GMAC gives up some GM car financing in bailout

DETROIT — GMAC will no longer have exclusive rights to provide low-interest loans to people who buy General Motors Corp. vehicles, and it will stop financing leases under a complex deal to get federal aid for the troubled lender.

GMAC LLC disclosed the terms of the deal in a filing early Friday with the U.S. Securities and Exchange Commission. The lender said the federal government will get 5 million preferred shares of GMAC paying 8 percent interest in exchange for its $5 billion capital injection to help GMAC avoid bankruptcy.

GMAC is the financial arm of General Motors Corp. and is responsible for making car loans and financing dealer inventories.

In the filing, GMAC disclosed that for the next two years, GM will be able to offer financing incentives such as zero-percent loans through other lenders. After the two years, GM can offer the loans through other lenders in addition to GMAC, the filing said.

The filing also says GMAC won't have to provide lease financing. Auto finance companies have lost money on leases as trade-in values have dropped due to the collapse in U.S. vehicle sales. Also, high gasoline prices devalued pickup trucks and sport utilility vehicles, depressing their after-lease values.

GMAC had paid GM an annual exclusivity fee and had been required to meet targets for leases and loans, the filing said. The exclusivity deal was effective through November 2016, according to the filing.

Also in the filing, GMAC said the government exercised a 10-year warrant to buy 250,000 more GMAC preferred shares for a penny each.

GMAC said if the U.S. Treasury doesn't get interest payments on its preferred shares for six straight quarters, or more than six nonconsecutive quarters, it will get two seats on an expanded GMAC management board.

"These two managers will serve until all accrued and unpaid distributions on the Series D-1 Preferred Interests have been paid in full," GMAC said in the filing.

GMAC is 49 percent owned by GM and 51 percent owned by private equity firm Cerberus Capital Management LP.

On Wednesday, GMAC finished a complicated debt deal designed to raise capital and help the struggling auto and mortgage loan company ride out a historic collapse in auto sales.

The results of the debt exchange fell well short of GMAC's previously stated goals. But they came a week after the Federal Reserve went ahead and approved GMAC's application for bank holding status, making it eligible for a portion of the government's $700 billion bank rescue package.