GM Posts Profit, Considers Returning to Auto Lending Business; Treasury Reports $1.6 Billion Loss on Chrysler; $34 Billion Total Auto Taxpayer Hit

The New York Times Reports G.M. Posts Profit as Sales Rise 40 Percent

General Motors said Monday that it earned its first quarterly profit since 2007 after last year’s government-sponsored bankruptcy allowed the carmaker to wipe away many of its longstanding obligations.

G.M. reported first-quarter earnings of $865 million as its revenue surged 40 percent, to $31.5 billion. It broke a long string of losses in North America even though industry sales remain near multidecade lows.

G.M. earned $1.2 billion before interest and taxes in North America, the region where it had sustained most of its losses in recent years. In the previous quarter, G.M. lost $3.4 billion in North America.

G.M.’s biggest source of trouble is now Europe, where it lost $500 million, but Mr. Liddell said operations there could break even next year.

Treasury takes $1.6 billion loss on Chrysler loan

Yahoo!News reports Treasury takes $1.6 billion loss on Chrysler loan

The Treasury Department said Monday it will lose $1.6 billion on a loan made to Chrysler in early 2009. Taxpayer losses from bailing out Chrysler and General Motors are expected to rise as high as $34 billion, congressional auditors have said.

Treasury said Monday that Chrysler repaid $1.9 billion of a $4 billion loan, which was extended before the company filed for Chapter 11. The government hopes to get another $500 million from the company that emerged from bankruptcy, Chrysler Group LLC.

Treasury officials said that the government had no plans to boost its stake in the new Chrysler to cover those losses. It also acknowledged another $1.9 billion in potential losses from a separate loan that had been made to the company that went through bankruptcy proceedings. It indicated slim hopes of recouping much if anything from that separate $1.9 billion loan.

GM Considers Return to Auto-Lending Business

Inquiring minds are reading the Bloomberg article GM Said to Weigh Returning to Auto-Lending Business.

General Motors Co. may return to the auto-lending business more than three years after selling control of GMAC LLC, according to three people familiar with the company’s plan.

GM may buy back the GMAC business, start a new finance unit or form a partnership with banks and other lenders, said the people, who asked not to be identified because details are private. Chief Executive Officer Ed Whitacre wants to form an in-house lender before selling shares in GM as soon as the fourth quarter, one person said.

Having a so-called captive credit arm may boost GM’s profit, enable dealers to offer better terms on leases and loans, and make an initial public offering more appealing to investors, said Rebecca Lindland, an IHS Global Insight analyst in Lexington, Massachusetts.

“The IPO is going to be more of a success if they can sell more vehicles than they have been selling,” Lindland said. “They should be able to do that if they can be more aggressive in their financing. Having their own finance company would certainly help.”

Competitors that own finance companies can use in-house lenders to offer more-attractive car loans or leases, boosting sales, according to Colin Langan, a UBS Securities LLC analyst in New York. Ford Motor Co. is among the automakers in the U.S. with its own credit unit.

“It makes it much easier to do zero-percent financing and you can be a bit more aggressive in who you lend to,” said Langan, who recommends buying Ford shares.

Russ Shelton, owner of Shelton Pontiac Buick GMC Inc. in Rochester Hills, Michigan, said GM dealers would welcome an in-house finance arm.

“Probably the biggest missing piece for GM is financing,” Shelton said. “Getting a customer financed today is the hardest thing, even if they have good numbers. I think we could probably overcome some of that with a captive finance arm.”

Subprime auto loans and zero percent down loans are among the things that got GM in trouble. Untenable wages scales and union benefits is the other. Now, after shedding debt in bankruptcy, GM is pondering a return to in-house zero-percent down financing. This is exactly what GM does not need.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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