http://thecarconnection.com/index.as...&sid=173&n=156

Increased market share, earnings, revenue, even share profit...... but the incentives, exchange rates, decline in prod, and pension killed all the money from car sales, leaving GMAC to pull them thru... 30% increase to $630 in earnings!!!!

I believe the pension problem is being taken care of with that bolster, and betting on the figure that 2012 is when people start dropping off........ I heard the exchange rates are going to swing back to GM favor? (making imports more expensive) .. If GM can scale back the incentives and continue to bring out better products, I think things will look good.

 

From a mortgage broker, GMAC's Homecomings mortgage division is one of the slickest around. They have a lot of great products and a great online underwriting system.

 

I don't know what news station it was (ABC??) but they made a comment on how GM makes more money on mortgage then they do on cars. This article pretty much pointed out the same thing. Weird huh?

I think they'll do better once this pension problem is solved, and incentives rolled back.

 

Goes to show that maybe the big diversification push of the 80s wasn't such a bad idea. It helps even out the cycles inherent in the auto biz.

Too bad GM has already divested Hughes, EDS, and their highly profitable Defense business. I've even heard rumours they want to sell the mortgage portion of GMAC. They always use same excuse: they wanted to concentrate on their core business. What, they can't hire executives to exclusively run their other businesses? You don't hear GE complain about trying to run a diverse portfolio of profitable businesses.

 

Credit companies in general generate a LOT of income. The company I work for owns a bank and last year the bank paid it $200 Million in dividends. And get this the companies stock didn't even rise! If you want a hint as to which company it is remember this old tag line "Where service is..." That is a good enough hint.

 

Looks like the mortgage business sale is a reality, but only for the commercial mortgage portion of GMAC.

http://www.freep.com/money/autonews/gmac25_20031025.htm

 

A well run morgage company has no choice but to make money. No raw materials, no manufacturing costs, no product liability, no research & development.

Simply start off with money. Lend it. Collect back lent money with a bit extra as compensation for lending it in the 1st place.

As long as there is something someone wants to finance, you make good profits. Especially if you are moving a whole lot of cars & trucks you also happen to make due to pricing your vehicles high overall, then return the money via incentives.

It's alot like buying "protection" then having the same guys finance your loan for your protection money.

Admittedly an unfair comparison, but still a pretty good racket I'd say!

 

That is trap many companies unfortunately fall into. Ford Credit lost a ton of money last year because they were given an order a while back to vastly expand their business. My guess is that they saw the success of GE Capital and GMAC and said, "hey, we can do that too." And earlier this year Mitsubishi took a huge loss on its credit business after trying to sell vehicles with no money down and no payments for a year.

Even though finance companies don't manufacture anything, the business still has its own perils. The most obvious is the risk of default, which was the problem in the aforementioned examples. But you also have to be very clever in the financial markets to obtain the money you lend to other people (GMAC has close to $200 billion in debt for this purpose, IIRC). It only takes a few tenths of a percentage point to make the difference between profit and loss.

Like any business, it all goes back to your first three words: "A well run ..."

 

Exactly.

 

I like the sound of that!!!

 

Wait a second here...

Before everybody goes off claiming that the mortgage business is saving GM's hide, a single fact needs to be presented:

General Motors wrote a 13 BILLION dollar check to it's pension fund last quarter.

That BILLION with a "B".

That money came directly off the bottom line.

The long and short of it? GM made HUGE money last quarter, and used it to pay down pension liability. If the stock market goes north like everyone is claiming it will, then the pension funding requirements go down, and that money can be put to good use doing other things...

Like developing new Camaros.

The sky is not falling. GM is making incredible money... they're just not showing it as a profit. The money is being used for other things (investment in new programs, paying down pension liabilities, etc...).

 

Are you implying GM made $13 billion in profit last quarter, but used it to pay the pension liability? That's simply not true.

The money paid to the pension plan came from the huge debt offering GM floated when interest rates bottomed out in June. From a balance sheet perspective, GM simply exchanged one form of liability for another.

 

I am not implying that GM made an extra $13 billion and then paid it off against the debt, there was certainly a significant cash outlay towards it, but I think you might be missing something in the analysis.

Due to the fact that the initial bond issue is at a lower interest rate than the pension liability, the money then earns something in the neighborhood of $200 million dollars a quarter.

I'm not a financing expert, but it was a slick trick. Rake in $17 billion through a bond issue, take that money and pay off a pension liability at a higher interest rate and pocket the difference.

Regardless of the actual payout, there was a significant monetary contribution to the pension fund out of pocket in the last quarter. How the money is manipulated is the issue at hand, and since it was done the way it was done, GM is going to rake in serious cash due to it.

These are not indications of a corporation that is having trouble making money.

 

You're absolutely correct it was a brilliant financial move. As you say, borrow money at dirt cheap rates then invest it in the pension plan for (hopefully) a better return. This is the kind of stuff that makes Devine worth every penny.

IIRC, $10 billion of the $13 billion dumped into the pension plan was from the debt offering and $3 billion from operations. If the stock market continues to perform well, GM's unfunded pension obligation could be quite small by the end of the year. Of course, they still have to pay back all those bonds ...