Auto Lending Pulling Down Profits at GMAC

Despite sharper collection practices that at least kept the number of delinquent accounts from growing, profits fell in the first quarter for the auto lending part of GMAC Financial Services -- another sign that the credit crisis is spilling over into the car industry. Like Ford Credit on April 24, GMAC Auto Finance on April 29 reported higher losses on bad auto loans, and less money recovered from auctioning off-lease cars and trucks that are returned to the lender, according to company reports. Besides poor credit performance, both captives were hurt by soft demand for new vehicles.

GMAC Auto Finance said it slightly reduced the percentage of loans delinquent 30 days or more, to 2.42 percent for the quarter, down from 2.52 percent a year ago. The company put more resources into collections, contacted high-risk borrowers more frequently, and raised approval standards to make some loans harder to get. However, the size of the loss per bad loan increased, which offset the improvement in delinquencies.

For the quarter, GMAC Auto Finance reported net income of $258 million, down about 35 percent from the year-ago quarter. Parent company GMAC Financial Services reported an overall net loss of $589 million in the first quarter, worse than a year-ago net loss of $305 million. The biggest losses came from GMAC's ResCap mortgage subsidiary, which was heavily invested in subprime mortgages before the credit crisis broke last year. GMAC Financial Services also has a large Insurance Operations division.

Profits from auto lending have been at least partly offsetting the losses on mortgages, so if auto lending falls, that's doubly serious for GMAC's parent companies. In November 2006, Cerberus Capital Management LP led a group of investors that bought 51 percent of GMAC for $14 billion, to be paid over three years. General Motors still owns the other 49 percent of the former General Motors Acceptance Corp.

Cerberus also owns a majority stake in Chrysler LLC and its captive finance company, Chrysler Financial. It could save costs if Cerberus merged the redundant back-shop operations of the two captive finance companies, and kept the customer-facing businesses separate. That was part of the appeal of the former DaimlerChrysler merger. That was OK with Mercedes-Benz, but GM probably takes a different view of Chrysler LLC, a key rival.

Meanwhile, GMAC Auto Finance is consolidating 20 offices in North America into five, and cutting its work force by 930, about 15 percent of the total, the company said.