US government may rescue GMAC again with $7.5 billion bailout

General Motors' cash-strapped former finance arm, GMAC LLC may get another lifeline from the US Treasury with a $7.5 billion bailout, which could possibly make the US government the owner of both GMAC and General Motors in the near future.

According to media reports, the US Treasury is likely to inject another $7.5 billion, which would bring the US government's aid package to more than $12 billion, after having injected $5 billion from the $700 billion bailout fund under the Troubled Assets Relief Programme in December. (See: US treasury to acquire stake in GMAC) 

Among the stringent rules applied by the US Federal Reserve for GMAC to convert into a bank holding company was a stake reduction by its owners. GM had to reduce its 49-per cent stake in GMAC to below 10 per cent, while private equity firm Cerberus Capital Management that owned the rest, had to reduce its holding to less than 33 per cent and cut its voting rights down to 14.9-per cent.

In exchange for the $5 billion bailout given to GMAC in December, the government received preferred shares, and now with another fresh injection of funds, the government is expected to ask GMAC to convert its shareholdings into common equity.

GMAC, who had failed the bank stress test two weeks ago, was told by the federal regulators that it would another require $11.5 billion in additional capital for it to continue financing of new cars to consumers.

In order to save GMAC from filing for chapter 11 bankruptcy protection, the severely cash-strapped finance company was allowed in December to convert itself into a bank holding company by the US Federal Reserve, paving the way for it to avail the $700 billion bailout fund under the Roubled Assets Relief Programme. (See: Lifeline given to GMAC with bank holding company status)