Live

Watch CBSN Live

GMAC Auto Finance Results Start to Recover

The auto lending division of GMAC Financial Services is starting to claw its way back into business.

GMAC today reported a wider loss overall of $675 million in the first quarter of 2009, versus a net loss of $589 million in the year-ago quarter, because of losses in its mortgage division and in commercial financing.

However, the first-quarter report also included positive news for its global automotive finance business. That included a higher level of new auto loans versus an extremely low level in the fourth quarter of 2008, and the fact that GMAC will start serving Chrysler dealers this month.

Chrysler announced on April 30, as it filed for bankruptcy protection from creditors, that it was switching its retail and wholesale auto finance business to GMAC. Combining the finance operations was a logical move under the circumstances. Pending Chrysler's reorganization in U.S. Bankruptcy Court, private equity firm Cerberus controls Chrysler plus both auto finance companies.

"This (Chrysler) agreement leverages GMAC's strengths, diversifies our auto finance business and provides new revenue opportunities for the company," said GMAC CEO Alvaro G. de Molina, in a written statement.

GMAC's existing auto finance business is almost exclusively based on cars and trucks sold by General Motors, which owned GMAC until it sold a majority stake to Cerberus in November 2006. GMAC's auto finance division was profitable in the first quarter, with net income of $225 million. That was about 13 percent below the year-ago quarter, which is an improvement by GMAC's recent standards.

GMAC originated $3.4 billion in new auto loans in the first quarter, up from only $2.7 billion in the fourth quarter. In relative terms, GMAC practically closed up shop in the fourth quarter, since in the midst of an ongoing credit freeze, it was having trouble raising funds with which to originate new loans.

At the same time, GMAC in the fourth quarter pursued and won approval from the Federal Reserve to redefine itself as a bank holding company. GMAC also got direct investments from the U.S. Treasury Department Troubled Asset Relief Program.

Treasury in December bought $5 billion in preferred shares of GMAC, and loaned GM another $1 billion to be invested in GMAC. Ultimately, under GMAC's agreement with Treasury, GM and Cerberus will become minority shareholders of GMAC Financial Services.

Chart: GMAC FInancial Services

View CBS News In
CBS News App Open
Chrome Safari Continue
Be the first to know
Get browser notifications for breaking news, live events, and exclusive reporting.