Bailout for US auto finance firms on the cards as GMAC announces huge Q3 loss

Troubled lender GMAC has reported a huge
quarterly loss. The former captive of General Motors (GM) announced
a loss of $2.5bn (£1.7bn) for Q3 and a total loss of $21.3bn
(£14.3bn) in the first nine months of 2008, with the acute downturn
in its ResCap mortgage division the main driver behind the shocking
result – although the Global Automotive Finance division managed a
net loss of $294m (£198m – see below). 

Meanwhile, the mooted merger between GMAC’s former parent and
minority shareholder, GM, and its fellow Detroit giant Chrysler is
off the cards for now, as GM’s beleaguered management does not have
the time or the funds needed to continue the tricky task of
negotiating integration terms. If a GM-Chrysler deal had been
struck, it would likely have led to a merger of the operations of
GMAC and Chrysler Financial, as Chrysler is owned by Cerberus
Capital Management LLC, a private equity house which also owns 51
per cent of GMAC.

European activity curtailed

GMAC, meanwhile, has announced that it is to cease consumer
finance originations in seven European markets – Czech Republic,
Finland, Greece, Norway, Portugal, the Slovak Republic and Spain –
as of November. Underwriting standards in other European markets
are to be tightened. Its fleet arm Masterlease, however, will
continue to do business as usual with corporate customers.

In the UK, joint managing director Dennis Foley confirmed that
GMAC is continuing to take a “business as usual” approach, with no
significant tightening of underwriting standards either taken or
planned for the immediate future, following its policy of taking
“local actions” appropriate to individual markets. “We are planning
for next year, and talking to dealers as we always do at this time
of year,” Foley added.

He declined to comment on the decision to withdraw from seven
countries, saying only that decisions had been made based on “where
GMAC has been historically profitable and where we have had funding
constraints.”

GMAC: Q3 results

Global Automotive Finance: Net loss for Q3 08 of
$294m/£198m (net income for Q3 07:
$554m/£373m). New vehicle financing originations
during Q3 08 of $11.3bn (£7.6bn),
down from $14.5bn (£9.8bn) in Q3
07, due to tighter underwriting standards and lower industry sales.
Decline in net income driven by falling residual values, weaker
consumer and dealer credit performance, and valuation adjustments
on securitisation retained assets.

Credit losses grew to 1.55 per cent of managed retail assets,
from 1.01 per cent in the same period last year.
Delinquencies remained almost flat year on year at
2.62 per cent, with enhanced loan servicing
efforts and tighter underwriting helping to keep delinquencies from
increasing. GMAC also announced it is to cease retail originations
in Australia and New Zealand by the end of the year.

“GMAC is focused on pursuing strategies to increase flexibility
and access to liquidity with the primary focus of continuing to
support automotive dealers and customers,” the company said.

Jo Tacon