A year of opportunity and challenge
For GMAC, 2006 was a year in which a landmark transaction marked the end of GMAC’s 88-year history as a wholly owned subsidiary of General Motors Corporation.
In November, General Motors successfully completed the sale of a 51 percent controlling interest in GMAC to an investment consortium led by Cerberus FIM Investors, LLC. This transaction set the stage for exciting new growth opportunities as we transform GMAC from a captive operation to a more globally diversified financial services company. With a new ownership structure, GMAC benefited from a strengthened capital position, higher credit ratings and improved access to low-cost funding. We are now in a much better position for long-term profitable growth as we pursue strategies to further expand our earnings base, while remaining the exclusive provider for essentially all GM-sponsored auto finance programs.
The diversity of our earnings base proved to be a significant advantage in 2006—record results in our insurance operations and the strong financial performance of our automotive finance business helped offset a major earnings setback in the real estate finance segment, amid a declining U.S. residential housing market.
Mixed financial results
We operated in a very difficult environment in 2006, one characterized by higher interest rates, a flat yield curve and a sharp downturn in the U.S. mortgage market. Despite these challenges, we were able to achieve full-year net income of $2.1 billion, just under the $2.3 billion in net income we reported in 2005. GMAC’s 2006 operating earnings totaled $2.0 billion, compared to $2.7 billion of operating earnings in 2005.1 GMAC ended 2006 with exceptionally strong liquidity as consolidated cash and marketable securities totaled $18.3 billion as of December 31, 2006.
Our global automotive finance business reported $791 million2 in operating earnings in 2006 versus $880 million the previous year. Residential Capital Corporation (ResCap) reported full-year operating earnings of $182 million3, down substantially from the $1 billion in earnings we achieved in 2005. Our insurance business partially offset the weak performance at our real estate finance segment by delivering record operating earnings of $1.1 billion in 2006, a sharp increase over the group’s $417 million earnings performance in 2005.
Our “other” category—which includes our commercial finance business and a 21 percent stake in a former GMAC commercial mortgage subsidiary—had a full-year operating loss of $71 million versus $403 million in earnings the previous year, when the commercial mortgage business was wholly owned by GMAC.
1 Excludes goodwill impairment charges (2005, 2006) and LLC conversion benefit (2006)
2 Excludes an LLC conversion benefit of $383 million
3 Excludes an LLC conversion benefit of $523 million