GMAC to Receive $3.79 Billion More in Bailout Funds

When will the bailouts end? More importantly, why are we continuing to throw good money after bad? Reckless, to say the least.

From Automotive News:

GMAC Financial Services said today it will get $3.79 billion in additional aid from the U.S. government, on top of the $12.5 billion already received since December 2008.

GMAC, in a statement released late this afternoon, said that with the infusion it achieved the capital levels required by the Federal Reserve to meet the company's "worse-than-expected economic scenario."

GMAC said the $3.79 billion cash infusion was less than the $5.6 billion originally expected by the Fed in May 2009 because of lower-than-expected losses related to the General Motors Co. bankruptcy proceedings, which concluded in July.

As part of the latest bailout, the government also increased its equity stake in GMAC from 35.4 percent to about 56.3 percent, the statement said.

One person told the Wall Street Journal today that the measure has been crafted to return the company to profitability in the first quarter of 2010.

GMAC provides financing to GM and Chrysler dealerships and customers -- and its stability is crucial to keeping financial pipelines open for those dealerships.

The new capital will likely allow GMAC to avert placing its ailing mortgage unit, Residential Capital LLC, or ResCap, into bankruptcy, the Journal reported, citing people familiar with the matter.

"As we have previously stated, GMAC has been conducting a strategic review of its business and evaluating options to address the challenges at ResCap and the mortgage operations," said GMAC spokeswoman Gina Proia in an e-mail statement.

"Critical objectives in the process would be to take actions that position GMAC for improved financial performance and to repay the U.S. government," she said.

GMAC did not detail any specific actions.

The U.S. Treasury confirmed Nov. 9 that it was discussing the need for additional assistance with GMAC. Then on Nov. 16, the company replaced CEO Alvaro de Molina with financial industry veteran Michael Carpenter.

It could take several years before the company can repay the U.S. government and sell the government's stake to private investors.

As part of its original debt restructuring a year ago, GM and private equity firm Cerberus Capital Management LP were forced to reduce their respective 49 percent and 51 percent stakes in GMAC.

With the latest moves, GMAC said Cerberus' stake will be 14.9 percent, third party investors will own 12.2 percent, an independent trustee for GM will own 9.9 percent and a GM affiliate will own 6.7 percent.

GM sold a controlling stake in GMAC to Cerberus in 2006.

GMAC has scheduled a conference call for 4 p.m. on Tuesday to discuss the latest bailout.

Carpenter, in a statement, said the latest actions would help the company strengthen its business -- particularly its auto finance operations.

"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," he said. "These actions will also allow GMAC to pursue strategic alternatives for ResCap and the mortgage business."