GMAC Receives $6 Billion Bailout to Support Stricken US Car Industry

The US government's decision to provide a $6 billion bailout to GMAC, the lender part-owned by General Motors, has boosted confidence in the country's stricken car industry. The package, which consists of $5 billion for an equity stake in GMAC and a $1 billion loan to GM, is expected to provide much-needed financing for retail car and truck buyers. The move has had a positive impact on the stock market, with GM shares rising 5.6% in New York.

Key Takeaways:

• The $6 billion bailout package includes $5 billion for an equity stake in GMAC and a $1 billion loan to GM to support GMAC's transformation into a bank holding company.
• GMAC will provide financing for retail car and truck buyers with a score of 621 on the Fico credit-rating scale, just above what is considered sub-prime.
• The federal government's support for GMAC is expected to have an immediate and meaningful effect on the company's ability to provide credit to automotive customers.
• GM, which owns 49% of GMAC, is heavily reliant on the company for its survival, with GMAC providing the bulk of finance to retail customers and its failure potentially putting GM at risk of losing up to 40% of its US dealerships.
• The government's support might also be extended to Delphi, GM's former parts maker, which is mired in bankruptcy.
• The bailout is part of the Treasury's $700 billion Troubled Asset Relief Programme, which was originally designed to buy illiquid securities from banks to free up inter-bank lending.
• GMAC's ability to lend has been severely restricted due to the credit crisis, limiting its ability to finance purchases and provide financing for vehicles on dealerships' lots until they are bought.

Statistics:

• $6 billion is the total value of the bailout package provided to GMAC.
• 621 is the Fico credit-rating scale score that will be eligible for financing under GMAC's new lending criteria.
• 5.6% is the percentage increase in GM shares after the announcement of the bailout package.
• 2.2% is the percentage increase in the Dow Jones Industrial Average after the announcement of the bailout package.
• 1.7% is the percentage increase in the FTSE 100 index after the announcement of the bailout package.
• 1.3% is the percentage increase in the Nikkei 225 index after the announcement of the bailout package.
• 11% is the highest point that GM shares rose in value at one stage after the announcement of the bailout package.
• $5.5 billion is the amount of government money pledged to GM and Chrysler on December 19 to help them avoid bankruptcy.
• $17.4 billion is the total amount of government support pledged to GM and Chrysler.
• $2.15 million is the upfront cost of insuring $10 million of GMAC debt against default for five years, which fell to $1.6 million after the bailout package.

Sources:

• "GMAC, the US lender part-owned by General Motors, has moved quickly to widen its lending and boost the country's stricken car industry after receiving a $6 billion bailout from the federal government." - [1]
• "The package comprises $5 billion for an equity stake in GMAC and a $1 billion loan to GM so that it can support GMAC's rights offer as part of its transformation into a bank holding company." - [1]
• "GMAC said it would provide financing for retail car and truck buyers with a score of 621 on the Fico credit-rating scale, just above what is considered sub-prime." - [1]
• "The actions of the federal government to support GMAC are having an immediate and meaningful effect on our ability to provide credit to automotive customers," Bill Muir, GMAC's president said. - [1]
• US government's Troubled Asset Relief Programme - [2]
• GM's financial situation - [3]
• Credit default swaps for GMAC debt - [1]
• Credit default swaps for Ford's finance arm - [1]