By Glenn Somerville and Corbett Daly
WASHINGTON (Reuters) - The U.S. Treasury Department said on Thursday it has put another $7.5 billion (4.7 billion pounds) into car lender GMAC to enable it to support both Chrysler LLC <CBS.UL>, and General Motors <GM.N> car buyers and partly meet a shortage of capital.
The widely anticipated action is intended to help counter a scarcity of credit that has helped drive sales of domestic cars into a ditch. The Federal Reserve also extended an exemption that will let GMAC keep lending to GM dealers and retail customers, which it normally would be barred from doing since it now is a bank holding company in which GM has an interest.
Treasury Secretary Timothy Geithner said the new capital for GMAC, "will offer strong credit opportunities, help stabilise our auto financing market, and contribute to the overall economic recovery."
The new capital is on top of $5 billion Treasury put into GMAC last December.
Treasury said the new investment includes $4 billion to help GMAC lend to Chrysler dealers and retail customers, while the remaining $3.5 billion is intended to plug GMAC capital shortages identified as part of "stress tests" conducted on 19 of the largest banks.
Treasury's investment in GMAC is in the form of preferred shares, so it will not have an immediate common equity stake in the lender. But Treasury said it retained a right to exchange an earlier $884 million loan to GM for common equity in GMAC and would exercise it, "in the very near future."
After the exercise, Treasury would have a 35.4 percent common equity interest in GMAC, it said.
Separately, GMAC said the Federal Deposit Insurance Corp. had given its approval for GMAC to issue up to $7.4 billion of FDIC-guaranteed debt.
GMAC is the primary provider of loans to buyers of vehicles from GM and Chrysler.
The government is also deepening its involvement in trying to restructure GM and GMAC's survival is critical to that effort. GM and private equity firm Cerberus Capital Management LP still have large stakes in GMAC.
Earlier on Thursday, GM cleared a key obstacle in its restructuring as the United Auto Workers agreed to reduce labour costs and ease the automaker's obligations on a union retiree healthcare fund.
The Obama administration has set a June 1 deadline for GM to restructure. GM and holders of $27 billion of bonds remain far apart on how to restructure that debt.
GMAC converted to a bank holding company last December so it could receive $5 billion of federal bailout money from the Troubled Asset Relief Program. The Treasury also lent GM the $884 million to support GMAC's lending activities.
But that conversion made it one of the largest U.S. banking companies, subjecting it to a government "stress test" of its ability to weather a deep recession.
Regulators ordered GMAC to plug a $11.5 billion capital hole, the third-largest of the 19 lenders that were tested, and by far the largest shortfall relative to the company's size.
GMAC is the last of the 10 lenders that were ordered after the stress tests to shore up their balance sheets to reach a plan to cover all or some of the shortfall. Bank of America Corp <BAC.N> was ordered to raise the most, $33.9 billion.
GMAC has lost money in six of the last seven quarters, hurt by a surge in soured mortgage and auto loans. Its Residential Capital LLC home lending unit has lost money for 10 straight quarters and GMAC has said the unit's survival was in doubt.
(Reporting by Glenn Somerville and Corbett Daly; Additional reporting by Jonathan Stempel in New York; Editing by Andre Grenon)