Subprime Mortgage Debacle Makes General Motors Cry

Hey, you may be asking yourself, why are GM’s profits down 90% from this quarter last year?

Last year they made $602 million dollars in the first quarter. This year they made $62 million. Hmmm. From the NYT:

It was the company’s second consecutive quarterly profit, but the number was weighed down heavily by losses from subprime mortgage loans made by the General Motors Acceptance Corporation.

Ouch. Irresponsible lending practices only hurt poor people with bad credit, huh? —MEGHANN MARCO

G.M. Profit Down 90% From 2006 [NYT]
(Photo: jm3)

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  1. timmus says:

    My eyes are glazing over trying to read that article’s sentence about GM selling off GMAC… if they did that, then they don’t own GMAC anymore, and if it’s doing bad, why does GM care? I’m confused.

  2. Skiffer says:

    @timmus: GM only sold a majority (51%) share in GMAC – GM still own 49% of GMAC’s profits/losses. GM was only hit with 49% of GMAC’s losses – but still significant.

    @Meghan: “Irresponsible lending practices only hurt poor people with bad credit, huh?” —> What are you trying to imply? My answer to that is still “yes…and the institutions who made the loans”. GM obviously orchestrated subprime loans to sell more cars by offering more attractive (and riskier) financing. They’re getting what’s coming to them.

  3. Ben Popken says:

    @Skiffer: Mortgages aren’t for cars. Even if you’re planning on living in one.

  4. B says:

    “Ouch. Irresponsible lending practices only hurt poor people with bad credit, huh?”
    Well, GM ain’t poor, but they have bad credit (Junk Bond status at one point).

  5. Skiffer says:

    @Ben Popken: Ahhh, didn’t clue-in on the mortgage part in the article above – so GMAC tried to ride the housing wave by investing in a bunch of subprime mortgages. Still – they took the risk, and now they’re paying (or not getting paid) for it…

  6. pestie says:

    HA HA!! PWNED!

  7. Sudonum says:

    @Skiffer: Don’t you have those annoying “DiTech” ads in your area? DiTech is GMAC’s mortgage division.

  8. Trick says:

    Seems to me a case of what goes around, comes around.

    Maybe Earl Hickey should take over GMAC?

  9. mjw says:

    I wonder what effect this will have on the interest rate on my GMAC Bank high interest savings account.

  10. TechnoDestructo says:

    Heh. Now the GMAC sale seems shrewd.

  11. Caswell says:

    No surprise that a hurting GMAC guts GM’s bottom line.

    As a former GM engineer (resigned two years ago this week), I’ve been through plenty of quarterly business reviews that showed GMAC’s profits keeping GM as a whole in the black.

    Sometimes I felt like I was working to create cars so that GMAC could make a buck loaning people money to buy them. The profits on the cars themselves were certainly skinny, and warranty claims ate into that hard.

  12. mac-phisto says:

    house of cards. i think they would’ve been smarter spinning off the subprime branches before it hit the fan than selling majority interest in their entire lending branch. don’t plan on seeing too many ppl qualifying for 0% loans on new cars. i’d be surprised if they even continue those offers.

  13. Trai_Dep says:

    We were talking about housing bubbles and Vegas-esque lending practices YEARS ago. Yet these overpaid “geniuses” dove right in.

    Shareholders should sue the execs to steal their bonuses back. Idiots.

  14. IRSistherootofallevil says:

    Uh no, they can’t make a profit because they make crappy, big, fuel-inefficient, unreliable cars and spend too much money and time fighting off the EPA instead of complying to CAFE standards. End of story.

  15. IRSistherootofallevil says:

    No, GM can’t make a goddamn profit because they make crappy, unreliable, ugly, fuel inefficient cars and waste too much money and time fighting off the EPA instead of investing in technology that increases fuel efficiency so they can meet their goddamn CAFE standards. End of story. GM DESERVES to go out of business.

  16. SexCpotatoes says:

    The majority stake in GMAC was sold, but due to the complexity of the sale it took too long and GM got waaaay less than they expected for the majority of shares. This was read on one of the earnings statement release articles on Jalopnik.com. They just weren’t smart enough to sell it to some suckers before it reared up and bit them on the rear end.