Financing Operations

Results of Operations

The following table summarizes the operating results of our Financing operations for the periods indicated. The amounts presented are before the elimination of balances and transactions with our other operating segments.

($ in millions) Year ended December 31,   2005     2004     Change     %  
Revenue                        
Consumer $ 6,540   $ 6,796   $ (256 )   (4 )
Commercial   1,805     1,686     119     7  
Operating leases   7,037     6,566     471     7  
Total financing revenue   15,382     15,048     334     2  
Interest and discount expense   (9,039 )   (7,175 )   (1,864 )   (26 )
Provision for credit losses   (419 )   (975 )   556     57  
Net financing revenue   5,924     6,898     (974 )   (14 )
Other income   3,440     2,827     613     22  
Depreciation expense on operating leases   (5,244 )   (4,828 )   (416 )   (9)  
Noninterest expense   (2,528 )   (2,818 )   290     10  
Goodwill impairment   (648 )   –     (648 )   –  
Income tax expense   (278 )   (603 )   325     54  
Net income $ 666   $ 1,476   $ (810 )   (55 )
Total assets $ 194,236   $ 225,565   $ (31,329 )   (14 )

 

Financing operations earned $666 million, including non-cash goodwill impairment charges of $398 million (after-tax) relating to our Commercial Finance operating segment. Excluding the goodwill impairment charges, operating income for our Financing operations was $1,064 million, a decrease of 28% in comparison to 2004. Operating income decreased primarily due to lower net interest margins as a result of higher borrowing costs. The decline in net interest margins was slightly offset by lower consumer credit provisions, primarily as a result of lower asset levels and the impact of improved used vehicle prices on terminating leases. Net income from International operations remained strong at $408 million in 2005, as compared to $415 million earned in 2004, despite a decrease in net interest margins.

Total financing revenue increased 2% as compared to 2004. The commercial portfolio benefited from an increase in market interest rates as the majority of the portfolio is of a floating rate nature. Operating lease revenue increased year over year as the size of the operating lease portfolio increased by approximately 20% since December 2004. The increase in the portfolio is reflective of GM’s shift of some marketing incentives to consumer leases from retail contracts late in 2004.

The increase in interest and discount expense of $1,864 million is consistent with the overall increase in market interest rates during the year, but also reflective of the widening of our corporate credit spreads as we experienced a series of credit rating actions during the year. The impact of the increased spreads will continue to affect results, as our lower cost debt matures, leaving debt borrowed at higher spreads on the books. Refer to the Funding and Liquidity section of this MD&A for further discussion.

Despite the impact of Hurricane Katrina, the provision for credit losses decreased by 57% in 2005, resulting from a combination of lower consumer asset levels primarily due to an increase in whole loan sales, improved loss performance on retail contracts and improved performance on the non-automotive commercial portfolio.

During the fourth quarter we recognized a non-cash goodwill impairment charge of $398 million (after-tax). The charge relates to our Commercial Finance Group operating segment and, in particular, primarily to the goodwill recognized in connection with the 1999 acquisition of The Bank of New York’s commercial finance business. These charges resulted from annual impairment tests required to be made for all of our reporting units in accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142).