After getting $5B in federal aid, GMAC expands lending

DETROIT -- GMAC said Tuesday it will begin providing auto financing for more consumers, after announcing late Monday that it received $5 billion from the government, selling that much in warrants to the Department of Treasury through the Troubled Assets Relief Program, or TARP.

GMAC said it will immediately provide financing to retail buyers of cars and trucks who have credit scores of 621 or higher. In October, it had restricted loans to borrowers with scores of 700 or higher as the credit crisis deepened.

Many analysts consider a score of 620 to be the dividing line between "subprime" borrowers and those considered more creditworthy. Credit scores generally range between 300 and 850.

What's happening with GMAC is the second step in General Motors' bailout — a crucial hurdle that was still threatening to take down GM, even after it received a loan from the government.

"If you bail out GM, but no one can afford to buy the cars or get financing on the cars, the cars will just sit there on dealers' lots," says Scott Talbott, senior vice president of government affairs for The Financial Services Roundtable. "This is the other end of the bailout deal."

The deal comes on top of the $13.4 billion in loans the government promised General Motors and Chrysler earlier this month.

GMAC, the GM finance arm owned by GM and Cerberus Capital Management, received approval from the Federal Reserve on Christmas Eve to become a bank holding company — provided it had at least $30 billion in capital. Becoming a bank holding company gives GMAC access to financing under the $700 billion government bank rescue fund.

To raise that $30 billion, GMAC needed to convince about 75% of its bondholders to restructure outstanding debt. GMAC didn't release details of that deal, other than to say it was complete.

GMAC has long been GM's crown jewel. In 2006, GM sold 51% of GMAC to Cerberus, the private-equity firm that later bought 80% control of Chrysler. That year, GM's auto operations lost $3.2 billion, but GMAC pulled in $2.2 billion. The finance arm regularly out-earned automotive operations for years.