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Yahoo! My Yahoo! Mail Yahoo! Search Search: Sign InNew User? Sign Up News Home - Help Navigation Primary Navigation Home Singapore Asia Pacific World Business Entertainment Sports Technology Top Stories Most Popular Secondary Navigation Africa Europe Latin America Middle East North America Search Search: GMAC receives $7.5 billion in new Treasury aid By JEANNINE AVERSA and MARCY GORDON,Associated Press Writers AP - Friday, May 22 WASHINGTON - Auto lender GMAC Financial Services will receive $7.5 billion in additional government aid to keep loans flowing to would-be buyers of GM and Chrysler vehicles and shore up its capital postion _ marking the second time the government has stepped in to prop up the lender. ADVERTISEMENT To help GMAC raise additional funds, the Federal Deposit Insurance Corp. took the rare step Thursday of allowing the junk-rated company to gain access to its debt guarantee program. GMAC will be allowed to issue as much as $7.4 billion in debt, guaranteed by the FDIC in case the company defaults on payment. In addition, the Federal Reserve waived rules to give GMAC's new bank, called Ally Bank, more leeway to make loans to GM customers. Analysts suggest that the new government support will make GMAC a lending powerhouse that will give GM and Chrysler a huge advantage over their competitors _ including U.S. rival Ford Motor Co., which hasn't taken any government aid. It would have the power to offer better loan terms to buyers of GM and Chrysler cars and trucks as a way of steering business to those automakers. GMAC received $5 billion in December from the Treasury Department's $700 billion financial bailout program in exchange for 5 million common shares and the promise to extend financing to dealers of Chrysler LLC, which is restructuring under Chapter 11 bankruptcy protection. After failing the government's bank stress test, the Treasury Department mandated earlier this month that GMAC raise $11.5 billion in additional capital, including $9.1 billion of new Tier 1 capital. But GMAC, which reported a first-quarter loss of $675 million, has seen rising defaults in its auto finance division. That, combined with soured assets in its Residential Capital LLC mortgage unit, made it difficult for the company to raise capital from private investors. So in addition to $4 billion in aid to support GMAC's new loans to Chrysler dealers and customers, the government agreed to inject $3.5 billion to help the company bolster its capital cushion. "This new arrangement with GMAC will help provide a reliable source of financing to both auto dealers and customers seeking to buy cars," Treasury Secretary Timothy Geithner said Thursday. GMAC is expected to detail its plans to raise the rest of its capital needs by the government's June 8 deadline. GMAC Chief Executive Alvaro G. de Molina said Thursday the Treasury's latest action marked "another major step in stabilizing and strengthening" the company. The Treasury said it won't immediately hold an equity stake in the lender but will soon exercise its right, under an earlier agreement, to swap an $884 million loan it made to General Motors Corp. for an equity share in GMAC. The Treasury said it expects to exercise that right "in the very near future," giving it a 35.4 percent stake in the company. The government also has instructed GMAC to assemble a new, smaller board of directors, which the company has been putting together. It eventually will include the CEO, two trustees appointed by the Treasury Department to represent the government's interest, and three independent directors to be elected by the rest of the board. The government has a vested interest in seeing GMAC, GM and Chrysler succeed, in order to recoup the billions in aid it has doled out to the companies. General Motors has received $15.4 billion in federal loans and Chrysler has received $5.8 billion. GM is currently negotiating to give the government a 50 percent equity stake in exchange for wiping out a portion of its debt as the company faces a June 1 deadline to restructure or head into Chapter 11 bankruptcy reorganization. It has requested up to $30 billion in additional loans from the Treasury Department to sustain its turnaround effort. Chrysler said last week it intends to terminate franchise agreements of about a quarter of its 3,200 U.S. dealerships by June 9. GM has told some 1,100 of its dealers _ about 20 percent _ that they would be dropped by late next year. Auto dealers say the swift closing of dealerships could lead to significant job losses and leave many dealers with large inventories of unsold vehicles. Sen. Kay Bailey Hutchison, R-Texas, said the new $7.5 billion injection for GMAC would help remaining Chrysler dealerships buy vehicle inventories from dealerships whose franchise agreements are scheduled to end. ____ AP Auto Writer Kimberly S. Johnson in New York contributed to this report. Email Story IM Story Printable View Blog This Sign in to recommend this article » 0 users recommend Related Articles: World Israeli troops kill 2 militants in Gaza clashAP - 2 hours 50 minutes ago GMAC receives $7.5 billion in new Treasury aidAP - Friday, May 22 Florida's BankUnited fails, will cost FDIC $4.9BAP - Friday, May 22 Ex-soldier spared death sentence for Iraq murdersAP - Friday, May 22 Today in History - May 22AP - Friday, May 22 Most Popular – World Viewed Vitamin D boosts brain power in middle-aged men ABN Amro says up to 5,000 job to go in merger Popular cereal is a drug, US food watchdog says S&P issues warning on UK economy credit rating Explorer Ranulph Fiennes climbs Everest View Complete List » Search: Home Singapore Asia Pacific World Business Entertainment Sports Technology Top Stories Most Popular Copyright © 2009 Yahoo! Southeast Asia Pte Ltd. (Co. Reg. No. 199700735D). All Rights Reserved. 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