$6 Billion bailout package for U.S. auto giant GM

Tuesday, 30 December 2008, 07:37 Hrs
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Washington: The U.S. Treasury Department has announced that it would commit $6 billion to supporting GMAC LLC, the financing arm of General Motors Corp., to save the ailing car giant from bankruptcy.

The Treasury will buy a $5-billion stake in GMAC and also lend GM an additional $1 billion so that the largest U.S. carmaker can contribute to the financier's reorganization as a bank holding company.

Last week, the Federal Reserve approved GMAC's application to become a bank holding company, giving it greater access to federal funding. GM owns 49 percent of GMAC, which is a critical source of financing for car sales.

This funding is in addition to the $13.4-billion emergency loan agreed to by the White House earlier this month to keep the iconic US car industry alive and avoid an even deeper economic
recession in the country.

The $13.4-billion loan provides GM with $9.4 billion and Chrysler LLC with $4 billion over December and January. GM could get another $4 billion in February.

But the federal funds come with tough conditions.

GM and Chrysler will have to prove they can return to viability or the money could be withdrawn by March 31, likely leaving no option to bankruptcy.

The funds announced Monday will enable GMAC to expand lending to buyers and help rescue GM. The money will come from the government's $700-billion financial rescue package, which was initially
reserved for financial institutions, but is now propping up lenders, the car industry and finance companies.

Car sales have plunged some 40 percent in the past few months as consumers struggled to get loans in the current financial crisis, adding to the woes of an industry that has already been struggling to
keep up with more fuel-efficient and cheaper foreign competitors.

GM's sales dropped 22 percent this year and GMAC has run desperately low on cash, allowing for only limited loans to buyers with the best credit.

GMAC said in a statement that it "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."
Source: IANS
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