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By NEIL KING JR. and DEBORAH SOLOMON
http://online.wsj.com/article/SB124285476839840701.html
http://online.wsj.com/article/SB124285476839840701.html
WASHINGTON -- The Treasury Department is poised to inject more than $7 billion into GMAC LLC, the first installment of a new government aid package that could reach $14 billion, according to people familiar with the matter.
As a result of the move, the government within months could end up owning both GMAC and General Motors Corp. The GM plan being devised by President Barack Obama's auto task force calls for the government to emerge with a majority stake. And the increasing infusion of taxpayer money into GMAC could turn the U.S. government into a majority shareholder there.
The GMAC injection is designed to firm up the auto-financing company's battered balance sheet and allow it to continue making loans for car purchases at GM and Chrysler LLC. The Treasury already put $5 billion into GMAC in December.
The GMAC funding is an illustration of how rapidly the government effort to rescue the U.S. auto industry is escalating in cost and scope. What began as an emergency batch of loans to GM, Chrysler and GMAC in December -- totaling just over $20 billion -- now looks likely to balloon well beyond $50 billion and could approach $100 billion by the end of the year.
Whether the U.S. emerges as a majority shareholder in GMAC depends on how the arrangement is structured. It's possible the U.S. might end up investing less than the $14 billion figure, the people familiar with the plan said. GMAC is now owned by GM and a group led by private-equity firm Cerberus Capital Management LP.
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Much of the initial money will go to help GMAC shoulder new lending responsibilities for Chrysler dealers and consumers after Chrysler's government-orchestrated Chapter 11 bankruptcy filing last month. As part of the Chrysler reorganization, the government in effect dissolved Chrysler Financial and handed its business to GMAC, creating one big auto-financing arm that would service both companies.
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Treasury officials declined to comment on the pending announcement. GMAC spokeswoman Gina Proia said the company was anticipating government support for the Chrysler financing, but she declined to elaborate.
A second installment of funds would be used to help the company revive its battered balance sheet. After completing stress tests of the country's top 19 financial institutions earlier this month, the Treasury and the Federal Reserve said GMAC needed to increase its capital reserves by $11.5 billion.
The company, which is revamping its board of directors, is scheduled to issue a report June 8 on how it plans to bulk up its reserves. The vast majority of the money is expected to come from the federal government.
Last week, GMAC relaunched its consumer-oriented GMAC Bank under the new name Ally Bank. It also began a marketing campaign to encourage customers to turn to the bank for retail deposits, one way it's looking to rebuild its capital base.
The government has already sunk nearly $16 billion into GM, and plans to put at least $12.5 billion into Chrysler. Ushering GM through a bankruptcy process, as now seems increasingly likely, could demand many tens of billions of dollars more in government assistance to keep the company afloat during a reorganization and then to recapitalize it afterward.
In addition, the Energy Department plans over coming years to offer loan guarantees worth $25 billion -- and potentially as much as $50 billion, under legislation now being debated in Congress -- to retool U.S. factories to build more fuel-efficient cars.
The government has also put more than $11 billion in recent months into programs to help shore up auto suppliers, car warranties, and consumer auto loans.
It remains unclear how much of this money will be returned eventually to the Treasury or other parts of the government. Many of the loans to GM and Chrysler are likely to be written off, administration officials say. Other programs, such as the government aid to auto suppliers, are essentially a revolving credit line that is meant to be replenished.
At the same time, the government is converting its largess into sizable equity stakes. Current plans call for the U.S. government to emerge with an 8% stake in a post-bankruptcy Chrysler and a 55% share of a reformulated GM.
The government received preferred shares in GMAC in December in exchange for its $5 billion investment in the company. With another large injection of cash, the government is expected to push for a conversion of its shareholdings into common equity.
As a result of the move, the government within months could end up owning both GMAC and General Motors Corp. The GM plan being devised by President Barack Obama's auto task force calls for the government to emerge with a majority stake. And the increasing infusion of taxpayer money into GMAC could turn the U.S. government into a majority shareholder there.
The GMAC injection is designed to firm up the auto-financing company's battered balance sheet and allow it to continue making loans for car purchases at GM and Chrysler LLC. The Treasury already put $5 billion into GMAC in December.
The GMAC funding is an illustration of how rapidly the government effort to rescue the U.S. auto industry is escalating in cost and scope. What began as an emergency batch of loans to GM, Chrysler and GMAC in December -- totaling just over $20 billion -- now looks likely to balloon well beyond $50 billion and could approach $100 billion by the end of the year.
Whether the U.S. emerges as a majority shareholder in GMAC depends on how the arrangement is structured. It's possible the U.S. might end up investing less than the $14 billion figure, the people familiar with the plan said. GMAC is now owned by GM and a group led by private-equity firm Cerberus Capital Management LP.
[..]
Much of the initial money will go to help GMAC shoulder new lending responsibilities for Chrysler dealers and consumers after Chrysler's government-orchestrated Chapter 11 bankruptcy filing last month. As part of the Chrysler reorganization, the government in effect dissolved Chrysler Financial and handed its business to GMAC, creating one big auto-financing arm that would service both companies.
[..]
Treasury officials declined to comment on the pending announcement. GMAC spokeswoman Gina Proia said the company was anticipating government support for the Chrysler financing, but she declined to elaborate.
A second installment of funds would be used to help the company revive its battered balance sheet. After completing stress tests of the country's top 19 financial institutions earlier this month, the Treasury and the Federal Reserve said GMAC needed to increase its capital reserves by $11.5 billion.
The company, which is revamping its board of directors, is scheduled to issue a report June 8 on how it plans to bulk up its reserves. The vast majority of the money is expected to come from the federal government.
Last week, GMAC relaunched its consumer-oriented GMAC Bank under the new name Ally Bank. It also began a marketing campaign to encourage customers to turn to the bank for retail deposits, one way it's looking to rebuild its capital base.
The government has already sunk nearly $16 billion into GM, and plans to put at least $12.5 billion into Chrysler. Ushering GM through a bankruptcy process, as now seems increasingly likely, could demand many tens of billions of dollars more in government assistance to keep the company afloat during a reorganization and then to recapitalize it afterward.
In addition, the Energy Department plans over coming years to offer loan guarantees worth $25 billion -- and potentially as much as $50 billion, under legislation now being debated in Congress -- to retool U.S. factories to build more fuel-efficient cars.
The government has also put more than $11 billion in recent months into programs to help shore up auto suppliers, car warranties, and consumer auto loans.
It remains unclear how much of this money will be returned eventually to the Treasury or other parts of the government. Many of the loans to GM and Chrysler are likely to be written off, administration officials say. Other programs, such as the government aid to auto suppliers, are essentially a revolving credit line that is meant to be replenished.
At the same time, the government is converting its largess into sizable equity stakes. Current plans call for the U.S. government to emerge with an 8% stake in a post-bankruptcy Chrysler and a 55% share of a reformulated GM.
The government received preferred shares in GMAC in December in exchange for its $5 billion investment in the company. With another large injection of cash, the government is expected to push for a conversion of its shareholdings into common equity.