GMAC, the automobile financing company, said Tuesday morning that it would immediately resume financing to a wider range of car buyers, a day after the Treasury Department injected billions of dollars into the lender.
GMAC said in a statement that it would modify its credit criteria to include financing for customers with a credit score of 621 or above, a significant expansion of credit compared to the 700 minimum score put in place two months ago. GMAC had significantly cut back on the number of loans it offered as it struggled to stay afloat.
On Monday, the Treasury Department injected $5 billion into GMAC as part of a deal that will let the lender convert itself into a bank holding company to reduce its borrowing costs and thus borrow money at low rates from the Federal Reserve.
The deal came as the Treasury was preparing to provide General Motors and Chrysler with $4 billion each in the first part of a bailout plan for the car companies.
Under the financing deal, the Treasury will buy $5 billion worth of preferred equity shares in GMAC, which used to be the financing subsidiary of General Motors and is now owned jointly by G.M. and Cerberus Capital Management, the private equity firm that owns Chrysler.
A Treasury official said on Monday night that the deal had already closed and that GMAC already had the money. In addition, the Treasury said it would lend General Motors $1 billion so that it could purchase additional equity offered by GMAC.
On Tuesday, the president of GMAC, William F. Muir, said, “We will immediately put our renewed access to capital to use to facilitate the purchase of cars and trucks in the U.S.”
GMAC said in the statement, howver, that it would not finance higher risk transactions characterized by a credit bureau score of 620 or below.
The Treasury deal came after intense efforts to prevent a collapse of GMAC, which is a crucial source of automobile sales financing. It has been reeling from both the paralysis in credit markets and huge losses from its mortgage lending subsidiary, Residential Capital.
Last Wednesday, the Federal Reserve tentatively approved GMAC’s petition to become a bank-holding company but demanded that it persuade most of its bondholders to convert their debt into equity and to raise more money to meet minimum capital reserve requirements.
GMAC had been racing to meet those requirements, but it was silent on Sunday and Monday about whether it had cleared the hurdle.
In shoring up GMAC, the Treasury resorted to using money from the Troubled Asset Relief Fund, the $700 billion rescue program for financial institutions that Congress approved in early October.
The Treasury had already allocated all the $350 billion that Congress authorized for the first half of the program. But even though the Treasury Department has not yet requested the second half of the money, officials said they could provide the financing to GMAC because they have not actually used all of the money allocated for recapitalizing banks.
GMAC marks the latest in a series of non-bank financial institutions that have managed to qualify for help from the so-called TARP program. The American Express Corporation and CIT Financial have received money as well.
A G.M. spokesman, Greg Martin, said on Monday that the automaker was working toward completing the paperwork to free up the loans from the Treasury.
A spokeswoman for Chrysler, Lori McTavish, said the company was also in the final stages of completing the necessary documentation.
Both G.M. and Chrysler need immediate cash to keep their operations running while they overhaul their businesses.
The automakers have been spending billions from their cash reserves in order to stay afloat in what is the worst vehicle market in the United States in 25 years.
G.M. is scheduled to get $4 billion initially, and a second loan of $5.4 billion in mid- to late January. The company could also get an additional $4 billion in February or March if Congress approved a larger loan package as part of the Treasury’s overall plan for financial institutions.
For GMAC to meet the Federal Reserve’s requirements to become a banking holding company, it needs to convert 75 percent of its $38 billion in debt into stock.
GMAC had set a deadline of Dec. 26 for bondholders to agree to the swap. However, the results of the vote had yet to be fully counted as of Monday. A GMAC spokeswoman, Gina Proia, said the results would be released soon.
A failure by GMAC to raise new capital would further damage G.M.’s ability to sell new cars and trucks. GMAC, which is 49 percent owned by G.M., is historically the primary source of loans for customers buying G.M. vehicles. Like many auto lenders, GMAC has been frozen out of the credit markets in recent months and, in turn, has pulled back on loans to prospective car buyers.
The Fed’s approval of GMAC’s bank application will require G.M. to reduce its stake in the finance company to less than 10 percent. GMAC’s majority owner, Cerberus, will have to cut its stake in the finance company to 33 percent, from 51 percent, and reduce its voting stake to less than 15 percent.
The conversion of GMAC into a bank holding company is a crucial element in stabilizing G.M.’s financial condition.
The Detroit automaker, along with its rivals Chrysler and the Ford Motor Company, appealed in November to Congress for emergency financial assistance.
When a loan package failed to pass the Senate, G.M. and Chrysler asked President Bush to free up funds from the administration’s financial rescue program.
Ford declined to ask for immediate assistance, but said it supported the requests by G.M. and Chrysler because a failure by either company could disrupt the industry’s supply chain.
On Dec. 19, President Bush approved up to $17.4 billion in loans for G.M. and Chrysler on the condition that they seek concessions from their lenders, creditors and the United Automobile Workers union to improve their competitiveness. G.M. has said it would begin talks with its bondholders and the U.A.W. on Jan. 5.
On Monday, G.M.’s shares declined 1.6 percent and Ford shares fell 3 percent, to $2.22.
Also on Monday, the investor Kirk Kerkorian said he had sold his remaining shares in Ford. Mr. Kerkorian’s investment firm, the Tracinda, Corporation, had built a 6.5 percent stake in Ford this year. The firm which had previously amassed large stakes in G.M. and Chrysler, had said it expected to be a long-term investor in Ford. But in October, Tracinda said it had begun to sell its 133 million Ford shares in order to invest elsewhere.
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