The US Treasury has unveiled a US$6 billion (Dh22bn) package to assist GMAC, the troubled financial arm of General Motors seen as vital to the survival of America's largest automaker. The Treasury said in a statement yesterday that it would purchase $5bn in senior preferred equity with an eight per cent dividend from GMAC, which is also partially owned by Chrysler parent company Cerberus Capital Management, and make a $1bn loan to General Motors.
In exchange, the Treasury would receive warrants from GMAC in the form of additional preferred equity equal to five per cent of the preferred stock purchase and would be paid a nine-per cent dividend if used. GMAC said the sale of its preferred membership interests and warrants to Treasury was completed yesterday. "GMAC Financial Services ... has sold five billion dollars of GMAC's preferred membership interests and warrants to the US Department of the Treasury as a participant in the Troubled Assets Relief Program (TARP) established under the Emergency Economic Stabilization Act of 2008," GMAC said in a statement.
The GM loan comes on top of a $13.4bn rescue loan package the US government approved this month for GM and Chrysler to stave off collapse amid tight credit and dismal sales. GM would receive an additional $4bn from February pending congressional approval. The Treasury said it agreed to the additional one-billion-dollar loan "so that GM can participate in a rights offering at GMAC in support of GMAC's reorganisation as a bank holding company". The reorganisation was approved by the US Federal Reserve on Dec 24.
GMAC faced possible bankruptcy, jeopardising financing for GM car dealers and customers, and its demise could have dragged down the Detroit automaker's fortunes with it. GMAC has lost $5bn over the past six months in investments in the plagued automobile and real estate sectors. But the company has stressed that acquiring bank holding company status and access to federal TARP bailout funds would help restore stability to the company seen as crucial to GM's survival.
"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. The Treasury said the GMAC plan is "part of a broader programme to assist the domestic automobile industry in becoming financially viable." Under the agreement, GMAC must also comply with enhanced restrictions on executive compensation.
The funds for all automaker loans were to come from the TARP, the $700bn government bailout plan initially introduced earlier this year to shore up financial firms, the Treasury said. The Treasury announced on Dec 19 a massive rescue of cash-strapped GM and Chrysler, facing a threat of imminent bankruptcy that could create economic chaos and throw millions out of work across the country. *AFP