GMAC becomes bank, bailed out with TARP funds

To be PC, the word "bailout" has been replaced by the happier terms "rescue" and "lifeline."

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NEW YORK (CNNMoney.com) -- In yet another move to prop up the crumbling U.S. auto industry, the government announced Monday that it will pump $6 billion into GMAC Financial Services, a financing company critical to the survival of General Motors.

The rescue package has two parts. The Treasury Department is injecting $5 billion directly into GMAC in exchange for preferred equity shares that pay an 8% dividend. GMAC also is issuing warrants to Treasury in the form of preferred stock. If exercised, the warrants will pay a 9% dividend.

Also, the government will lend $1 billion to GM that the automaker will invest in its financing arm. GMAC needs the funding to convert to a bank holding company, a necessary step to receiving the bailout money.

The Federal Reserve said last week that it would approve GMAC's conversion to a bank holding company, subject to certain conditions.

The move deepens the federal government's bailout of the troubled auto industry. Less than two weeks ago, President Bush announced a $17.4 billion rescue package to prevent the collapses of General Motors and Chrysler LLC.

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