With $1b on Mortgage Loans, Gm is Back on the Hot Seat

By: Lauren Woods

General Motors Corp. delayed the release of its financial results for 2006. After that, the automaker missed the filing deadline with the Securities and Exchange Commission set on 1 March. To remedy the situation, GM requested an extension to next week. Now, the automaker is back on the hot seat with the risky mortgaged loans which was doled out last year by GMAC - an ex-finance arm. This fact gives Wall Street another reason to be anxious about.

Experts in the industry are saying that GM might have to cover defaulted home loans made by GMAC. Hence, the largest automaker might be on the hook for as much as $1 billion. Analysts added that this could be chosen by the automaker to swathe defaulted mortgage loans made to high-risk borrowers by the Residential Capital LLC, the former home-lending unit of General Motors Acceptance Corp. Last year, GM sold a 51 percent stake in the GMAC for $14.4 billion to a group led by the Cerberus Capital Management LP.

"People are definitely getting frustrated," said analyst Brad Rubin at investment firm BNP Paribas. Rubin added that GM, which has about $46 billion in liquidity, can safely handle a $1 billion payout. But the company's financial issues are stressing investors. However, Rubin noted, "I don't think that's going to impact the restructuring or whether GM survives or not."

It can be recalled that GM had restated its financial report seven times in the past two years. The automaker initially planned to announce its results on the 30th day of January this year. Nonetheless, it requested for an extension of the March 1 SEC deadline for last year's financial reports.

The automaker's exposure to the risky loans was one key concern of industry analysts. And according to analysts, GMAC was one of the factors in the delay. "Our biggest concern on the equity side is whether GM stock sufficiently discounts ResCap's subprime exposure," wrote Peter Nesvold, an analyst at New York-based Bear Stearns.

Subprime mortgages accompanied with higher interest rates are usually set forth to homeowners with troubled credit histories. One good reason why homeowners default on their overextended loans is the decreasing home prices. Obviously, it is harder for them to take out second mortgages or home equity loans for extra cash.

GM, the world's largest automaker is certainly on the hot seat. Could it withstand the potential grilling? Would it needing to blow favorable cool breeze to make the ambience bearable?

Apparently, GM has been living a roller coaster ride on its way up and to finally make it as the most sought-after automaker around the globe. However, the ride could sometimes be nauseating. And that is exactly what the automaker is experiencing right now. Since it was founded in the year 1908 in Flint, Michigan, GM has never experienced hard times like the series of troubles it is now faced with. However, the automaker is looking at these challenges in the eye. With a positive outlook and excellent strategies, the difficulties could be shunned.

GM, headquartered at the Renaissance Center in Detroit, Michigan, USA, currently employs about 327,000 people worldwide. The automaker produces cars and trucks in 33 countries. In 2005, 9.17 million vehicles were sold internationally under its Buick, Cadillac, Chevrolet, GMC, Daewoo, Holden, Hummer, Opel, Pontiac, Saab, Saturn and Vauxhall brands.

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