The New Nation - Internet Edition

AFP, Washington

The US Treasury yesterday unveiled a six-billion-dollar package to assist GMAC, the troubled financial arm of General Motors.

The Treasury said in a statement it would purchase 5 billion dollars in senior preferred equity with an eight percent dividend from GMAC, which is also partially owned by Chrysler parent company Cerberus Capital Management, and make a one-billion-dollar loan to General Motors.

In exchange, Treasury would receive warrants from GMAC in the form of additional preferred equity equal to 5 percent of the preferred stock purchase and would be paid a 9 percent dividend if used.

GMAC said the sale of its preferred membership interests and warrants to Treasury was completed Monday.

The GM loan comes on top of a 13.4-billion-dollar rescue loan package the US government approved in early December for GM and Chrysler to stave off collapse amid tight credit and dismal sales. GM would receive an additional 4 billion dollars from February pending congressional approval.

Treasury said it agreed to the additional one-billion-dollar loan "so that GM can participate in a rights offering at GMAC in support of GMAC's reorganization as a bank holding company."

GMAC faced possible bankruptcy, jeopardizing financing for GM car dealers and customers, and its demise could have dragged down the Detroit automaker's fortunes with it.

GMAC has lost 5 billion dollars over the past six months in investments in the plagued automobile and real estate sectors.

Treasury said the GMAC plan is "part of a broader program to assist the domestic automobile industry in becoming financially viable." Under the agreement, GMAC must also comply with enhanced restrictions on executive compensation.

The funds for all automaker loans were to come from a 700-billion-dollar government bailout plan initially introduced earlier this year to shore up financial firms, Treasury said.