Treasury Pours Billions More Into GMAC

The government is providing auto lender GMAC Financial Services with $7.5 billion in additional aid to keep loans flowing to would-be buyers of GM and Chrysler vehicles. Treasury Secretary Timothy Geithner says it'll help stabilize the auto financing market, which should help the economy.

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STEVE INSKEEP, host:

The U.S. government is wading even more deeply into the American auto industry. The Treasury Department said last night it's making another big investment. It's putting more than $7 billion into GMAC. That's the financing company that used to be part of General Motors but is now independent. And by way of full disclosure GMAC has also supported NPR News.

NPR's Tom Gjelten is following the story. Tom, good morning.

TOM GJELTEN: Good morning, Steve.

INSKEEP: I'd like to know how is this investment going to help boost car sales, which is the stated goal?

GJELTEN: Steve, the thing is that no car company is going to sell cars unless it has a strong financing capability. You know that two out of three new car buyers finance their cars. And of course, the United States now has a lot at stake in GM and Chrysler. The Obama administration is trying very hard to save them.

If they are to survive, they need a financing capability, and that means GMAC. That's going to be the financing arm for both GM and Chrysler. But for it be strong enough to play that financing role, it needs a lot of new capital - $7.5 billion to be exact, maybe more down the road.

And in announcing this investment last night, Treasury Secretary Timothy Geithner said it would help provide a reliable source of financing to both auto dealers and customers seeking to buy new cars.

INSKEEP: Hadn't the government already put money into GMAC?

GJELTEN: It sure had, about $5 billion last December. Remember, GMAC, as you suggested, is not just an auto financing company anymore. It's essentially a bank. It was part of this big stress test last month of big banks and that - the Treasury Department determined it needed $11 billion in capital reserves in order to be stable.

This $7.5 billion in new investment, a little less than half, is going to go to shore up those capital reserves. Four billion would go for direct financing for auto sales, Chrysler in particular. But GMAC will still need close to $8 billion in additional reserves, so we'll see where this goes next.

INSKEEP: The government is buying stock here, is that right?

GJELTEN: That's right. The government is buying preferred stock. And that's an important point, Steve, because if it had bought common stock, its ownership - common stock carries with it voting rights. If the government had bought common stock, it would increase its ownership share.

By buying preferred stock, the ownership share of the government in GMAC stays at about 36 percent. Now down the road, it may be that this preferred stock investment gets converted to common stock, in which case the government ownership share in GMAC could actually be close to 50 percent.

INSKEEP: Tom, we just got a couple of seconds. But is the government going to be able to get out of GMAC anytime soon?

GJELTEN: Well, that's the big question, Steve. In for a dime, in for a dollar, or in for five billion, in for 50, right? The U.S. auto industry is a big, complex enterprise, and if you set out to save it you find that the expense at the end of the day could be enormous.

INSKEEP: That's NPR's Tom Gjelten. Tom, thanks very much.

GJELTEN: Thank you, Steve.

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