GMAC Loses $589m in Q1
GMAC is the lender underwriting the vast majority of GM dealers' loans, facilitating the finance that's been fueling GM sales. GMAC's ResCap sub-division handles residential mortages. It may come as no surprise that both parts of the biz– owned jointly by GM and Cerberus (Chrysler's 80% owner)– are in deep shit. Yahoo!Finance reports "GMAC lost $589 million during the first quarter of 2008, compared with a loss of $305 million during the same period the previous year. [Ed: that's a 93 percent swing in the wrong direction.] The automotive finance division earned $258 million during the first quarter, a 35 percent decline from the year-ago period. GMAC cited weaker credit performance, including rising credit loss provisions and rising costs tied to restructuring operations." Something to do with a tanking new car market as well. ResCap "only" lost $859m during the first quarter, a slight improvement on the $910m lost during the same period last year. GM's former cash cow will soon require a fresh capital injection— a possibility dismissed by Cerberus– or face bankruptcy. And if GMAC goes down, there will be chaos on the showroom floor.
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Vetteman, Can you explain that for those of us who have never had a car loan, or a dealer arranged financing. Thanks. If I understand what you are writing, you are saying that only GMAC is crazy enough to offer wholesale financing to dealers. I am trying to understand why that is. Doesn't GMAC, the holder of the note, get to accept or decline customers? Or is that the job of the dealer? Are the dealers gaming the system and tricking GMAC into loans that they would not normally accept? How does "floorplan" financing differ from normal car loans? I don't understand. If someone is a bad risk, GMAC doesn't have to take them. I can certainly see where a dealer has a strong incentive to get a customer a loan to buy a car, especially when someone else takes the risk. I'm confused.
Tightening floor plan credit is probably the simplest way for GM to thin the dealer herd. They could do so easily now as credit is being tightened everywhere. The weakest dealers would be the first to fold their tents. Surely somebody at HQ has thought of this, right? P.S. Floor plan lending is a revolving credit loan made to the dealer and secured by the dealer's inventory. As far as retail sales go, GMAC accepts or declines applications on a case by case basis. Historically the captive credit companies of the auto makers were incentivized to move the metal by making the loans, but now with bankers owning a majority of GMAC things might get tougher.
Just think, they just gave me a 4.75% mortgage and they will most likely pay 5.5% for the money. Just like Chrysler, they will make it up on volume....
Uh Oh. We're in the process of buying a house and GMAC is who we're going through for our mortgage ): What happens if your mortgage company goes bust?