Dec 30

Written by: Russ Henke
12/30/2008 8:55 AM 

As previously discussed in this blog space, the Bush administration was slow and grudging in helping out the critical US auto industry, exacting many concessions and rules before it recently parted with a few billion dollars.

Here is an update:

The New York Times reported today that "The Treasury Department has agreed to take a stake of $5 billion in GMAC, the auto lending company, and agreed to lend $1 billion to General Motors to help GMAC reorganize itself as a bank holding company." The Treasury Department said "it would buy $5 billion in senior preferred equity with an 8 percent dividend from GMAC. It also said it is lending up to $1 billion to GM to help GMAC reorganize itself as a bank holding company. The agency said it was using funds from the $700 billion Emergency Economic Stabilization Act's Troubled Asset Relief Program to buy the GMAC equity make the loan to G.M."

The Wall Street Journal also reported, "The move represents the second tranche of government aid that redounds to the benefit of giant private-equity firm Cerberus Capital Management, which owns Chrysler and, until these recent moves, a majority stake in GMAC. John Snow, a top player at Cerberus, was the Bush administration's Treasury secretary before Henry Paulson." The Journal adds, "In bailing out GMAC, Treasury officials aren't just stabilizing an auto-finance company but a major player in the housing market's boom and bust. GMAC played a big role in purchasing riskier adjustable-rate mortgages." Treasury has now "spent virtually all the first half of a $700 billion financial-market rescue package Congress approved in early October. Treasury Secretary Paulson said two weeks ago that the first half of the bailout fund was essentially spent and that Congress would soon need to release the second installment."

USA Today reported today, "The moves should let GMAC start lending to customers with less-than-perfect credit again. GMAC had limited its lending to customers with credit scores higher than 700 points." The deal "comes on top of the $13.4 billion in loans the government promised General Motors and Chrysler earlier this month." GMAC "has long been GM's crown jewel. In 2006, GM sold 51% of GMAC to Cerberus, the private-equity firm that later bought 80% control of Chrysler. That year, GM's auto operations lost $3.2 billion, but GMAC pulled in $2.2 billion. The finance arm regularly out-earned automotive operations for years."