Out of its core businesses, only the insurance arm produced a positive net income, reaching $97 million, $20 million down from the previous year’s result. GMAC’s global automotive finance business reported a loss of $294 million for the quarter, compared with a profit of $554 last year.
Lending on new vehicles decreased to $11.3 billion in the third quarter from $14.5 billion the year before. The US auto industry recently reported that car sales are at the lowest levels for 25 years.
To counter the losses, GMAC will halt wholesale and retail originations in Australia and New Zealand by the end of the year. On November 3, it also stopped retail originations in seven European markets.
Residential Capital (ResCap), the real estate finance division of GMAC, was the worst performer, reporting losses of $1.91 billion. ResCap has been one of the biggest originators of subprime mortgages in the US.
Since the beginning of 2007, ResCap has reported losses of approximately $9 billion. GMAC wrote off over $196 million worth of outstanding debt owed to it by ResCap in the third quarter alone.
To address the crisis, ResCap has announced plans to streamline costs, including selling GMAC Home Services to Brookfield Residential Property Services. This will be the second subsidiary to go after GMAC RE, GMAC’s reinsurance business, was sold to Maiden Holdings on November 3. ResCap will also cease lending outside of the US and Canada.
But GMAC voiced concerns over whether maintaining ResCap was a viable option, stating “substantial doubt exists regarding ResCap’s ability to continue”.
In light of GMAC’s current liquidity problems, the group has applied for bank holding company status, which would allow it to access the TARP.