US Treasury buys $5bn stake in GMAC

The US government has bought a $5 billion (£3.4 billion) stake in GMAC, the lending arm of General Motors.

A further $1 billion is being lent to GM to aid it in the restructuring of GMAC.

The survival of GMAC - which also operates in the UK - is considered essential to maintaining GM, which earlier month agreed a $13.4 billion loan from the US government to allow it to restructure and survive without going into bankruptcy.

The global economic slowdown – following a peak in oil prices that turned people away from motoring and a credit crunch meaning auto loans were unavailable – is particularly hitting the carmakers.

Car sales in the US are now at 25-year lows and no recovery is forecast until 2010 at least.

Under the deal announced today, the Treasury Department will purchase $5 billion in senior preferred equity with an eight per cent dividend from GMAC.