GMAC Gets $5 Billion Cash Infusion as Auto Bailout Expands

GM's financing arm, which has been flirting with bankruptcy, said it would ease lending restrictions.

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The Treasury Department will infuse another corporate giant with cash to stave off bankruptcy, announcing last night that $5 billion will go to GMAC, the financing arm of General Motors.

The money comes from the $700 billion in federal bailout funds. On top of the $5 billion, which will purchase preferred shares in the company, the government will lend General Motors up to $1 billion so that it can invest more in GMAC.

The aid marks the latest effort to try to rescue the auto industry. Earlier this month, the government agreed to give auto giants General Motors and Chrysler $17.4 billion in emergency loans. Proponents have said that saving the automakers is key to bailing the country itself out of a deepening recession.

GMAC's teetering on the edge of bankruptcy would have created more problems for the troubled industry, as the firm provides financing for both GM dealers and GM customers. If GMAC had had to file for bankruptcy, General Motors itself could have been threatened.

For consumers, GMAC's infusion of cash means that a major venue of loans for auto buyers has been reopened. The firm announced that it will immediately start lending to customers it had previously turned away.

Last week, the government allowed GMAC to become a bank holding company—a move that gave it access to the $700 billion in the Troubled Asset Relief Program and paved the way for yesterday's announcement.

Despite the latest attempt to save GMAC, however, hurdles remain—including the firm's continuing dependence on a struggling General Motors.