31 Dec 2008

$US6b bail-out for car loan company

6:41 am on 31 December 2008

The US Treasury has announced a $US6 billion rescue package for the car loan arm of General Motors, GMAC, which is co-owned by Chrysler's owner, Cerberus.

The BBC reports the move is the latest aimed at easing the severity of the economic downturn.

Earlier this month the White House agreed a $US17.4 billion bail-out of GM, Chrysler and Ford to help stave off collapse.

GMAC recently gained approval to become a bank holding company, giving it access to emergency government funds offered to other financial institutions.

Under the terms of the rescue, the US Treasury will buy $US5 billion in shares in GMAC and will increase a loan to GM, by an extra $US1 billion. The loan is in addition to the bail-out for the car industry.

The Treasury said it was dipping into a $US700 billion financial bail-out fund which was approved by Congress in early October to fund the rescue.

GMAC's solvency is considered crucial to GM's survival. The car loans company has lost $US7.9 billion over the last five quarters.

GM currently owns 49% of GMAC and Chrysler's owner Cerberus owns 51%. Cerberus bought its stake from GM for $US14 billion in 2006.

GM and Cerberus will both see their holdings in GMAC reduced. GM will end up with 10% stake, while Cerberus will have a 30% share in GMAC.