Sunday, May 06, 2007

GMAC loss another bad sign for GM

Thursday, May 03, 2007
GMAC loss another bad sign for GM
Nation's poor housing market drags down home-lending unit; will impact GM earnings.
Sharon Terlep / The Detroit News

General Motors Corp.'s recovery effort took another blow Wednesday when GMAC, the lending company partially owned by the automaker, reported a surprising $305 million first quarter loss.

The loss, caused almost entirely by the nation's faltering housing market, will weigh on GM's first-quarter earnings to be announced this morning. GM sold a controlling interest in General Motors Acceptance Corp. last year to Cerberus Capital Management, but retained a 49 percent stake.

GMAC's loss was an $800 million reversal from a year ago, when it posted a $495 million profit in the first quarter.

"This was a disappointing quarter for us," said Sanjiv Khattri, GMAC executive vice president and chief financial officer. "We can not turn this business around soon enough."

GMAC's red ink alone typically wouldn't shake GM, but the automaker is likely to have a tougher time absorbing the loss in the midst of other challenges, particularly in its North American unit.

GM's new full-size pickups, a pillar of its strategy to return profits to North America, aren't selling as well as expected.

Auto sales industrywide are being affected by soaring gas prices, low consumer confidence and the poor housing market throughout the United States.

"Combined with everything else going on, it could be a bad day for GM," analyst Brad Rubin of BNP Paribas said.

In a sentiment shared on much of Wall Street, Morgan Stanley analyst Jonathan Steinmetz said in a research note that GM's auto business must deliver "better than expected" results for the first quarter if it's to meet expectations despite the GMAC hit.

After losing a staggering $10.5 billion in 2005, GM narrowed its losses last year to $2 billion. Its North American operations, though, remained in the red.

GM officials could not be reached on Wednesday.

One bright spot is that GM won't bear the entire brunt of GMAC's losses. This is the first full quarter in which GM's stake in GMAC is only 49 percent.

Through March, GMAC's home-lending unit, Residential Capital LLC, or ResCap, lost $910 million in the first quarter, compared with a $495 million profit in the first quarter of 2006.

The loss was largely due to defaulted mortgage loans made to high-risk borrowers, a trend that's shaking the lending industry.

GMAC's other businesses have been fairing better.

Its auto financing unit made $396 million, compared with $186 million a year ago. And the company's insurance business made $66 million, up from a $21 million loss a year ago. GMAC has taken several steps in recent months to decrease its exposure to the shaky subprime mortgage lending segment, Khattri said. He said ResCap likely will lose money in the second quarter, but significantly less than in the first three months of the year.

You can reach Sharon Terlep at (313) 223-4686 or

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