GMAC first quarter loss widens as credit markets remain weak
NEW YORK -- GMAC Financial Services said Tuesday that it will not be automatically be forced to file for bankruptcy protection if General Motors Corp. is unable to restructure itself by its government imposed deadline.
Robert Hull, the company's chief financial officer, said that while a Chapter 11 filing at the automaker would certainly have a negative effect on GMAC, the two remain separate companies and don't guarantee each other's debt.
"We want to see GM succeed, that's for sure, but we're taking the steps we need to prepare GMAC for whatever happens," Hull said during a conference call with investors.
GMAC said Tuesday that its first-quarter loss widened to $675 million from a loss of $589 million in the same period last year, blaming the effects of the continued weak economy and losses related to its older automotive and mortgage loans.
The company, which provides financing for both GM dealers and customers, has struggled for much of last year, as the collapse in the housing and auto markets battered its traditionally lucrative home and vehicle loan business. In late 2008, GMAC completed a debt exchange program designed to raise capital and allow it to become a bank holding company. As a result, it has since received billions of dollars in government aid.
In the months since, Hull said the company has been able to loosen its lending standards and extend credit to more GM customers. During the recent quarter, GMAC financed loans for about 17 percent of GM customers, but that percentage increased each month and was closer to 30 percent by the end of the period, Hull said.
The lender is set to benefit soon from additional business from dealers and customers of Chrysler LLC. GMAC is set to become the preferred lender for Chrysler's customers and will begin taking Chrysler business by mid May.
"The government has indicated that it will make capital available to support Chrysler loans," Hull said.
Hull added that the details of the funding have not yet been finalized and didn't want to speculate on how much it could total.
Profit at GMAC's auto finance division fell 15 percent to $225 million, while earnings from its insurance division dropped 62 percent to $50 million. Losses at the company's mortgage division narrowed to $125 million from $859 million in the year-ago period.
But the company posted $825 million in corporate and other losses, representing a steep increase from $120 million in losses in the first quarter of 2008.
The company blamed that loss on several factors, including the elimination of a $900 million gain on debt extinguishment in its mortgage business, asset write-downs and $267 million in amortization related to a bond exchange last year.
The losses were partially offset by $631 million in after-tax gains as the company retired debt.