Treasury considers billions more in taxpayer money for GMAC

As a deadline looms for GMAC to prove it has enough cash on hand to pass the government's stress test for the largest banks, the Treasury is considering injecting another $2.8 billion to $5.6 billion into the company, according to a person with direct knowledge who did not want to be identified because the negotiations are not public.

GMAC has until Nov. 9 to raise capital needed to pass the stress test.

This would be the third government cash infusion for GMAC, a bank holding company that was formerly the lending arm of General Motors. The company became a financial giant and major mortgage lender — which led to some of its troubles.

Last December, the government bailed out the troubled company with $5 billion in exchange for preferred shares. In May, after determining the company did not have enough cash on hand to pass the stress tests, the Treasury injected $3.5 billion, and also gave GMAC $4 billion in loans so it could take over providing dealer and buyer financing for Chrysler.

The person said GMAC is having trouble raising the capital it needs from investors because the company is privately held. It is owned by the Treasury, a trust, GM, equity firm Cerberus and other investors.

The additional money could anger taxpayers, who have shown frustration over the amount of government aid to banks and automakers.

But the government's willingness to give more money to GMAC, which it now in part owns, underscores its continuing importance to GM and Chrysler, companies in which the government also has stakes. Lending for car buyers and dealer inventory remains a big chunk of GMAC's portfolio, despite the industry's 27% decline in sales this year.

"This is not an easy time to get money; credit is still very tight," says David Cole, chairman of the Center for Automotive Research. "A relationship with a lender like GMAC is really pretty important, for dealers and for consumers."