Markets

GM Shells Out Big Support for "Independent" GMAC

By Jim Henry

Updated on: September 10, 2008 / 9:45 AM EDT / MoneyWatch

Even though GM no longer owns GMAC, it's important to look at the two partners together.

I was reminded of this recently when archrival Ford Credit took a $2 billion write-off in the second quarter on the value of its lease portfolio. That's primarily because pickups and SUVS that are coming back from leases aren't worth as much as Ford Credit expected.

In the same quarter, facing the same problem with off-lease trucks, GMAC took a write-off of only $716 million. That made it sound as if Ford Credit had a much bigger problem, even though both companies are in the same business environment, and GM sells more cars and trucks. Ford Credit historically has been more active in promoting leases than GMAC, but the numbers still struck me as odd.

That disparity has been bothering me for a while â€" it's also probably a sign that I need to get out more â€" but I recently found the explanation in a presentation GMAC made on July 31, and posted on its web site.

It turns out GMAC's write-off would have been much bigger, except GM covered most of it separately. Specifically, GMAC listed about $1.9 billion in "GM contractual leasing support programs." That raised the total amount of lease-related costs for GM and GMAC combined to about $2.6 billion, which exceeded Ford Credit's write-off, after all.

Unlike Ford Credit, GMAC is now independently controlled. Privately held Cerberus Capital Management led a group that bought 51 percent of GMAC in November 2006. Cerberus also controls Chrysler LLC and its captive, Chrysler Financial.

But GM still owns the other 49 percent of GMAC, and continues to rely heavily on GMAC to finance retail loan and lease transactions, and also to lend money to dealers to buy their new-vehicle inventory. In the first half of 2008, GMAC financed 46 percent of GM's retail volume of loans and leases combined, and provided 76 percent of the dealer financing.

Meanwhile, GMAC's mortgage subsidiary has had big losses in the subprime sector. That's another story. But again keep in mind that GM and GMAC remain closely related, for better or for worse.