U.S. Buys Stake in GMAC

US Gives $5B in Exchange for GMAC Shares, $1B to GM

Hear that wind outside? That is the collective sigh of relief from auto dealerships across the country.

The nation's largest auto franchise explains to the Wall Street Journal ($$) this evening why the move was a necessary step in turning around the auto industry.

"In bailing out GMAC, Treasury officials aren't just stabilizing an auto-finance company but a major player in the housing market's boom and bust. GMAC played a big role in purchasing riskier adjustable-rate mortgages. The collapse of the housing market put additional strain on GMAC.

The difficulties of GMAC and Chrysler's financing arm, Chrysler Financial, are a big reason GM and Chrysler have suffered steep drops in auto sales and fallen into financial trouble in the past few months, said Michael J. Jackson, chief executive of AutoNation Inc., the country's largest chain of auto dealerships, in a recent interview. Both financing companies have been restricting credit as their own finances worsened. "Consumer credit is the jet fuel of the auto business," Mr. Jackson said. "The majority of consumers can't buy a car without getting a loan."

GMAC finances about 80% the wholesale purchases of GM's cars by dealers world-wide. It has traditionally been the largest source of financing for the actual buyers of those vehicles once they reached the showroom."

The Journal also points out that this is the second wave of government assistance that Cerberus Capital Management, owner of Chrysler and majority stakeholder in GMAC, has received. The firm is headed by former Treasury Secretary John Snow, current Treasury Secretary Hank Paulson's predecessor.