real estate, insurance and commercial business financier, reported
a net income loss of $2.5bn for the second quarter of 2008, down
$2.7bn from a net income gain of $293m in Q2 2007.
GMAC’s loss was predominantly the result of $716m impairment in
vehicle operating lease assets in the automotive finance business,
due to declining vehicle sales and lower prices for some used
vehicles segments. The North American arm was particularly affected
by a lease residual impairment.
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GMAC Financial Services also point to the losses at its
residential mortgage arm, Residential Capital LLC (ResCap), as part
of its financial decline. ResCap’s net loss of $1.9bn in Q2 2008
was related to asset sales, valuation adjustments and loan loss
provisions.
GMAC chief executive officer Alvaro G. de Molina said: “A soft
economic environment and continued volatility in the mortgage and
credit markets have significantly affected results for the second
quarter. While conditions such as higher fuel prices and weaker
consumer credit prove to be headwinds, we continue to aggressively
manage through this economic disruption to position GMAC for
longer-term success.”
Despite profits in the businesses out of the US, GMAC’s global
automotive finance division reported a net loss of $717m for Q2
2008, down from a net income of $395m in Q2 2007. This was
primarily due to large credit losses, which increased to 1.4 per
cent of managed retail assets in Q2 2008, from 0.92 per cent in Q2
2007. This sharp increase is related to a decline in used vehicle
prices and the fall in new vehicle financing originations to
$12.4bn of retail and lease contracts in Q2 2008, from $14bn in Q2
2007. This was mostly driven by lower industry sales in North
America.
However, defaults and delinquencies within the automotive
division fell to 2.3 per cent of managed retail assets in Q2 2008,
compared to 2.46 per cent in Q2 2007 – which reflects the recent
measures to tighten underwriting criteria and increase customer
servicing activities.
As a result of its massive financial hit, GMAC may follow the
example set by Chrysler Financial US’s decision to exit leasing in
August 1 this year. However, GMAC has not made any formal
agreements to cease offering leasing initiatives beyond August.
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By GlobalDataGMAC maintains it has a series of strategies and plans to
correct its financial problems.
Molina said: “Despite the current obstacles, we are encouraged
by some key wins such as successfully completing our global
refinancing and bond exchange, preserving long-term ownership of
GMAC Bank, and de-risking the balance sheet at ResCap. There is
still more to do and the management team is committed to taking the
steps needed to ensure a solid foundation for the company,
including continued realignment and streamlining of the mortgage
business and better optimization of the risk and reward model in
auto financing.”
