GMAC's Loss Confirms Car Loan Crisis

There has been a lot of speculation as of late that the car loan industry was taking a hard hit, especially following the housing crisis that the country is currently experiencing. However, many in the industry were not aware of how bad it had actually gotten. The latest figures from GMAC confirm that the car loan crisis has gotten to a point where something must be done about the economy.

GMAC has reported a loss of $724 million for their fourth quarter, which is a huge decline for the company. Just last year, they were showing a $1 billion profit, a far cry from their latest results. This disturbing announcement comes on the heels of another announcement from the industry that the delinquency rate for indirect auto loans has risen to 2.86% in the third quarter.

Moody’s Investor Service was quick to react to the announcement, dropping their unsecured rating. The majority of their losses have come from their mortgage business, but their auto loan finance unit had a 77% decline. They are now changing the way that they handle auto loans within the company, and will be rewriting their underwriting codes.

The company has increased the number of collections experts that they have on staff, a 40% increase over what they previously employed. These revelations have spurred several other auto loan companies to change their underwriting rules as well, for they are afraid of the losses that they might begin seeing as the year and the economy continues.




Back to February 2008 Archives