Subprime Bets Haunt GM

After all the measures taken by General Motors (GM) to revive itself on CEO Rick Wagoner's watch, last year's sale of a majority stake in GMAC, its finance business, now looks like the most prescient.

For the first three quarters of 2007, GMAC reported losses totaling $1.6 billion, thanks largely to a bloodbath at its mortgage unit, Residential Capital, amid turmoil in the U.S. housing market. If GM were shouldering all those losses, its already precarious circumstances would be far more dire.

That said, GM still owns 49% of GMAC, and many of the loans that are going bad now were made before it sold 51% of the finance company to Cerberus Capital Management last April for more than $14 billion. So while the sale proved to be a timely move, its benefits hardly make up for the disaster that has befallen ResCap.

For its part, GM reported losses totaling $38 billion for the first three quarters of 2007. While the loss was entirely due to a $39 billion accounting charge in the third quarter, ResCap's woes have also weighed down results.

As well, GM's North American auto business is still in the red, and the prognosis is negative for the U.S. auto market in 2008 -- a year that's expected to show a continued slowdown in consumer spending and potentially even a recession.