The government is providing a fresh $3.8 billion cash infusion to stabilize GMAC Financial Services as it struggles with hefty losses in its home mortgage unit.
The Treasury Department says 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 stabilize the company.
The fresh infusion is on top of $12.5 billion in taxpayer money Detroit-based GMAC has already received from the government. The new agreement will boost the federal government's ownership in GMAC to 56 percent, from 35 percent.
THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.
WASHINGTON (AP) -- The government on Wednesday was moving ahead with a fresh multibillion dollar cash infusion to stabilize auto finance company GMAC Financial Services as it continues to struggle with big losses in its home mortgage unit, according to a person with knowledge of the matter.
The person, who spoke on condition of anonymity because discussions weren't complete, says the government aid would range around $3 billion. That would be less than the roughly $6 billion the government had earlier thought GMAC would need to stabilize the company.
Shoring up GMAC has been a major component of the Obama administration's massive 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 showroom floors with vehicles. GMAC has already received $12.5 billion in taxpayer money and is 35 percent owned by the federal government.
But GMAC also operates a large residential mortgage business, ResCap, which was battered by the recent housing collapse. 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 big losses.
The stress tests were to see whether banks had enough capital even if the economy worsens next year. However, GMAC had difficulty raising money because of its financial woes, making an extra government infusion necessary.
An announcement of the latest injection of aid could come late Wednesday or on Thursday.
Treasury spokesman Andrew Williams declined to offer details, but said: "Treasury is in discussions with GMAC to ensure its capital needs as determined ... by the stress tests are met."
GMAC spokeswoman Gina Proia said Wednesday that GMAC is weighing options for reviving ResCap. It is also reviewing its broader business as it tries to improve its financial health and eventually repay the taxpayer money it has already received.
Michael Carpenter, who succeeded Alvaro De Molina as the company's CEO in November, has said the company would need no more than $5.6 billion in aid. Lawmakers estimated the company would receive between $2 billion and $5 billion in additional aid.
Any additional government money would come from the $700 billion Troubled Asset Relief Program that has been used to bail out troubled financial institutions and automakers.
Even after the latest capital infusion, the government will likely take steps to help GMAC as it tries to ensure 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 still remains on shaky financial ground. Last month, it reported a quarterly loss of $767 million, though the results were an improvement over a giant 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, has also been hurt by the rapid decline of the U.S. auto industry after sales crumbled due to the recession and financial woes of the big automakers. Sales of cars and trucks were down 24 percent through November compared with the same part of last year. The industry is expected to sell around 10 million cars this year, one of the worst performances for autos sales in decades.
Despite the drop in auto sales, GMAC's auto lending business has shown some signs of revival. The auto financing division earned a profit of $395 million during the third quarter. The company's online consumer banking unit, Ally Bank, has also been a bright spot by bringing in billions of dollars in new deposits by offering relatively high interest rates. It now accounts for about 29 percent of GMAC's assets.
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AP Business Writers Candice Choi and Dan Strumpf in New York contributed to this report.
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