GMAC Financial Services, which last month pulled out of retail auto financing in Australia and New Zealand and seven European markets, and scaled back operations in the US and elsewhere in Europe, on Wednesday posted a 2008 third quarter net loss of $2.5bn, compared to a net loss of $1.6bn a year ago.
GMAC primarily pinned the blame on losses at its Residential Capital (ResCap) mortgage unit but said its automotive finance operation experienced pressure from lower used vehicle prices and weaker consumer and dealer credit performance.
There was some offset from profitable insurance business.
The mortgage business actually reduced its net loss from $2.3bn in Q3 2007 to just over $1.9bn this year while auto finance plunged from a $554m profit last year to a $294m loss in Q3 2008.
“The economic and market conditions created an unrelenting environment for our business and the financial services sector overall,” said CEO Alvaro de Molina. “Clearly this weighed heavily on financial results in the third quarter.
“In this climate, our primary objective is to make prudent use of our resources and take the steps needed to address the reduced access to liquidity. In this regard, we’ve limited originations to match funding sources and are streamlining operations and evaluating opportunities to shed operations that are not essential to the core business,” added de Molina.
“In addition, we are pursuing strategies to increase flexibility and access to funding such as participating in the Federal Reserve’s commercial paper purchase programme via our asset-backed credit facility and engaging in discussions with regulatory authorities regarding bank holding company status.”
GMAC said its cash was, at $13.5bn on 30 September down “modestly” from the $14.3bn to hand on 30 June 30 while assets and deposits were up to $32.9bn from $31.9bn at June 30, 2008.
It said the fall in auto lending profit was due mainly to an increase in credit reserves as a result of the continued deterioration in used vehicle prices, which affected retail balloon contracts. It also took hits on operating leases related to trucks in Canada and “weaker consumer and dealer credit performance”.
New vehicle finance deals agreed in the third quarter decreased to $11.3bn of retail and lease contracts from $14.5bn in Q3 2007, due to tighter underwriting standards and lower industry sales.
It said credit losses increased in the third quarter to 1.55% of managed retail assets, versus 1.01% a year ago due to higher losses in North America and Latin America though delinquent loans remained almost flat at 2.62% thanks to “increased loan servicing efforts and tighter underwriting”.
Looking ahead, GMAC said: “The global capital and credit markets remain disrupted and general economic conditions have deteriorated. GMAC’s business continues to be affected by these conditions and has led the company to take several actions to manage resources during this volatile environment.
“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.”
GMAC’s moves to crack down on lending contributed heavily to GM’s 45% October sales decline, costing anywhere from 45,000 to 60,000 sales last month, Dow Jones reported earlier this week.
The report said GM’s once wholly-owned ‘captive’ finance arm was suffering from its exposure to mortgages, a problem not shared by rival Ford and Toyota finance units, as well as the lease residual issues affecting the entire sector.
The automaker also lacked decision-making influence having sold 51% of GMAC to a consortium including Chrysler majority owner Cerberus Capital Management.
The perception that GMAC had all but shut its chequebook and that finance wasn’t available at GM dealers (who have been seeking other sources including credit unions) had hit consumer confidence even more, the news agency said.