deepak pace
DJ_DEE
NEW YORK (CNNMoney.com) -- In yet another move to prop up the crumbling U.S. auto industry, the government announced Monday that it will pump $6 billion into GMAC Financial Services, a financing company critical to the survival of General Motors.
The rescue package has two parts. The Treasury Department is injecting $5 billion directly into GMAC in exchange for preferred equity shares that pay an 8% dividend. GMAC also is issuing warrants to Treasury in the form of preferred stock. If exercised, the warrants will pay a 9% dividend.
Also, the government will lend $1 billion to GM that the automaker will invest in its financing arm. GMAC needs the funding to convert to a bank holding company, a necessary step to receiving the bailout money.
The Federal Reserve said last week that it would approve GMAC's conversion to a bank holding company, subject to certain conditions.
The move deepens the federal government's bailout of the troubled auto industry. Less than two weeks ago, President Bush announced a $17.4 billion rescue package to prevent the collapses of General Motors and Chrysler LLC.
Treasury officials called Monday's action "part of a broader program to assist the domestic automotive industry in becoming financially viable."
The federal injection will allow GMAC to jumpstart its lending.
"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 in a statement.
As part of Monday's bailout, GMAC will have to limit executives' compensation. Top officials will not be allowed to receive severance packages and the bonus pool for the top 25 executives must be 40% lower than 2007 levels, a Treasury official said. Some of the conditions are stricter than those that banks receiving bailout funds must comply with.
The rescue package has two parts. The Treasury Department is injecting $5 billion directly into GMAC in exchange for preferred equity shares that pay an 8% dividend. GMAC also is issuing warrants to Treasury in the form of preferred stock. If exercised, the warrants will pay a 9% dividend.
Also, the government will lend $1 billion to GM that the automaker will invest in its financing arm. GMAC needs the funding to convert to a bank holding company, a necessary step to receiving the bailout money.
The Federal Reserve said last week that it would approve GMAC's conversion to a bank holding company, subject to certain conditions.
The move deepens the federal government's bailout of the troubled auto industry. Less than two weeks ago, President Bush announced a $17.4 billion rescue package to prevent the collapses of General Motors and Chrysler LLC.
Treasury officials called Monday's action "part of a broader program to assist the domestic automotive industry in becoming financially viable."
The federal injection will allow GMAC to jumpstart its lending.
"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 in a statement.
As part of Monday's bailout, GMAC will have to limit executives' compensation. Top officials will not be allowed to receive severance packages and the bonus pool for the top 25 executives must be 40% lower than 2007 levels, a Treasury official said. Some of the conditions are stricter than those that banks receiving bailout funds must comply with.
