GM: ResCap May Ram Auto Finance

General Motors' (GM Quote) finance chief sees the potential for weakness at GMAC's mortgage unit to spread to auto finance in 2008.

GM CFO Fritz Henderson told Wall Street analysts at a dinner on Thursday that if GMAC's credit ratings take a hit from the heavy losses it's suffering its mortgage division, then the core auto finance business could have trouble maintaining profit margins, according to a report published Friday by Bear Stearns analyst Peter Nesvold.

"We're not there yet," said Henderson, according to Nesvold.

GM sold a 51% stake in its former finance subsidiary last year to private-equity firm Cerberus Capital Management for more than $14 billion. At the time, GM was trying to raise cash to finance a restructuring at its floundering auto business, and it was also trying to firewall GMAC's credit ratings to protect its profit margins.

Now, the sale looks like a well-timed move that helped protect GM's auto business from a collection of risky mortgage loans that were headed for a blow-up. Though it was previously GM's chief source of profitability, GMAC reported losses totaling $1.6 billion in the first three quarters of 2007, thanks largely to a bloodbath at the mortgage unit, ResCap.

While the sale helped the automaker avoid the brunt of those losses, the situation has nevertheless weighed heavily on the financial performance of GM, which still owns 49% of the finance company.