NEW YORK (CNNMoney.com) -- In yet another move to prop up the crumbling U.S. auto industry, the government announced Monday that it will pump $6 billion into GMAC Financial Services, a financing company critical to the survival of General Motors.

The rescue package has two parts. The Treasury Department is injecting $5 billion directly into GMAC in exchange for preferred equity shares that pay an 8% dividend. GMAC also is issuing warrants to Treasury in the form of preferred stock. If exercised, the warrants will pay a 9% dividend.

Also, the government will lend $1 billion to GM that the automaker will invest in its financing arm. GMAC needs the funding to convert to a bank holding company, a necessary step to receiving the bailout money.

The Federal Reserve said last week that it would approve GMAC's conversion to a bank holding company, subject to certain conditions.

The move deepens the federal government's bailout of the troubled auto industry. Less than two weeks ago, President Bush announced a $17.4 billion rescue package to prevent the collapses of General Motors and Chrysler LLC.

Treasury officials called Monday's action "part of a broader program to assist the domestic automotive industry in becoming financially viable."

As part of the bailout, GMAC will have to limit executives' compensation. Top officials will not be allowed to receive severance packages and the bonus pool for the top 25 executives must be 40% lower than 2007 levels, a Treasury official said. Some of the conditions are stricter than those that banks receiving bailout funds must comply with.

The federal injection will allow GMAC to jumpstart its lending. The company said Tuesday that it will immediately modify its credit criteria to include financing for customers with a credit score of 621 or higher as a result of Treasury's investment. For the past two months, GMAC only served customers with a score of 700 or higher.

"The actions of the federal government to support GMAC are having an immediate and meaningful effect on our ability to provide credit to automotive customers," said GMAC President Bill Muir in the statement. "We will continue to employ responsible credit standards, but will be able to relax the constraints we put in place a few months ago due to the credit crisis."

A score of 620 generally represents the line between good and bad credit, according to analysts. GMAC said, historically, most of its loans have been for customers in the so-called "prime" arena with scores above 620.

"Opening access to credit for those with ... scores of 621 or better will allow us to return to more normal levels of financing volume, and should help in efforts to stabilize the U.S. auto industry," Muir said.

Treasury needs more bailout funds

The GMAC investment commits Treasury to total bailout spending above the $350 billion limit set so far by Congress.

Treasury has some wiggle room because $79.5 billion that it has allocated for purchasing stakes in banks has not yet been distributed. Regulators are still reviewing applications from many institutions.

However, to fulfill its commitment to the banks, officials will have to ask Congress to release at least part of the $350 billion remaining in the $700 billion financial sector rescue package it approved in October.

A Treasury official Monday night repeated Treasury Secretary Henry Paulson's earlier comments that he will work with Congress and President-elect Barack Obama's transition team on releasing the additional funds.

GMAC vital to GM

GMAC, which is currently 51% owned by Chrysler's parent company Cerberus Capital Management and 49% by GM, is critical to the automaker's recovery.

Once a major source of profits for GM, GMAC has lost $7.9 billion over the past five quarters, mostly from risky subprime mortgage bets made by its Residential Capital division. The holdings plummeted in value when the housing market began to decline in 2007.

GMAC is the biggest lender to GM's 6,500 dealers nationwide, providing financing they need to operate and buy vehicle inventory from the automaker. The failure of GMAC could spark widespread failures among GM's dealership network and cut even more deeply into auto sales.

A majority of GM's U.S. sales typically were financed by GMAC before the economy slowed down. But in November, less than 2% of its sales were financed through the unit.

Becoming a bank

Before becoming a bank holding company, GMAC must meet other conditions. Cerberus must reduce its stake in GMAC to 33% and GM's share must drop to less than 10%. Cerberus will distribute the remainder of its stake to its investors and GM's stake will go into an independent trust to be sold off within three years.

In granting its approval, the Fed cited "emergency conditions," saying the company was important to the future success of GM.

Separately, GMAC said Monday that it has accepted the tendered bonds it aimed to exchange as part of a debt-for-stock exchange program. The company wanted to convert 75% of its $38 billion debt into equity shares so it could raise $30 billion in capital. GMAC put the program up for a vote for its investors, but despite a Dec. 26 deadline, the company did not yet announce the results.

The finance company has said its ability to stay afloat lays in the balance of the vote. Though the Fed already accepted the company's bid to convert to a bank holding company, the exchange was a critical part of GMAC's attempt to meet the Fed's typical capital requirements for a bank.

Automaker loans

Separate from the GMAC bailout, General Motors (GM, Fortune 500) and Chrysler were expected to receive $4 billion each in emergency aid from Treasury on Monday. However, that delivery of the loan was stalled.

The federal government is "moving expeditiously on all fronts" to finalize the loans, a Treasury official said Monday night. The carmakers will receive the funds "on timelines necessary for each company."

CNNMoney.com Staff Writer David Goldman contributed to this report.

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