GM's money machine

For the longest time, the conventional wisdom in analyst circles was that auto manufacturers were "banks with a manufacturing subsidiary". Detroit didn't make its profits on the cars--they were sort of like loss leaders for the juicy auto loan business.

That's why it's been so surprising watching GM's travails with the spinoff of GMAC. Two years ago, GM sold 51% of the business to private equity firm Cerberus, the same folks who bought Chrysler. The deal was not only supposed to give GM some much-needed cash, but also boost GMAC's credit rating by severing it from the auto giant's woes.

This has not quite worked out as planned. GMAC's debt dipped into junk territory thanks to its residential mortgage unit. Meanwhile, it is still hoovering money out of GM's balance sheet. Last March, the company had to transfer $1 billion to the ailing finance company to shore up its financials, as per the terms of its deal with Cerberus.

This morning GM announced a $3.3 billion dollar loss. (To put this in perspective, they lost basically the entire annual GDP of Rwanda in a single quarter.) Hundreds of millions of it stems from losses at GMAC; hundreds of millions more are related to ongoing problems at Delphi, the auto parts supplier that GM spun off a few years ago.

Perhaps the most frightening part is that this is actually better than many analysts were expecting--the massive hemorrhage has brought forth cautious optimism. Now if only they could make a car someone wanted to drive . . .

Update Only GM could get a boost to their stock price from a $3.3 billion dollar loss.