Last Auto News - GMAC to Receive Second Government Bailout

Last Auto News -

GMAC, the lending arm for General Motors and Chrysler, is expected to receive an approximately $3 billion bailout from the federal government. The government has yet to issue an official announcement, but the money will come out of the same fund that provided bailouts for Chrysler and GM.

According to Autoblog, “GMAC has already received $12.5 billion from the federal government.” So why is the government providing yet another bailout for the ailing corporation?

MarketWatch explains that GMAC is tethered too close to the auto industry to fail now: “The problem is that GMAC is financing customers of two bigger government problems, General Motors and Chrysler LLC. Without a finance company, GM and Chrysler would be at an even bigger competitive disadvantage. The government has driven too far down the road in auto bailouts to end its enabling relationship with GMAC.”

But the troubled auto industry isn’t entirely to blame for GMAC’s instability. In addition to providing financing for automakers, GMAC has about one third of its assets in mortgages.

“GMAC’s mortgage arm is worth approximately $3 billion on the books, and it is believed by many to be responsible for the financial instability of the company,” says Left Lane News. “Last quarter the mortgage business lost just shy of $600 million – while the automotive arm showed a gain of $164 million.”

Once the $3 billion goes through, the federal government will have a 56 percent controlling interest in GMAC (up from 35 percent currently). According to the Detroit Free Press, the U.S. Treasury “would appoint four of GMAC’s nine board members, up from two today.”

While a second GMAC bailout means taxpayers are out more money, this news isn’t all bad. It also means that GM and Chrysler can continue to offer loans for car buyers.

Interested in a GM or Chrysler vehicle? Check out the U.S. News rankings of this year’s best cars as well as this month’s best car deals.