The Treasury could put another $7bn of capital in GM’s financing arm, GMAC, which has already received $5bn in the past. If this move happens, the government could be the biggest shareholder of the firm. The plan comes as the financing arm is expected to continuously provide more loans to GM and Chrysler consumers in order to prop up demand for autos.
From the WSJ:
GMAC’s troubles stem from a spate of subprime-mortgage lending in recent years as the company moved beyond its traditional business of supplying fleet financing for GM dealers. Today, bailing out the lending company goes to the heart of the administration’s far-larger effort to keep GM and Chrysler alive. Analysts say both companies would fall apart without GMAC’s revolving loans for their vast fleet of dealers, as well as for consumer loans to buy cars.
Much of the initial money will go to help GMAC shoulder new lending responsibilities for Chrysler dealers and consumers after Chrysler’s government-orchestrated Chapter 11 bankruptcy filing last month. As part of the Chrysler reorganization, the government in effect dissolved Chrysler Financial and handed its business to GMAC, creating one big auto-financing arm that would service both companies.