• Management’s Discussion and Analysis
• Reports of Management and Independent Auditors
• Financial Statements
• Notes to Consolidated Financial Statements

Management’s Discussion and Analysis

Overview Automotive Financing Operations ResCap Insurance Other Operations Funding and Liquidity Off-Balance Sheet Arrangements Guarantees Aggregate Contractual Obligations Critical Accounting Estimates Accounting and Reporting Developments Market Risk Operational Risk

Overview

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contain forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. The following section is qualified in its entirety by the more detailed information, including our financial statements and the notes thereto, which appear in our 2006 Annual Report on Form 10-K.

Restatement of Previously Issued Consolidated Financial Statements

As discussed in Notes 1 and 24 to the Consolidated Financial Statements, we are restating our historical Consolidated Balance Sheet as of December 31, 2005 and Consolidated Statements of Income, Changes in Equity and Cash Flows for the two years then ended. This restatement relates to the accounting treatment for certain hedging transactions under Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended and interpreted (SFAS 133). We are also correcting certain other out-of-period errors, which were deemed immaterial, individually and in the aggregate, in the years in which they were originally recorded and identified. These items relate to transactions involving certain transfers of financial assets, valuations of certain financial instruments, amortization of unearned income of certain products, income taxes and other inconsequential items. Because of this derivative restatement, we are correcting these amounts to record them in the proper period. The accompanying MD&A considers the effects of this restatement described above and described in Notes 1 and 24 to our Consolidated Financial Statements.

Background

GMAC is a leading global financial services firm with approximately $287 billion of assets and operations in approximately 40 countries. Founded in 1919 as a wholly owned subsidiary of General Motors Corporation, GMAC was originally established to provide GM dealers with the automotive financing necessary for the dealers to acquire and maintain vehicle inventories and to provide retail customers the means by which to finance vehicle purchases through GM dealers.

On November 30, 2006, GM sold a 51% interest in us for approximately $7.4 billion (the Sale Transactions) to FIM Holdings LLC (FIM Holdings). FIM Holdings is an investment consortium led by Cerberus FIM Investors, LLC, the sole managing member and also including, Citigroup Inc., Aozora Bank Ltd., and a subsidiary of The PNC Financial Services Group, Inc. During the first quarter of 2007, under the terms of the purchase and sale agreement between FIM Holdings and GM, a final purchase price settlement is required to the extent that GMAC’s equity upon the November 30, 2006 closing of the sale transaction differed from a specified level. As a result, we expect to receive a common equity injection from GM of approximately $1 billion, based on these final settlement provisions.

Our products and services have expanded beyond automotive financing as we currently operate in the following lines of business – Automotive Finance, ResCap and Insurance. The following table summarizes the operations of each line of business for the periods ended December 31, 2006, 2005 and 2004. Operating results for each of the lines of business are more fully described in the MD&A sections that follow.

Year ended December 31, ($ in millions)	2006			2005 (Restated)			2004 (Restated)			2006-2005 % change			2005-2004 % change
Net financing revenue and other income
Automotive Finance	$	9,133		$	8,888		$	9,321			3			(5	)
ResCap		2,984			4,234			3,878			(30	)		9
Insurance		5,616			4,259			3,983			32			7
Other		430			1,706			1,399			(75	)		22
Net income (loss)
Automotive Finance	$	1,174		$	880		$	1,341			33			(34	)
ResCap		705			1,021			904			(31	)		13
Insurance		1,127			417			329			170			27
Other		(881	)		(36	)		320			n/m			(111	)

n/m = not meaningful

• Our Automotive Finance operations offer a wide range of financial services and products (directly and indirectly) to retail automotive consumers, automotive dealerships and other commercial businesses. Our Automotive Finance operations are comprised of two separate reporting segments – North American Automotive Finance Operations and International Automotive Finance Operations. The products and services offered by our Automotive Finance operations include the purchase of retail installment sales contracts and leases, offering of term loans, dealer floor plan financing and other lines of credit to dealers, fleet leasing and vehicle remarketing services. While most of our operations focus on prime automotive financing to and through GM or GM affiliated dealers, our Nuvell operation, which is part of our North American Automotive Finance Operations, focuses on nonprime automotive financing to GM-affiliated and non-GM dealers. Our Nuvell operation also provides private-label automotive financing. In addition, our Automotive Financing operations utilize asset securitization and whole loan sales as a critical component of our diversified funding strategy. The Funding and Liquidity and the Off-Balance Sheet Arrangements sections of this MD&A provide additional information about the securitization and whole loan sale activities of our Automotive Finance operations.
• Our ResCap operations involve the origination, purchase, servicing, sale and securitization of consumer (i.e., residential) and mortgage loans and mortgage-related products (e.g., real estate services). Typically, mortgage loans are originated and sold to investors in the secondary market, including securitization transactions in which the assets are legally sold but are accounted for as secured financings. In March 2005 we transferred ownership of GMAC Residential and GMAC-RFC to a newly formed wholly owned subsidiary holding company, ResCap. For additional information, please refer to ResCap’s Annual Report on Form 10-K for the period ended December 31, 2006, filed separately with the SEC, which report is not deemed incorporated into any of our filings under the Securities Act or the Exchange Act.
• As part of this transfer of ownership, certain agreements were put in place between ResCap and us that restrict ResCap’s ability to declare dividends or prepay subordinated indebtedness owed to us. While we believe the restructuring of these operations and the agreements between ResCap and us allow ResCap to access more attractive sources of capital, the agreements inhibit our ability to return funds for dividends and debt payments.
• Our Insurance operations offer automobile service contracts and underwrite personal automobile insurance coverage (ranging from preferred to non-standard risks) and selected commercial insurance and reinsurance coverage. We are a leading provider of automotive extended service contracts with mechanical breakdown and maintenance coverages. Our automotive extended service contracts offer vehicle owners and lessees mechanical repair protection and roadside assistance for new and used vehicles beyond the manufacturer’s new vehicle warranty. We underwrite and market non-standard, standard and preferred risk physical damage and liability insurance coverages for passenger automobiles, motorcycles, recreational vehicles and commercial automobiles through independent agency, direct response and internet channels. Additionally, we market private-label insurance through a long-term agency relationship with Homesite Insurance, a national provider of home insurance products. We provide commercial insurance, primarily covering dealers’ wholesale vehicle inventory, and reinsurance products. Internationally, ABA Seguros provides certain commercial business insurance exclusively in Mexico.
• Other operations consists of our Commercial Finance Group, an equity investment in Capmark (our former commercial mortgage operations), certain corporate activities, and reclassifications and elimination between the reporting segments.

Consolidated Results of Operations

The following table summarizes our consolidated operating results for the periods indicated. Refer to the operating segment sections for a more complete discussion of operating results by line of business.

Year ended December 31, ($ in millions)	2006			2005 (Restated)			2004 (Restated)			2006-2005 % change			2005-2004 % change
Revenue
Total financing revenue	$	23,103		$	21,312		$	20,325			8			5
Interest expense		(15,560	)		(13,106	)		(9,659	)		19			36
Provision for credit losses		(2,000	)		(1,074	)		(1,953	)		86			(45	)
Net financing revenue		5,543			7,132			8,713			(22	)		(18	)
Net loan servicing income		770			922			678			(16	)		36
Insurance premiums and service revenue		4,183			3,762			3,528			11			7
Investment income		2,143			1,216			845			76			44
Gains on sale of equity method investment		411			–			–			n/m
Other income		5,113			6,055			4,817			(16	)		26
Total net financing revenue and other income		18,163			19,087			18,581			(5	)		3
Depreciation expense on operating leases		(5,341	)		(5,244	)		(4,828	)		2			9
Insurance losses and loss adjustment expenses		(2,420	)		(2,355	)		(2,371	)		3			(1	)
Impairment of goodwill and other intangible assets		(840	)		(712	)		–			18			–
Other expense		(7,334	)		(7,297	)		(7,126	)		1			2
Income before income tax expense		2,228			3,479			4,256			(36	)		(18	)
Income tax expense		(103	)		(1,197	)		(1,362	)		(91	)		(12	)
Net income	$	2,125		$	2,282		$	2,894			(7	)		(21	)

n/m = not meaningful

2006 Compared to 2005

We earned $2.1 billion in 2006, down 7% from earnings of $2.3 billion in 2005. This reflects record earnings in the insurance business and continued growth in Automotive Finance that provided earnings support for our ResCap business, which was adversely affected by a decline in the residential housing market and deterioration in the nonprime securitization market in the U.S. Net income includes a one-time tax benefit of $791 million in the fourth quarter of 2006 from our conversion of GMAC and several of our domestic subsidiaries to an LLC in connection with the November sale of a controlling investment in GMAC and non-cash after-tax goodwill and intangible asset impairment charges of $695 million in the third quarter of 2006 related to our Commercial Finance business.

Total financing revenue increased by 8% in 2006 compared to 2005. Consumer revenue increased 5% due to growth in the consumer mortgage loan portfolio as well as increases in the mortgage loan yields, driven by an increase in mortgage rates during 2006. Commercial revenue increased 16% primarily due to higher market interest rates as the majority of the commercial lending and mortgage lending portfolio is of a floating rate nature. Operating lease revenue rose 10% due to an increase in the average size of our operating lease portfolio, despite the transfer of operating lease assets to GM during November 2006.

Interest expense increased by 19%, consistent with the overall increase in market interest rates during the year, but also reflective of the widening of our corporate credit spreads, based on our credit rating. The provision for credit losses increased 86% as compared to 2005. The increase was primarily the result of higher loss severity trends at ResCap, which is attributable to general economic conditions including slower home price appreciation, and deterioration in nonprime credit performance (including increases in nonprime delinquencies).

Insurance premiums and service revenue earned increased by 11% compared to 2005. This increase was driven by the extended service contract line primarily due to premiums and revenue from a higher volume of contracts written in prior years. Growth in domestic consumer products was primarily related to the acquisition of MEEMIC Insurance Services Corporation (MEEMIC), a consumer products business that offers automobile and homeowners insurance in the Midwest, which was partially offset by a decline in its existing business due to a competitive environment.

Investment income increased 76% compared to 2005. The increase was primarily attributable to higher realized capital gains of approximately $900 million, as well as increased interest and dividend income due to higher average portfolio balances throughout the majority of the year from our Insurance business. The increased capital gains result primarily from the rebalancing of the investment portfolio in the fourth quarter, reducing the level of equity holdings from about 30 percent of the portfolio to less than 10 percent, reducing the level of investment leverage and freeing up capital for growth and dividends.

Gains on sale of equity method investment primarily represented the sale of ResCap’s equity investment during the second quarter of 2006 in a regional homebuilder which resulted in a gain of $415 million ($259 million after-tax). Other income decreased 16% compared to 2005 as a result of a decrease in our net loan servicing income, primarily as a result of servicing asset valuation adjustments related to our ResCap operations as well as decreases in net income as a result of our sale of approximately 79% of the former commercial mortgage business during the first quarter.

Insurance losses and loss adjustment expenses increased 3% compared to 2005. The increase was primarily driven by the acquisition of MEEMIC and growth in the domestic assumed reinsurance and international consumer products businesses. This increase was partially offset by favorable loss trends experienced in the domestic and international extended service contract product lines.

Impairment of goodwill and other intangible assets increased 18% compared to 2005, as a result of higher impairment charges recorded by our Commercial Finance Group. During the 2006 year, we were able to contain our other expenses, which remained relatively flat, as compared to 2005.

Income tax expense was $103 million for 2006, compared to $1.2 billion in 2005. The change was primarily a result of our conversion to an LLC during 2006, which resulted in an income tax benefit of $791 million.

2005 Compared to 2004

We earned $2.3 billion in 2005, down $0.6 billion from record earnings of $2.9 billion in 2004. Earnings included non-cash goodwill impairment charges of $439 million (after-tax), which were recognized in the fourth quarter of 2005. The charges related predominately to our Commercial Finance Group and primarily to the goodwill recognized in connection with the 1999 acquisition of the majority of the business. Excluding these impairment charges, we earned $2.7 billion in 2005. Earnings were driven by record results in our mortgage and insurance operations. Strong earnings were achieved despite a difficult environment that included higher market interest rates, a series of credit rating actions and the significant impact of Hurricane Katrina.

Total financing revenue increased by 5% primarily due to increases in commercial interest income, operating lease income and revenue from mortgages held for sale. The increase in commercial revenue was primarily the result of higher market interest rates as the majority of the portfolio is floating rate. Operating lease revenue increased due to growth in the size of the leasing portfolio of approximately 20% compared to 2004. Revenues associated with loans held for sale also increased due to an increase in mortgage production.

Interest expense increased by 36%, consistent with the overall increase in market interest rates during the year, but also reflective of the widening of our corporate credit spreads, as a result of credit rating actions taking during and before 2005. The provision for credit losses decreased by 45% as compared to 2004, despite the impact of loss reserves recorded in the third quarter of 2005 related to accounts impacted by Hurricane Katrina. The decrease in provision for credit losses was attributable to both our Automotive Finance and ResCap operations. The decrease in provision at our Automotive Finance operations was due to a combination of lower consumer asset levels due to an increase in whole loan sales, improved loss performance on retail contracts and improved performance on the non-automotive commercial portfolio. Lower provision for credit losses at ResCap was primarily due to favorable loss severity and frequency of loss, as compared to previous estimates, primarily as a result of the effects of home price appreciation. Insurance premiums and service revenue earned increased by 7% as a result of contract growth across the major product lines (domestic and international).

Investment and other income increased by 44% and 26%, respectively, as compared to 2004. The increase was primarily due to interest income from cash and investments in U.S. Treasury securities, the favorable impact on the valuation of retained securitization interests at ResCap, higher investment income at our former commercial mortgage business and higher capital gains at our Insurance operations.

Depreciation on operating lease assets increased 9% as a result of higher average operating lease asset levels as compared to 2004. In addition, other expense was slightly higher mainly due to increased compensation and benefits expense primarily at our ResCap operations, consistent with the increase in loan production and higher supplemental compensation resulting from increased profitability. Insurance losses and loss adjustment expenses and other operating expenses were relatively stable as compared to 2004.

Net income was also negatively impacted by non-cash goodwill impairment charges of $712 million, which were recognized in the fourth quarter of 2005. The charges related predominately to our Commercial Finance Group and primarily to the goodwill recognized in connection with the 1999 acquisition of the majority of this business.

Our effective tax rate was 34.4%, consistent with the 32.0% rate experienced in 2004.

Outlook

The closing of the Sale Transactions has resulted in a new strategic direction, transforming us from primarily a captive operation into an independent, globally-diversified financial services company. We now have formalized long-term operating agreements with GM, but also have a greater opportunity to leverage existing dealer relationships to expand our presence in non-GM dealer networks. This is expected to provide us with opportunities for an increasingly diversified revenue stream. The sale also created a strengthened capital position with required capital infusions by GM and FIM Holdings, which are expected to provide additional resources for further growth. We have new and expanded funding facilities based on our improved credit profile. Our overall outlook for 2007 is positive with the global automotive finance and insurance business expected to continue to post profits. We further expect the real estate finance business to continue to weaken with declining home sales and mortgage originations, while we seek to increase U.S. market share and pursue growth opportunities worldwide. The following summarizes the key business issues for our operations in 2007:

• Automotive Finance – In 2007 we expect higher interest rates, higher energy prices, and a weakening housing market could exert pressure on our consumer automotive finance customers resulting in continuing further deterioration in credit performance compared to 2006. We also expect credit performance in our commercial portfolios could worsen in 2007 as more dealers experience financial distress as a result of declining profitability, which is directly correlated with deterioration in GM’s U.S. market share. Such pressure on GM sales also adversely impacts our volumes.
• We actively manage our credit risk and believe that as of December 31, 2006, we are adequately reserved for potential losses incurred in the portfolios. However, a negative change in economic factors (particularly in the U.S. economy) could adversely impact our future earnings. As many of our credit exposures are collateralized by vehicles, the severity of losses is particularly sensitive to a decline in used vehicle prices, which can also adversely effect residual values in our lease portfolio. In addition, the overall frequency of losses would be negatively influenced by deterioration in macro-economic factors, which, in addition to those noted above, include higher unemployment rates and bankruptcy filings (both consumer and commercial).
• ResCap – In 2007 if the domestic market economics conditions persist, the unfavorable impacts on our residential mortgage operations may continue. These domestic economic conditions include declining home appreciation and, in some areas, a decline in home prices, a significant deterioration in the nonprime securitization market, and a significant increase in nonprime delinquencies. The economic conditions will result in our residential mortgage operations having lower net interest margin, higher provision for loan losses, lower gain on sale margins and loan production, real estate investment impairments and reduced gains on dispositions of real estate acquired through foreclosure.
• We are exposed to valuation and credit risk on the portfolio of residential mortgage loans held for sale and held for investment, as well as on the interests retained from our securitization activities of these asset classes. In addition, we are exposed to credit risk in our asset-based lending business. Credit losses in our consumer portfolio are influenced by general business and economic conditions of the industries and countries in which we operate. We actively manage our credit risk and believe that as of December 31, 2006, we are adequately reserved for potential losses incurred in the portfolios. However, a negative change in economic factors (particularly in the U.S. economy) could adversely impact our 2007 earnings. As many of our credit exposures are collateralized by homes, the severity of losses is particularly sensitive to a decline in residential home prices. In addition, the overall frequency of losses would be negatively influenced by an increase in macro-economic factors, such as unemployment rates and bankruptcy filings.
• Insurance – In 2007 we expect to have positive underwriting results and a stable investment portfolio. We will continue to aggressively pursue growth in both the domestic and international markets in all product lines through examining viable organic growth initiatives and strategic acquisitions.
• Our extended service product line will face pressures from GM’s recent announcement that it was extending its powertrain warranty in the United States and Canada across its entire new and used car and light-duty truck lineup. Although challenging, we expect to mitigate the impact through the offerings of alternative products to the retail customer. We are also dependent on new vehicle market sales and vehicle quality. Our domestic consumer products continue to expect a competitive pricing environment in 2007 with higher loss costs expected in the industry due to medical and repair cost inflation. Extraordinary weather conditions can have a large impact on underwriting results in our consumer and automobile dealership physical damage products. We mitigate our potential loss exposure through active management of claim settlement activities and believe we are adequately reserved for unpaid losses and loss adjustment expenses at December 31, 2006.
• We expect to have a more stable earnings stream from our investment portfolio due to a higher allocation in fixed income securities. Through the recent review of our portfolio, we sold a significant portion of our equity securities to monetize the high level of unrealized capital gains, which had grown considerably in recent years due to strong market performance, and to reduce our exposure to the inherently volatile equity markets from just over 30% to under 10%. The performance of our portfolio is dependent on the investment market prices and underlying factors.
• Funding and liquidity – Our ability to fund our Automotive Finance and ResCap operations is a key component of our profitability. Over the past several years, prior to the Sale Transactions in November 2006, we have experienced a series of negative credit rating actions, resulting in the downgrade of our credit ratings to below investment grade. The negative actions were primarily due to concerns regarding the financial outlook of GM related to its overall market position in the automotive industry. As a result, our unsecured borrowing spreads have widened significantly, impacting our overall cost of borrowings, as well as reducing our net financing margins. Since the Sale Transactions our spreads have narrowed, although challenges in the U.S. residential mortgage market have widened ResCap spreads recently. Despite these challenges, we have continued to meet funding demands and maintain a strong liquidity profile by shifting to more secured sources of funding and whole loan sales. In 2007 management expects to continue to focus efforts on utilizing secured sources and whole loan sales to fund our automotive operations, issuing unsecured debt on an opportunistic basis to complement our secured funding sources. Refer to the Funding and Liquidity section in this MD&A for further discussion.