News From the Auto Industry

GMAC has become a huge success and over the years has expanded its operations until it became the significant bottom-line contributor to GM’s profit. Then in the year 1985, GM’s executives decided to further expand the scope of GMAC and this time it will not only be loaning money to purchase cars but loan money to buy homes as well. To pushed through with this plan General Motors has purchased two large mortgage lenders and became the second largest mortgage bank in the US.

In the course of its operation GMAC has also became an expert player in the aspect of structured finance or derivatives. It has taken the income streams generated by all those car and mortgage payments and turned them into bonds through the “securitization” process wherein these bonds are sold off to investors. The GMAC can be considered as a perfect picture to portray an American corporation.

However lately, the GMAC has been painting not so good financial images. And last Thursday GM has succeeded in shaking up Wall Street when it announced that it was delaying the filing of its 2006 Annual Report by a couple of weeks. According to analysts, the reason for the delay was the significant exposure of GMAC to the ever popular subprime lending catastrophe. Just like the other players in the mortgage business, GMAC’s home lending subsidiary, ResCap has been caught in a rather awful situation when it allowed risky loans to homeowners with bad credits.

It was in the year 1919 when GM—world’s largest automaker and producer of quality GM grille insert— created the General Motors Acceptance Corp., which has become the financial arm of the automaker. The GMAC was created to offer specialized credit to would-be car buyers of GM by means of installment plans.