GMAC Posts Loss Amid Mortgage Crisis
February 05, 2008

When General Motors announced two years ago it selling off part of its cash cow GMAC Financial Services, many industry observers thought it was a crazy plan.

Today, as GMAC, in which GM owns a 49 percent stake, posted a fourth-quarter loss of $724 million compared with a $1.02 billion profit a year ago, the automaker looks a tad smarter. And an investor group led by Cerberus Capital Management (owner of 80 percent of Chrysler), which bought the rest of GMAC appears less than brilliant.

GM CFO Fritz Henderson told AutoObserver in an interview the automaker never could have weathered the situation had it fully owned GMAC, which has had its home-lending unit clobbered by the turmoil in the mortgage, housing, subprime lending and capital markets.

Still, though GM doesn’t own all of GMAC, the losses at GMAC are slowing the automaker’s turnaround. GM had counted on GMAC profits to offset struggles of its North American auto operations as its restructures.

GMAC said Tuesday it is taking “aggressive action” to mitigate future risks and “currently” expects to be profitable in 2008.

Both GM and Cerberus have injected billions to keep the mortgage business afloat. In addition, Cerberus owned a majority of another subprime home lender, Aegis Mortgage Corp. in Houston, which went bankrupt in August. Cerberus backed out of buying Option One, a subprime lending business, from H&R Block Inc., which ultimately collapsed.

Posted by Michelle Krebs at 7:10 AM under Business , Chrysler , GM | Comments (2) | digg this | Seed Newsvine