The government gave GMAC Financial Services another $3.8 billion in cash and took a majority stake in the auto lender, aiming to stabilize the company as it struggles with big losses in its home mortgage unit.
The fresh infusion is on top of $12.5 billion in taxpayer money Detroit-based GMAC has already received from the government. The new aid will boost the federal government's ownership in GMAC to 56 percent, from 35 percent, and means the U.S. now holds a majority stake in three companies that it bailed out with taxpayer funds — GMAC, General Motors and insurer American International Group. The government also has taken control of mortgage giants Fannie Mae and Freddie Mac.
Keeping GMAC alive as it struggles with its mortgage loan problems has been a major component of the Obama administration's massive effort to rescue ailing automakers General Motors and Chrysler. The lender provides critical wholesale financing to thousands of GM and Chrysler auto dealers, allowing them to stock their showroom floors with vehicles.
That ability was crimped as loan losses mounted at GMAC's mortgage division — Residential Capital, dubbed ResCap. The company disclosed Wednesday that it will take an additional $3.3 billion in mortgage-related write-downs, part of a $3.8 billion expected charge in the fourth quarter. GMAC is also preparing to sell off mortgage assets in an effort to reduce volatility.
GMAC's core auto lending business has shown some signs of revival even as auto sales slumped this year. The auto financing division earned a profit of $395 million during the third quarter. The company's online consumer banking unit, Ally Bank, has also been a bright spot by bringing in billions of dollars in new deposits by offering relatively high interest rates. It now accounts for about 29 percent of GMAC's assets.
Even with the government upping its stake, Treasury officials said the government intends to stick to its policy of leaving day-to-day business decisions about financing to GMAC management. Still, with the additional stake, the government will have the right to appoint two additional directors to the company's board, bringing the total to four of nine, Treasury officials said.
GMAC will continue to be subject to executive pay restrictions imposed by the government.
GMAC was granted bank holding company status a year ago, allowing it to borrow funds from the Federal Reserve and receive a portion of the government's bailout fund. It later failed the government's stress test, largely because of ResCap's big losses. That triggered a Treasury Department requirement that it raise $11.5 billion in additional capital this year. When it failed to do so, an extra government infusion became necessary.
“By protecting the financial performance and strength of our core automotive finance operations, we expect to increase the pace at which we can fully repay the U.S. taxpayer,” Michael Carpenter, GMAC's chief executive, said in a statement on Wednesday.
The Treasury Department said the new aid, which comes from a taxpayer-financed bailout fund, is less than the roughly $6 billion the government had earlier thought GMAC would need to steady the company. That's because the impact from General Motors' bankruptcy filing wasn't as severe as originally projected. It marked the third time the government has thrown GMAC a lifeline.