GMAC gets more capital

07/01/2010

The US government understands that an important key to car sales is the availability of finance, hence when it bailed out General Motors, it also bailed out its financing arm,GMAC, taking a 35 percent stake in the company. 

Coming up to Christmas 2009, GMAC was again in need of fresh capital from the US government, because a stress test had identified a further gap to fill. GM ousted its chief executive last month and has been in difficult talks with regulators and the Treasury after abandoning hopes of filling the capital shortfall by raising equity privately. “As we stated on November 9, Treasury is in discussions with GMAC to ensure its capital needs as determined last May by the stress tests are met,” said a Treasury spokesman.

Luckily, the Treasury Department announced it would provide GMAC Financial Services with an additional $3.8 billion in capital, and assume a majority stake in the firm. The additional aid brings the total U.S. investment in GMAC to $16.3 billion and raises the government's ownership interest to 56 percent.

In exchange for committing more funds, the Treasury will appoint a total of four directors to the company's board instead of two as previously planned, and the company will also continue to be subject to pay limits set by U.S. pay czar Kenneth Feinberg.

The new investment comes as much of the $700 billion Tarp fund is being wound down, with institutions that received investments scrambling to repay and escape restrictions on pay and hiring. However, GMAC is not in a position to follow Citigroup and Bank of America in raising capital privately to repay the government.

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