World markets take heart from GMAC's $6bn bailout

Treasury support means it is now 'highly unlikely' GM's auto arm will be liquidated

GMAC, the US lender part-owned by General Motors, moved quickly yesterday to widen its lending and boost the country's stricken car industry after receiving a $6bn (£4.2bn) bailout from the federal government.

The news helped boost stock markets around the world on reassurance that the US federal government was prepared to take further action to support its troubled motor industry.

GM shares closed up 5.6 per cent in New York, having risen as much as 11 per cent at one stage. The Dow Jones Industrial Average closed up 2.2 per cent at 8,668.4, after a 1.7 per cent rise in the FTSE 100 to 4,392.7 and a 1.3 per cent jump in the Nikkei 225 index.

The US Treasury's support package comprises $5bn for an equity stake in GMAC and a $1bn loan to GM so that it can support GMAC's rights offer as part of its transformation into a bank holding company.

GMAC said it would provide financing for retail car and truck buyers with a score of 621 on the Fico credit-rating scale, just above what is considered sub-prime. GMAC had tightened lending criteria two months ago, restricting finance to those with 700 or more out of a maximum 850.

"The actions of the federal government to support GMAC are having an immediate and meaningful effect on our ability to provide credit to automotive customers," Bill Muir, GMAC's president, said. "Opening access to credit for those with scores of 621 or better will allow us to return to more normal levels of financing volume and should help in efforts to stabilise the US auto industry."

GM, whose brands include Chevrolet, Saab and Vauxhall, owns 49 per cent of GMAC. It sold a majority stake to the private equity firm Cerberus in 2006. GMAC is key to GM's survival because it has provided the bulk of finance to the car maker's retail customers and its failure would put GM at risk of losing up to 40 per cent of its US dealerships. Sales at GM, the world's biggest car maker until this year, plunged 41 per cent in November.

"Federal aid to GMAC suggests the government is probably now so financially entangled in the GM complex that a Chapter 7 liquidation of [GM's auto operations] seems highly unlikely," analysts at JP Morgan wrote in a note to investors.

Government support might also be extended to Delphi, GM's former parts maker, which is mired in bankruptcy, the analysts added.

US auto sales have plunged to 25-year lows due to the economic slowdown, outdated models and lack of credit for new purchases. They are not expected to recover before 2010. The collapse of GM, Chrysler and Ford would put millions of jobs under threat in the companies' supply chains, both in the US and overseas. GM employs 5,500 people in the UK.

GMAC is the latest non-bank financial company to qualify for help under the Treasury's $700bn Troubled Asset Relief Programme, which was originally conceived to buy illiquid securities from banks to free up inter-bank lending. The company has been shut out of credit markets, limiting its ability to lend for purchases and to finance vehicles on dealerships' lots until they are bought. The equity injection and loan come on top of up to $17.4bn that the government pledged on 19 December to help GM and Chrysler avoid possible bankruptcy. Cerberus also owns a majority stake in Chrysler.

GM also took advantage of the government's support to offer improved interest rates on 2008 and 2009 models, with many vehicles also carrying cash discounts.

The cost of insuring $10m of GMAC debt against default for five years fell to $1.6m upfront plus $500,000 a year, from $2.15m upfront. Credit default swaps for Ford's finance arm also fell.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Ramsay Bolton in Game of Thrones
tvSeries 5, Episode 3 review
News
peoplePair enliven the Emirates bore-draw
Arts and Entertainment
tv
News
Britain's opposition Labour Party leader Ed Miliband (R) and Boris Johnson, mayor of London, talk on the Andrew Marr show in London April 26
General electionAndrew Marr forced to intervene as Boris and Miliband clash on TV
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Business Analyst - Financial Services - City, London

£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

SThree: Trainee Recruitment Consultant

£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...

Day In a Page

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

How a costume drama became a Sunday night staple
Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

Miliband promises no stamp duty for first-time buyers

Labour leader pushes Tories on housing
Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

Aviation history is littered with grand failures

But what went wrong with the SuperJumbo?
Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

Fortress Europe?

Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
Never mind what you're wearing, it's what you're reclining on

Never mind what you're wearing

It's what you're reclining on that matters
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence