Higher Interest Rates Could Affect GMAC

DETRIOT – Rising interest rates will make it difficult for General Motors Acceptance Corp. to hit profit targets this year, General Motors Corp.’s top executive says here at the 2005 North American International Auto Show.

GMAC has been vital to GM’s earnings during recent years, accounting for $2.8 billion of the auto maker’s $3.8 billion profit in 2003. GM will release its 2004 fourth quarter financial results next week.

“Higher interest rates will affect GMAC,” GM Chairman and CEO Rick Wagoner says. “We’ve got to see if we can overcome that. It depends how quickly (interest rates) rise. We’ll see how Q4 results are. But obviously throughout the year, they’ve (GMAC) shown good strength.”

Rising interest rates impact GMAC’s “base funding cost,” as well as its mortgage business, Wagoner says.

“The mortgage business was quite a bit off last year, but still quite profitable,” he says. “It makes the profitability target a little tougher. They’ve run ahead of expectations (in 2004). We’ll see for (2005). We’ll put some rough estimates out Thursday (Jan. 13).”

GMAC has been a life preserver for profits during recent years, helping GM remain financially buoyant as it deals with rising health-care costs and shrinking market share in the U.S.

“It’s a big profit generator for us – not a huge cash generator because they (GMAC) need to build their balance sheet,” Wagoner says. “But it’s a huge part of our business, and it helps sell a lot of cars and trucks.”

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