Continuing the Federal government's efforts to boost the country's ailing auto sector, the US Treasury has thrown a $6 billion lifeline for GMAC, the finance arm of beleaguered car maker General Motors.
The move to pump in funds, one of the critical factors for the survival of the auto maker, comes less than a week after the finance firm received green signal from the US Federal Reserve to become a bank holding entity.
GMAC is the major lender for General Motors's 6,500 dealers across the country.
The Treasury department would provide the $6 billion package in two parts - $5 billion would be pumped in to buy preferred equity in GMAC, while the remaining would be given to General Motors to invest in the finance arm.
"...Will purchase $5 billion (worth) senior preferred equity with an 8 per cent dividend from GMAC LLC as part of a broader program to assist the domestic automotive industry in becoming financially viable. Additionally, the Treasury has agreed to lend up to $1 billion to General Motors so that GM can participate in a rights offering at GMAC in support of GMAC's reorganisation as a bank holding company," the Treasury said in a statement on Monday.
Earlier this month, President George Bush had unveiled a $17.4 billion rescue plan for the battered auto makers General Motors, Chrysler and Ford Motor. Of the total amount, $13.4 billion would be given to General Motors and Chrysler.
Moreover, under the agreement, GMAC should comply corporate governance requirements and enhanced restrictions on executive compensation.