UPDATE 1-U.S. Treasury talks to GMAC about more cash

WASHINGTON, Oct 27 - The U.S. Treasury Department is in talks with GMAC Financial Services Inc about a possible third cash infusion to the company, an Obama administration official confirmed on Tuesday night.

The official declined to say how much additional money was under discussion for GMAC, which already has received $12.5 billion of taxpayer funds.

GMAC is the traditional lender to General Motors Co dealers and customers and is taking over the auto loan business of Chrysler.

The domestic auto industry continues to struggle as key companies like GM come out of bankruptcy and the administration has shown signs of willingness to step in to help them back to stability.

A Treasury official noted on Tuesday night that GMAC is the only one of the banks that underwent stress tests earlier this year that needs more government capital, while the others were able to raise capital on their own and several have already paid back the taxpayer funds they received.

GMAC provides much of the financing that GM dealers across the country rely on to purchase the cars they sell, which means that if GMAC failed they would be unable to put cars on their lots.

Administration officials said when major banks were undergoing stress tests that some might need additional funds from the $700 billion Troubled Asset Relief Program, or TARP, given the severity of the economic downturn.