GMAC will slash 930 jobs

Financial company will close 15 field offices and idle 930 workers after posting $4.3B deficit in 2007.

Sharon Terlep / The Detroit News

With its massive mortgage operations deep in red ink, financial firm GMAC LLC is now moving to slash costs on the still-lucrative auto lending side of its business.

The company, part-owned by General Motors Corp., on Wednesday announced plans to cut 930 jobs and shutter 15 of 20 field offices in the U.S. and Canada, including one in Auburn Hills. About 150 Metro Detroit jobs would be eliminated under the restructuring, including some at GMAC headquarters in Detroit.

GMAC expects to save $175 million a year in the restructuring, which the company says could cost as much as $85 million to execute.

GMAC made $1.5 billion on auto loans last year, but turmoil in the mortgage business more than wiped out those profits. The company’s Residential Capital LLC mortgage unit lost $2.3 billion last year as legions of high-risk borrowers defaulted on mortgages, dragging the company to a $4.3 billion loss in 2007.

GMAC’s woes have been a major headache for GM, in the midst of its own turnaround plan, and new majority owner Cerberus Capital Management LP, which also owns Chrysler LLC. GM retained a 49 percent stake in GMAC after selling 51 percent of the company to Cerberus in 2006.

In a recent letter to investors, Cerberus founder Stephen Feinberg and Senior Managing Director William Richter said that they have "significant concerns" about GMAC and warned that the company could run into "substantial difficulty" if the problems in the U.S. credit market continue.

GMAC said Wednesday that auto lending cuts are unrelated to losses in the mortgage business.

"The restructuring for the auto finance business was made independently of what’s happening on the mortgage business," GMAC spokeswoman Gina Proia said. "We’re taking a look at the auto finance operations and looking at ways we can improve the cost structure."

GMAC’s plans call for cutting about 15 percent of the 6,275 employees in its North American auto financing unit. The company will then merge its 20 field offices into five regional centers to be located in Atlanta, Chicago, Dallas, Pittsburgh and Toronto. GMAC will keep a presence in Detroit and Southfield.

Pressure is mounting on the auto loan business amid sluggish U.S. auto sales, a tightening credit market and an uptick in the number of car buyers unable to make timely payments on their auto loans. GMAC, in announcing year-end earnings results this month, said it’s seeing a slight increase in defaulted auto loans.

Lehman Brothers analyst Brian Johnson wrote in a research note that troubles in the auto lending industry likely put pressure on GMAC to make the cuts, according to the Associated Press.

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

Already, GMAC has tightened its lending practices, though not significantly, to try and avoid defaulted loans. Keeping the auto business profitable is more critical than ever for GMAC, with its once hugely profitable mortgage business losing billions.

Last fall, GMAC announced plans to cut ResCap’s worldwide work force of 12,000 by about 3,000 positions in addition to 2,000 job cuts earlier in the year.

Even with the worries, GMAC has predicted a profitable 2008.

"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.

"Our new structure will further enhance our operational efficiency and allow our field personnel to spend more time supporting our dealer customers."