May 22, 2009 Detroit: GMAC to receive $7.5bn state aid

Article published by the BBC.

GMAC to receive $7.5bn state aid

The US Treasury is to give finance group GMAC $7.5bn (£4.7bn) in further state aid, to help it offer loans to potential Chrysler and GM car buyers. GMAC, which is part-owned by General Motors, failed to meet the government's "stress test" and the Treasury ordered it to raise $11.5bn in extra capital. But the firm failed to raise money privately as bad debt has risen, leading to quarterly losses of $675m.

This is the second time the government has intervened to help GMAC. In December, the government stepped in with a $6bn bail-out of the firm. While GM is trying to stave off bankruptcy protection, Chrysler has already filed for bankruptcy. Analysts argue that the move would provide both car firms with a lead over competitors, by offering more attractive loan terms to would-be buyers.

Bank firm

The group is one of the 19 lenders that were subject to US government "stress tests" to assess the company's health. But GMAC Financial Services has seen its losses increase, as the economic downturn has dented consumer spending. The loss in the first quarter was 15% greater than in the same period a year earlier, when it reached $589m.

The Detroit-based lender also became a bank holding company, called Ally Bank, in order to receive the emergency government funds. The Federal Reserve has now waived rules, permitting GMAC's bank more scope to provide loans.

GMAC will be able to keep lending to GM dealers and customers, which would usually not be allowed, since GMAC is a bank holding firm part owned by GM.