GMAC Racks Up Another $2.5 Billion in Red Ink

GMAC posted its fourth consecutive quarterly loss of $2.5 billion in the second quarter.  The bulk of the losses, $1.86 billion, came from ResCap, the mortgage lender who has announced it has suspended almost all production outside the US.  Last month Cerberus, GMAC's private equity majority owner arranged a $60 billion debt refinancing package to stave off a bankruptcy filing of ReCap.  As much as I like to mock the clowns at Cerberus for making two of the worst possible private equity investments in the history of investing (the other being Chrysler), I have to hand it to them for having the energy and desire to concoct complicated financing deals to prolong the agony for investors.  Frankly, I'd have thrown the towel in a long time ago, buried my head in the sand, and prepared for a protracted legal battle in bankruptcy court.  So I give them bonus points for sticking it out and attempting to turn things around.  It doesn't mean I think they will succeed with either investment.  If GMAC isn't eventually torpedoed by ResCap, there's a good chance it succumbs to the precipitous decline in automobile sales.  The automotive finance unit of GMAC reported a loss of $717 million in the second quarter.  Furthermore, GMAC will stop subsidized auto leasing in Canada and is reducing new leases in the US which will not help GM sell more cars.  The decision to reduce leasing perhaps stems from the $716 million in impairment charges the company took from the declining value of leased vehicles.  GMAC has $30 billion in leases which includes $12 billion in SUVs and $6 billion in trucks.  Something tells me this is not the last impairment charge it will be taking on its SUV and truck leases.  The good news is, Cerberus can always pump up its profits again by using its precious cash to buyback GMAC's debt, which is trading at a discount.  After all, that has been a nice boost to earnings in the past.  How much longer investors will be willing to extend financing for this type of financial engineering remains to be seen.  Tomorrow, we'll see what type of financing package Cerberus can renegotiate with Chrysler's irritated lenders.  Will the negotiations succeed?  The only thing I know for certain is that Chrysler's borrowing costs aren't going lower.