GMAC Posts $2.52b Q3 Loss, Predicts ResCap C11
Initially, GM CEO Rick Wagoner’s sale of 51 percent of The General’s captive finance unit to Cerberus Financial (Chrysler’s new owners) seemed like a well-timed stroke of luck. Anyone paying close attention (i.e. reading this site) would have realized that Red Ink Rick was simply throwing GM’s furniture into the cash conflagration consuming the company; GMAC was just about all that was left worth burning. But GM had used GMAC as the engine for its car sales. When GMAC’s ResCap’s (Residential Capital) sub-division found itself (to be polite) deeply mired in the subprime mess, the lender couldn’t– can’t– lend squat, either on the house OR the automotive front. Not too put too fine a point on it, GM’s getting screwed from both ends. Bloomberg reports that GMAC’s taken a $2.52b hit in Q3, which brings us to $4.6b for the year. “Total net revenue declined 43 percent to $1.72 billion. The Residential Capital home-loan unit lost $1.9 billion during the quarter, while GMAC’s auto finance unit lost $294 million.” Even GMAC admits– in that “give us a bailout” kinda way– that it’s towel-throwing-in time. “Substantial doubt exists regarding ResCap’s ability to continue as a going concern,” GMAC said in today’s statement.If ResCap dies, GMAC dies. If GMAC dies, well, we’re almost there already. GM’s 45 percent sales drop in October reflects the loss of low credit score in-house financing. Hear that sound? It’s Uncle Sam’s wallet creaking open…
More by Robert Farago
Comments
Join the conversation
The econ blog, Calculated Risk, reported on this with the theory that part of the reason for the shotgun marriage of GM and Chrysler was so that GM would own less that 25% of GMAC so that GMAC could become a bank holding company and can access the Fed's deep money pool (a.k.a. the Goldman Sachs/Fed trick). At last, a sinster yet plausible reason for a horrible idea! http://calculatedrisk.blogspot.com/2008/11/gmac-25-billion-loss.html
@Sajeev Mehta GMAC cant finance vehicles: those are considered risky loans. However, if home buyer comes up with 20% down payment on a house there is no reason for them not to facilitate funds transfer from treasury to customer, collecting service fee and interest points in the process.
John Horner That team is probaly all of the overseas division heads that have made GM money in their home countries despite (or semi-ignoring) the directives from the top. Let them run with it. Wasn't it Dr. Deeming that said "the best ideas to fix a company's problem comes from the lower levels, not the top."