Easy Credit Terms Comes Back To Haunt GM In A Big Way

The auto maker, in the midst of a restructuring aimed at restoring profitability, has been stung in recent months by the weak performance at GMAC Financial Services, which has struggled due to losses at its residential-mortgage business even as auto loans continue to be profitable.

Adding fuel to the fire for GM investors, Lehman Brothers analyst Brian Johnson said in a research note Monday that GMAC is experiencing a "sharp" increase in delinquency rates among its auto-loan customers since July.

Auto-loan delinquencies could further expose GM to a falling credit market and could further disrupt the auto maker's restructuring efforts. GM surprised the automotive industry when it reported a third-quarter net loss of $38.96 billion earlier this month. The majority of the loss was attributed to tax-asset valuation, though GM booked a $757 million loss associated with its 49 percent stake in GMAC.


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EnnNorak - 11/20/2007 2:35:29 PM

+6 Boost

Bad risk managment and accounting chicanery has become a pandemic. We are just now beginning to feel the accelerating negative effects of irresponsible consumers maxing out their available credit at the same time as corporate executives look for short-term kudos and accolades leaving the next guy holding the bag. And, many of these executives are rewarded with multi-million-dollar golden handshakes as they laugh all the way to the bank hoping that the bank itself will not fail.

ThierryHenry14 - 11/20/2007 3:18:09 PM

+3 Boost

great comment...

tecnopolis - 11/21/2007 2:06:57 AM

+2 Boost

..and all of this is before we hit $4 a gallon for fuel.

woood - 11/21/2007 8:29:48 AM

0 Boost

Easy credit = high delinquency rate. Its just the way it is. Sales of GM products could slow down (further?) because potential buyers of new gm products might look at repos in good condition to save money. Its not unlikely to happen with the real estate industry in the dumps.

Cynical - 11/21/2007 3:51:57 PM

+3 Boost

On the flipside, maybe Cerberus got in at less than specatular timing? Looks like they got caught holding 51% of the bag for poor lending decisions historically made by GM.

JWalkerLegrande - 11/22/2007 9:19:23 AM

+3 Boost

Cerberus had way too much money and ambition. They will have huge losses on GMAC but much much higher on Chrysler.

The funding has already dried up for them - just look at the failure in reselling the ChryCo loans. Sooner than later both companies will be on the bloc again, at ~10% of the acquisition costs.