GMAC Financial Services reported a 2008 fourth-quarter profit, which was achieved by the proceeds from a debt swap that offset losses at its automotive finance and mortgage businesses.
The financial services company had a profit of $7.5 billion, compared to loss of $724 million in the year-ago period. Total revenue in 2008 was $1.9 billion, compared to a net loss of $2.3 billion for 2007.
The company said the decline in revenue was due to significant losses at its mortgage business Residential Capital LLC, weak credit conditions and impairments on lease residuals in the auto finance segment.
GMAC's global automotive finance segment reported a loss of $1.3 billion in the fourth quarter 2008, compared with a profit of $137 million in the year-ago period. New-vehicle financing originations fell to $2.7 billion, a sharp drop from $13.4 billion in the year-ago period.
The declines are due to a drop in used-vehicle values, drop in consumer demand and a tight lending market.
Credit losses increased sharply in the fourth quarter of 2008 to 2.10 percent of managed retail assets, versus 1.05 percent in the fourth quarter of 2007. The increase is related to higher loss frequency and severity stemming from the U.S. economic recession. Delinquencies also increased to 2.96 percent in the fourth quarter of 2008, compared to 2.68 percent in the year-ago period.
Despite the losses in its auto finance and mortgage businesses, GMAC's fourth-quarter profit and improved financial conditions since it became a bank holding company has created optimism among its executives.
"These extraordinary conditions called for nothing less than extraordinary actions, and we closed 2008 with some encouraging steps toward a more positive future for GMAC," said GMAC Chief Executive Officer Alvaro G. de Molina. "Today, GMAC has a stronger capital base and is positioned to be more competitive over the long-term."