The Treasury Department is prepared to use $7 billion in bailout funds for GMAC, the General Motors Finance arm, in the first installment of a new government aid package that could total up to $14 billion, according to the Wall Street Journal.
President Barack Obama’s plan for General Motors includes the government owning a majority stake in the company. This new installment would give the government a majority stake in GMAC as well, and is aimed to allow the company to continue making loans for car purchases.
People familiar with the plan said that the U.S. may invest less than the proposed $14 billion, depending on how the arrangement between the government and GMAC is structured.
The GMAC bailout comes just weeks after the Treasury and Federal Reserve conducted stress tests on the nation’s top 19 financial institutions, which found that GMAC needed to increase its capital reserves by $11.5 billion in order to stay afloat. The company is scheduled to issue a report on June 8 detailing how it plans to increase its capital reserves.
The $7 to $14 billion is in addition to the $16 billion that the government has already infused into GM, as well as the $12.5 billion it has planned for Chrysler, who filed for Chapter 11 bankruptcy last month. In December, the government received preferred shares in GMAC in exchange for a $5 billion investment. It is expected that the government will push to have its shares converted into common equity with the additional bailout funds.