GMAC to Cut About 930 Auto Finance Jobs

GMAC LLC plans to combine 20 U.S. and Canadian offices into five regional centers and cut about 930 jobs in its auto finance business to cut expenses in the wake of tightening credit markets and heavy losses last year.

The job cuts will occur by the end of the year and represent about 15 percent of the work force in the auto loan business unit.

The company, which was once the finance arm of General Motors Corp., said the five regional business centers will be in the Atlanta, Chicago, Dallas, Pittsburgh and Toronto areas.

GMAC expects to save about $175 million per year, but will have to spend $65 million to $85 million this year for employee severance and office-closing expenses.

Last year GMAC lost $2.33 billion as the housing slump and disruptions in the credit and capital markets battered its home mortgage division. Its auto financing business was profitable last year, however.

"Although it is difficult to reduce staffing levels, we need to position GMAC with a more competitive cost structure and greater operational flexibility for future growth," President Bill Muir said in a statement.

Most auto dealers will see no change in servicing for their dealership, Muir said.

In 2006, GM sold 51 percent of the Detroit-based GMAC business to an investment group led by Cerberus Capital Management LP for $14 billion.

The U.S. job cuts include a range of auto finance positions at field offices in Charlotte, N.C.; Detroit; Houston; Philadelphia; St. Louis; Denver; Cleveland; Sacramento, Calif.; Jacksonville, Fla.; Minneapolis; Hartford, Conn.; and Phoenix. Cuts also will be made at the company's Nuvell subsidiary and GMAC's central office in Detroit.

In Canada, offices in Montreal, Halifax and Edmonton will be closed.

Company spokeswoman Gina Proia said the cuts are unrelated to losses at Residential Capital LLC, or ResCap, GMAC's troubled mortgage loan business.

"We're taking a look at the auto business independent of what's happening in the mortgage business and just looking for ways to streamline and make improvements," she said.

GMAC as a whole is predicting that it will be profitable in 2008, she said.

ResCap lost $4.35 billion last year, more than offsetting profits elsewhere in GMAC. The auto lending division earned $1.49 billion in 2007. However, GMAC noted a small uptick in auto loan delinquencies, mostly in its nonprime portfolio in areas hardest hit by falling home prices.

Proia said the auto loan unit has bolstered its collections, tightened underwriting and is monitoring the loan portfolio to avoid problems in the future.

Lehman Brothers analyst Brian Johnson said in a note to investors that the job cuts probably were hastened by the pressures that GMAC faces in auto lending.

"The consolidation also likely reflects a longer term strategy of financial services cost cutting through consolidation by no means unique to GMAC," Johnson wrote.

ResCap lost $921 million during the fourth quarter of 2007, marking its fifth straight quarterly loss. Losses skyrocketed from write-downs on credit residuals and mortgage-backed securities, restructuring charges and higher funding costs.

Trouble in GMAC's mortgage business first surfaced in the latter half of 2006 when growing numbers of people began defaulting on home loans.

Investors have avoided securities backed by home loans because of a surge in mortgage defaults and foreclosures. Declining home values have prevented many borrowers from refinancing into more manageable loans.

GMAC has said it has taken "aggressive actions" to stem the unit's drag.

Cerberus founder Stephen Feinberg and Senior Managing Director William Richter told investors in a letter last month they have "significant concerns" about the GMAC investment.

"The good news is that we bought GMAC cheaply enough so that even with all the bad news in the mortgage market and credit markets, we are still in reasonable shape with our overall investment," they wrote. "However, if the credit markets continue to decline and we find ourselves in a prolonged environment of capital market shutdown, GMAC could run into substantial difficulty."

___

On the Net:

GMAC Financial Services: http://www.gmacfs.com