GMAC To Receive $5 Billion In TARP Funds

December 30, 2008 10:26 a.m. EST

Detroit, MI (AHN) - Just days after receiving approval to become a bank holding company, GMAC Financial Services was told by the Treasury Department it would receive $5 billion in funds from the $700 billion Troubled Asset Relief Program.

GMAC, which provides the majority of financing for GM vehicle buyers, said it will now expand its auto financing to a broader spectrum of customers. The financing company tightened up standards as capital became scarce, thus reducing the number of customers that could get financing to purchase a GM vehicle.

Customers with credit scores of 621 or above will now be eligible for car loans, as opposed to the 700 credit rating criteria the firm was using.

"The actions of the federal government to support GMAC are having an immediate and meaningful effect on our ability to provide credit to automotive customers," said GMAC President Bill Muir in a company statement. "We will immediately put our renewed access to capital to use to facilitate the purchase of cars and trucks in the U.S."

In return for the $5 billion in funds, the Treasury Department will receive preferred shares that pay an 8 percent dividend along with warrants that can be converted into shares of common stock.

GMAC became eligible for the bailout money after it scrambled to reorganize its debt and raise capital in order to become a bank holding company. The firm used a debt-for-equity exchange offer, calling in billion of bonds in exchange for preferred stock and the like.

Without cooperation from a large portion of its bondholders, GMAC would not have satisfied the Federal Reserve's requirements for bank holding status.

The move is just the latest by the Treasury to help prop-up the struggle automakers. Earlier in the month, GM and Chrysler were provided with multibillion dollar loans to help finance operating costs into next year.