agreement will boost the federal government’s ownership in GMAC to 56 percent from 35 percent.

Treasury officials said the government intends to stick to its policy of leaving day-to-day business decisions to GMAC management. Still, with the additional stake, the government will have the right to appoint two more directors to the company’s board, Treasury officials said.

GMAC will continue to be subject to executive pay restrictions imposed by the government’s pay czar.

Shoring up GMAC has been a major component of the Obama administration’s massive effort to rescue General Motors and Chrysler. GMAC provides critical wholesale financing to thousands of GM and Chrysler auto dealers, allowing them to stock their showrooms with vehicles. It also loans money to people who buy cars from dealers.

But GMAC also operates a large residential mortgage business, ResCap, which was battered by the housing collapse. GMAC was obligated by the Treasury Department to raise $11.5 billion in additional capital earlier this year after failing the government’s stress test for banks, largely because of ResCap’s big losses.

The stress tests were to see whether banks had enough capital even if the economy worsens next year. However, GMAC had difficulty raising money because of its financial woes, making an extra government infusion necessary.

Michael Carpenter, who succeeded Alvaro De Molina as the company’s CEO in November, has said the company would need no more than $5.6 billion in aid. Lawmakers estimated the company would receive between $2 billion and $5 billion in additional aid.

Any additional government money would come from the $700 billion Troubled Asset Relief Program that has been used to bail out troubled financial institutions and automakers.

Even after the latest capital infusion, the government will likely take steps to help GMAC as it tries to ensure the recovery of GM and Chrysler, said Kirk Ludtke, senior vice president at CRT Capital Group LLC. That includes helping GMAC refinance its debt as it comes due, he said.