Stepping into deeper waters to help the auto industry, Treasury Monday night added $6 billion to the $17.4 billion bailout announced Dec. 19, chiefly to help the financial arm of General Motors Corp.
Using financial markets rescue funds, Treasury will purchase $5 billion in senior preferred equity from GMAC LLC, and up to $1 billion more will be lent to GM itself so the automaker can participate in a rights offering at GMAC, which has wanted to reorganize itself as a bank holding company.
GMAC won approval from the Federal Reserve last week to become a bank holding company, but that was contingent on the auto and home loan provider raising at least $30 billion in capital. Treasury’s announcement would appear to move GMAC closer to that goal, and a GM spokeswoman was optimistic Monday night.
From Treasury’s standpoint, the new commitment raises again the pressure on the White House, Congress and the incoming Obama administration to come together on some plan for releasing the second half of the $700 billion financial rescue fund enacted in October.
Even before Monday night, Treasury would need this to happen soon to implement its aid package for the auto industry. And the added $6 billion only makes it more important.
There is some leeway in terms of actual cash flow, since some prior commitments to the banking industry have yet to be fully implemented. But a Treasury official said Secretary Henry Paulson would be meeting “soon” with congressional leaders and the Obama transition team on how to proceed.
"This will restore liquidity in the auto market and help Americans purchase a car,” said Steve Bartlett, President and CEO of the Washington-based Financial Services Roundtable. “This, combined with the deal announced with automakers, will strengthen the entire auto market from manufacturing all the way to the consumer's driveway."