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Geithner says GMAC will get federal funding

December 11, 2009

Geithner says GMAC will get federal funding

U.S. Treasury Secretary says lender is in ‘a unique and difficult situation’

Detroit News Washington Bureau

Washington — GMAC will get less than the $5.6 billion in additional federal support that the government was considering, Treasury Secretary Timothy Geithner said Thursday.

Geithner said the amount likely will be "a little lower than we anticipated," but he didn’t say when it might be announced.

Detroit-based GMAC and the Treasury Department have been in talks to finalize the amount of new capital, in exchange for equity and stock. The lender, which has received $13.4 billion in government capital, has asked the U.S. Treasury to hold off on making the new capital infusion, so it can assess how much is needed.

As a result of the previous investment, the Treasury holds a 35.4 percent stake in GMAC, which provides loans for buyers of General Motors Co. and Chrysler Group LLC vehicles.

Unlike other financial institutions that went through "stress tests" to assess their financial health, GMAC couldn’t raise enough outside capital to assure regulators that it was prepared for a new downturn.

"We said, ‘If you do not raise capital from the private markets, if you are unable to, we will put capital into you because it is important to the stability of the system,’ " Geithner said. "It was never going to be possible for GMAC. They are in a unique and difficult situation."

He said the government was in talks with GMAC, which replaced its CEO last month, to assure that it has a sound restructuring plan.

"The question ahead is really what plan for restructuring the new board and management (of GMAC) embark on," Geithner told the Congressional Oversight Panel overseeing the $700 billion Troubled Asset Relief Program.

The plan to infuse more capital in GMAC drew criticism from panel member Paul Atkins, a former SEC commissioner.

"TARP was an emergency fund that was set aside to rescue firms in distress last year," he said. "Clearly, if GMAC failed, it would not bring down the financial system. Instead, this is a way for taxpayers to subsidize people buying cars."

Separately, the TARP’s special inspector general said in a report Thursday that GM and Chrysler have used most of their $62 billion in government bailout money.

GM used 65 percent, or about $32 billion of its $50 billion in aid to run its business and pay its suppliers — primarily $2.8 billion to help its former unit Delphi emerge from bankruptcy. Auburn Hills-based Chrysler has used $10.5 billion, or 84 percent of its $12.5 billion in government support.

It was not immediately known if the spending rate is what was expected.

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