The Bush administration is buying $5 billion in equity in GMAC – the finance arm owned by GM and Cerberus Capital Management. The Treasury has also offered a new $1 billion loan to GM so the automaker could participate in a rights offering at GMAC.
Yes, this in addition to the recent $17.4 billion emergency loan to save GM and Chrysler from bankruptcy. In fact, the government already helped GMAC last week, when the Federal Reserve approved the finance company’s application to become a bank-holding company.
But the Fed’s approval was conditional on GMAC raising new capital.
GMAC said it had raised enough capital to satisfy the Fed’s conditions just as the Treasury announcement on Monday.
The Treasury’s generous moves help Cerberus just as much as they help the auto industry. Cerberus bought 51 percent of GMAC in 2006 and 80 percent of Chrylser last year. The private equity firm has been stung by both those investments as U.S. auto sales have plunged to record lows amid a sinking economy following its purchases.