The US Treasury’s decision to throw a $6 billion (£4.1 billion) lifeline to GMAC, the finance unit of General Motors (GM), could be enough to halt the slump in the American car industry, it was suggested last night.

The surprise bailout gave markets a boost, overriding the impact of a barrage of depressing economic data. GM and GMAC, which offers loans to the carmaker’s customers and dealers, immediately promised to ease lending conditions for vehicle buyers.

Economists and industry experts said that the impact on sales was likely to be evident by the second quarter and may lift overall confidence in the economy.

The US Treasury said late on Monday that it would buy $5 billion of preference shares in GMAC, as well as loaning up to $1 billion to GM so that the manufacturer could buy into a $1.25 billion GMAC rights issue. That is on top of a $750 million cash injection into GMAC by GM and Cerberus Capital Management, the private equity firm that has a 51 per cent stake in GMAC.

David Cole, chairman of the Centre for Automotive Research, said: “This is an extremely important piece of the puzzle. Credit is vital to allowing GM to make money from building cars, so it’s an important step. This could have a positive impact on the psychology of the economy.”

Brian Bethune, chief US financial economist at IHS Global Insight, said that although the cash boost was not enough to kick start the motor industry alone, it was “one of the building blocks that were needed to break the terrible momentum”.

The initial tranche of preference shares will pay US taxpayers an 8 per cent dividend. The Treasury reserved the right to buy a further $250 million of shares paying a 9 per cent dividend.

These handouts come from an automotive section of the Troubled Assets Relief Program (Tarp), the $700 billion fund set up by Hank Paulson, the Treasury Secretary, in October to bail out America’s banks. The same section of Tarp last month paid out $17.4 billion in rescue funds to GM and Chrysler.

Last week the Federal Reserve said that it would allow GMAC to become a bank holding company to get wider access to Tarp funds, as well as being able to issue government-guaranteed debt. However, the Fed’s approval is contingent on GMAC raising a $30 billion capital buffer, including $2 billion from new equity. The $1.25 billion capital raising, plus the $750 million from GM and Cerberus, will allow GMAC to meet the $2 billion requirement.

The company has not yet released the results of its negotiations with bondholders over the conversion of $38 billion in debt to equity, although the negotiations closed last Friday night.

Although there was no direct instruction by the Treasury that the aid recipients must ease lending, GMAC said that it would start to offer loans to people with a credit score of 621 or more. The median US credit score is 723 and a score of 620 is usually considered sub-prime.

Meanwhile, GM said yesterday that buyers of 2008 model vehicles would be able to get finance at as low as 0 per cent. Some cars will be discounted by up to $4,250. US stock markets jumped after the news. At the close the Dow Jones industrial average was up 184.46 points at 8,668.39, while the Standard & Poor’s 500 gained 21.25 to 890.65 and the Nasdaq composite was up 40.38 at 1,550.7.

This was despite the Conference Board saying that its consumer confidence index had dropped to a record low this month. Data from Standard & Poor’s showed that the value of the average American property fell by 18 per cent in October.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive