The U.S. Treasury Department said on Thursday it was converting $5.5 billion of its preferred shares in Ally Financial, the lender formerly known as GMAC, into common stock, laying the groundwork for exiting the investment.

The move is designed to accelerate Treasury's ability to exit its investment in the company, the department said in a statement. It will take the government's common stock ownership of the firm to 74 percent, up from 56 percent.

U.S. taxpayers became majority owners of Ally as part of the government's bailout of the auto sector in late 2008.

It was really part of an effort to stabilize the auto sector, a senior Treasury official said. There's no new money going in. It facilitates our exit in the future.

Treasury's overall investment in Ally is $17.2 billion.

General Motors owned Ally, then known as GMAC, but sold a controlling stake to private equity investors in 2006. Allyplans to go public next year.

(Reporting by Pedro Nicolaci da Costa, Editing by Chizu Nomiyama)