WASHINGTON (AP) — The Treasury Department said yesterday it is providing auto lender GMAC with $7.5 billion in fresh aid to enable it to make new loans for General Motors Corp. and Chrysler LLC vehicles.

The department said the investment will help provide a reliable source of financing to auto dealers and people looking to buy GM and Chrysler vehicles.

The Treasury said it won't immediately expand its equity interest in GMAC but will exercise in the near future its right under an earlier agreement to exchange an $884 million loan it made to General Motors for an equity share in GMAC.

"This new arrangement with GMAC will help provide a reliable source of financing to both auto dealers and customers seeking to buy cars," said Treasury Secretary Timothy Geithner.

Strengthening GMAC will help stabilise the country's auto financing market, which should help the economy, he said.

The government has a vested interest in seeing GMAC succeed and the US auto industry revive. General Motors has received $15.4 billion in federal loans and Chrysler has received $5.8 billion.

The move to provide fresh aid to GMAC comes after it failed a bank "stress test" earlier this month. The Treasury Department mandated the company raise $11.5 billion within six months. GMAC Financial Services received $5 billion from the government's $700 billion financial bailout programme in December. In return, the government received five million shares of GMAC, and told the company it must extend financing services to Chrysler, which filed for bankruptcy protection April 30.

The dose of new aid marks the government's latest attempt to break through credit clogs and spur more lending, a necessary ingredient to lifting the US out of recession.