General Motors (GM) continues to reveal another core incompetency: The ability to assess credit-worthiness. The company’s financing unit, GMAC, reported another disastrous quarter, the fifth in a row. GMAC’s mortgage unit is toast. Now the question is whether its concrete shoes will drag the whole company down.
And don’t forget what GMAC primarily exists to do: lend people money to buy GM cars. If GMAC goes down, GM will have even more trouble moving cars Americans don’t want and can’t afford.
Reuters: GMAC, the finance company partly owned by General Motors, lost $2.52 billion in the third quarter, hurt by the housing slump and vehicle lease write-downs, and said Wednesday that its mortgage unit, one of the nation’s largest home loan providers, may not survive.
The loss, GMAC’s fifth straight quarterly decline, compared with a loss of $1.6 billion in the period a year earlier and brought GMAC’s losses since the middle of 2007 to $7.9 billion.
Its mortgage lending unit, Residential Capital, lost $1.91 billion in the quarter, its eighth consecutive quarterly loss. It has lost $9.1 billion in two years.
The only good news is that two years ago GM did find a greater fool to take 51% of GMAC’s losses off its hands: The proud owner of another incompetent US car company, Cerberus.
GMAC has slashed its lending after losses soared because of the housing slump, tight credit markets, mounting customer defaults and falling vehicle sales.
It is seeking to become a bank holding company, and this week said it planned to restructure much of its debt, less than five months after completing a $60 billion refinancing.
Insurance was GMAC’s only profitable unit, with earnings of $97 million.
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