WASHINGTON — The government on Wednesday 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 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 Inc.
The government also has taken control of mortgage giants Fannie Mae, the Federal National Mortgage Association, and Freddie Mac, the Federal Home Loan Mortgage Corp.
Shoring up GMAC has been an important part of the Obama administration’s 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 showrooms.
GMAC needs much of the aid to prop up its mortgage division - Residential Capital LLC, dubbed ResCap, which suffered big losses when the housing market collapsed. The company said it would take $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 to increase stability.
Even with the government raising its stake, Treasury Department officials said the government intends to stick to its policy of leaving dayto-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 Department officials said.
GMAC will continue to be subject to executive pay restrictions imposed by the government.
GMAC was obligated by the Treasury Department to raise $11.5 billion in additional capital earlier this year after failing the government’s stress test for banks, largely because of ResCap’s losses.
The stress tests were to see whether banks had enough capital even if the economy worsens in 2010. However, GMAC had difficulty raising money because of its financial woes, making an extra government infusion 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 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.
Even after the latest capital infusion, the government will likely take steps to help GMAC as it tries to secure the recovery of GM and Chrysler, said Kirk Ludtke, senior vice president at CRT Capital Group LLC. That includes helping GMAC refinance its debt as it comes due, he said.
“The government has come this far, it is not going to destabilize GMAC at this point,” he said.
GMAC remains on shaky financial ground. Last month, it reported a quarterly loss of $767 million, though the results were an improvement over a loss a year ago. ResCap lost $747 million during the third quarter as homeowners continued to default on their mortgages in large numbers.
GMAC, which also provides financing to car buyers, also has been hurt by the rapid decline of the U.S. auto industry after sales crumbled because of the recession and financial woes at big automakers.
Sales of cars and trucks were down 24 percent through November compared with the same period last year. The industry is expected to sell around 10 million cars this year, one of the worst performances for auto sales in decades.
Information for this article was contributed by Candice Choi and Dan Strumpf of The Associated Press.Press.
Front Section, Pages 1 on 12/31/2009