GMAC writes down $716 million in auto leases

Finance giant posts $2.5 billion total loss in Q2

DETROIT -- GMAC Financial Services said it swung to a net loss of $2.48 billion in the second quarter as its auto finance business took major writedowns due to plummeting residual values of SUVs. GMAC posted a $293 million profit in the second quarter of last year.

The company’s automotive finance business lost $717 million in the second quarter. That was largely due to $716 million in writedowns related to its North American leases. The financier released its second quarter report July 31.

GMAC said the writedowns were due to the falling residual value of leased SUVs. GMAC said that “more than offset” profits from its non-North American business, which it said were steady.

“This is the perfect storm for our business,” Chief Financial Officer Rob Hull said on a conference call with analysts and reporters.

GMAC said sport utility vehicle leases made up $12 billion of its $30 billion North American lease portfolio as of June 30. Pickup trucks made up $6 billion and cars were $12 billion.

The writedowns don’t reflect the full hit that GMAC’s lease portfolio took from falling residual values. That’s because GMAC’s auto finance business shares its risk with its former parent company, General Motors.

GM is contractually obligated to cover some of GMAC’s lease losses and support the residual values of the vehicles on GMAC’s books. That’ll hurt GM’s results. It releases quarterly earnings Friday.

Hull said that in June, GMAC was only able to recover about 75 percent of what it had expected on sales of off-lease SUVs. It was able to recover about 85 percent of what it had expected across all vehicles. In June of last year, sales proceeds were on par with estimates.

New vehicle financing was also down in the second quarter. GMAC signed $12.4 billion in retail and lease contracts last quarter, compared to $14.0 billion a year ago.

Earlier this week, GMAC said it would reduce its lease volume in the U.S. and halt incentivized leasing in Canada. It didn’t announce any new changes to its lease business.

“We intend to support GM within the realm of our liquidity capacity,” Hull said.

GMAC’s auto finance business actually experienced a net gain in revenue before the write-downs.

GMAC’s quarterly loss was also driven by a $1.86 billion net loss in its troubled residential mortgage business.

GM retains a 49 percent stake in GMAC, of Detroit. Cerberus Capital Management LP, the private equity firm that acquired an 80 percent stake in Chrysler LLC last year, bought the other 51 percent of GMAC from GM in 2006.

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