GMAC: Used Originations Up, But Real Estate Unit Hurt Business
NEW YORK — While GMAC reported strong results in its auto finance and insurance businesses, the company took a hit in its mortgage and credit market on its real estate side, which led the company to report a loss for the third quarter.
The overall net loss came in at $1.6 billion, compared with net loss of $173 million in the same period of last year.
Officials noted that the decline would have been $1.1 billion if it had not been for several non-cash items, including credit provisions and market-driven valuations. Additionally, the loss included a $455 million non-cash goodwill impairment charge at for the company's Residential Capital division.
GMAC said its third-quarter operating income from auto finance, insurance and other divisions, excluding ResCap, reached $665 million, which is a 51-percent climb over last year.
"At ResCap, an operating loss of $1.8 billion was incurred in the third quarter of this year amid unprecedented disruptions in the mortgage financing markets and adverse trends in home price appreciation," officials reported. "This compares with ResCap operating income of $83 million in the third quarter of 2006."
Commenting on ResCap's results, Eric Feldstein, GMAC's chief executive officer, indicated, "We are moving aggressively to restructure our real estate finance business as weakness in the housing market and mortgage industry continues to prevail."
To combat the market issues, GMAC said it is implementing restructuring of its ResCap division, which includes a workforce reduction of about 25 percent, or about 3,000 employees. These cuts will be added to the 2,000 positions that were eliminated in the first half of the year.
Additionally, the company said it is analyzing its number of facilities to see if all are needed.
"Successful execution of these plans will be essential to restoring the mortgage business to profitability. This is a top priority for GMAC," Feldstein pointed out.
Meanwhile, the company's global auto finance unit posted net earnings of $519 million in the third quarter, up from $320 million in the year ago time frame.
"Improvement was attributable to an increase in gains from the sale of automotive receivables and lower credit provisions, primarily as a result of increased whole loan sales," executives explained. "In additional, tax expense decreased as a result of the conversion to a limited liability company in the fourth quarter of 2008."
Continuing on, officials said new-vehicle originations came in at $14.5 billion for retail and lease contracts, compared with $18.8 billion in 2006. The company said the decline resulted from "exceptionally high origination levels" in the same quarter of 2006, which was related to General Motors' special marketing program.
On a positive note, officials said used-vehicle originations continued to climb for the third quarter in a row, coming in at $2.3 billion compared with $1.4 billion at the same point last year.
As for delinquencies, the company noted that they inched up to 2.53 percent of serviced retail assets, compared with 2.47 percent last year. Executives stressed that "losses remain contained."
In fact, they said, "Credit losses were within historical levels for the quarter and declined year-over-year to 1.02 percent of managed retail assets in 2007, down from 1.12 percent in 2006.
"Despite the slight increase in delinquencies for the quarter, credit trends in GMAC's auto finance business remain consistent with expectations. The company continues to employ sound underwriting practices and closely monitor the portfolio," officials concluded.