Ally Financial Inc (ALLY) 2008 Q2 法說會逐字稿

Good ladies and gentlemen, and welcome to the Second Quarter 2008 GMAC LLC Earnings Conference Call. My name is Emancy, and I'll be your coordinator for today. At this time all participants are in a listen-only mode. We will facilitate a question and answer session towards the end of this conference.

(OPERATOR INSTRUCTIONS)

I would now like to turn the presentation over to your host for today's conference, Miss Susan Shank, Director of Investor Relations. Please proceed.

Thank you, very much. I want to thank everybody for joining us as we review GMAC's second quarter 2008's results. First of all, I'd like to direct your attention to the legend regarding forward-looking statements and the risk factors on the second page of our chart set, and the contents of our conference call will be governed by this language and regulation FD. In addition, we do have some charts in the back of the deck to comply with the SEC's Regulation G to reconcile certain managerial data and items to the GAAP presentation.

I'd like to highlight that we are broadcasting this call live via the Internet, and also the financial press is participating. This morning, Rob Hull, our CFO, will cover the second quarter 2008 results review. After the presentation portion of the call, 30 minutes will be set aside for questions from investors and analysts followed by a 30-minute Q&A session with the financial press.

I'd like to mention as well that we've got several other executives joining us who will be available to answer your questions. With us today are Bill Muir, President of GMAC, David DeBrunner, GMAC Controller; Jim Young, Chief Financial Officer of ResCap, Linda Zukauckas, CFO of our North American Operations, and Ken Fischbach, Managing Director of ResCap Investor Relations. Now, I'd like to turn the call over to Rob Hull.

Good morning, and thanks for joining us. We have a challenging report today. With a weakening economy, continued strain in the mortgage market and high fuel prices, GMAC had a significant loss in the second quarter. In fact, we had a greater loss in Q2 than in all of 2007.

These results are disappointing because they overshadow the work we've done as we transformed GMAC from a captive auto-finance operation to an independent finance company. While we've racked up a number of genuine wins this quarter, we're still facing some large challenges.

Some of the wins include and are worth noting, refinancing $60 billion of debt and bank lines, continuing to build experienced management teams at GMAC and ResCap, reducing ResCap's balance sheet by nearly half, securing ownership of GMAC Bank for the next ten years, restructuring the ownership of GMAC Insurance to protect its rating and launching the restructuring at our North American operations in auto.

The results and challenges are also significant. The U.S. economy continues to soften and with it auto sales. Consumer credit is weak, and we're seeing this even in the highest credit tiers of our auto business. Home prices remain under pressure, and residential builders are struggling. Record fuel prices are pummeling used vehicle prices and on top of this, the capital and credit markets remain disrupted.

This is the perfect storm for our business, and we see no meaningful signs of it blowing over. So we're focused on both the tactics and the long-term strategies that will position us to be an independent finance company with lower cost of funds, diverse revenues and a solid balance sheet.

We're leveraging our servicing platforms in mortgage and auto to mitigate the frequency and severity of loss as much as possible. We've already tightened our auto underwriting and eliminated all mortgage production outside the United States and Canada.

We continue to aggressively curtail the risk on the ResCap balance sheet, and we've heightened our focus on liquidity, despite the cost to short-term earnings. We recognize that managing the current status is not enough. We're also laying the groundwork to succeed once the economic environment stabilizes.

As we've said before, we're de-levering and de-risking the balance sheet with a plan to build capital and achieve investment grade status over time. We continue to build out the financial controls and infrastructure needed as a standalone company. We'll be shedding non-core operations over time. We're cooperating with GM to change the risk-adjusted returns of our auto business.

With our ownership of GMAC Bank confirmed for the next decade, we'll leverage the bank's low-cost funding base, and ultimately we want to transform GMAC into a predominantly deposit-funded lender and scale servicer.

But getting back to the quarter, we're reporting a consolidated loss of $2.5 billion, as you can see on Slide Four. During the quarter, both North American auto finance and ResCap generated significant losses. Global Auto had a net loss of $717 million for the quarter due to lower originations, weaker credit performance, deterioration in used vehicle prices and an impairment of our operating leases in North America, while our international business remained steady this quarter.

Insurance earned $135 million in the quarter, while ResCap had a loss of $1.9 billion, which includes gains from debt retirement offset by negative asset valuations, losses on asset sales in our international business and weakened credit performance.

GMAC and ResCap continue to hold cash to preserve our flexibility with GMAC consolidated cash at $14.3 billion, just slightly down from the end of the first quarter. This number includes GMAC Bank cash of $3.7 billion.

I want to draw your attention to a change in our presentation for a moment here. In prior quarters, we included certain marketable securities in this cash number. These are highly-liquid, near-cash securities, however we've liquidated much of this portfolio in the second quarter. In addition to the disruption in the capital markets, we want to make a more simplistic view and focus on cash as it's reported on our GAAP statements.

Moving on, Slide Five provides net income by segment as well as some of the notable items that drove the quarter. All items in the second table and throughout the balance of this discuss are presented on a pretax basis unless otherwise noted.

GMAC had a consolidated gain of $616 million from the extinguishment of debt including a $647 million gain at ResCap with an offset at the corporate level. These gains stem from the ResCap debt tender as well as debt GMAC contributed to ResCap, which was subsequently retired. The $1.2 billion remaining discount from ResCap's exchange offer will be recognized over the remaining life of the new bonds issued.

GMAC recorded a $108 million reduction in the value of its auto held for sale assets. ResCap recognized held for sale valuation adjustments and losses on asset sales of approximately $1.4 billion. Of the total, approximately 60% was from international assets of that $1.4 billion.

In addition, there was a $90 million value decline in ResCap's investment securities book due to continued secondary market disruption. We recognized further impairments on our real estate owned, or REO, lot option and model home assets in the amount of $143 million, which includes $64 million for REO and $79 million for lot option and model home.

We impaired certain of our auto lease operating assets by $716 million. And lastly, we increased our provision for credit losses related to SmartBuy balloon auto contracts by $109 million.

Now, let's take a deeper look at our auto finance operations starting on Slide Six. The first graph on the quarter shows Global Auto's net income for the last eight quarters. Q2 2008 loss of $717 million is a significant decline from year-ago earnings of $395 million.

The largest single driver of the deterioration was a $716 million pretax impairment on operating leases, as I mentioned just a moment ago. Additional factors included increased provision for credit losses and higher operating expenses.

Moving to the right, you can see that auto originations were also down in the second quarter compared to year-ago levels. New vehicle financing originations for the second quarter of '08 amounted to $12.4 billion of retail lending in lease contracts versus $14 billion in the second quarter of '07. The decline was largely due to lower U.S. vehicle sales and tighter underwriting.

The used vehicle originations for the quarter were higher at $2.5 billion. Over the past quarter, weaker economic conditions drove more consumers to purchase used vehicles rather than new. The graph in the lower left section of the slide highlights the stability of our servicing portfolio, which came in at $120 billion, in line with recent levels.

We've added a new graph on this page to illustrate the trends in our remarketing proceeds from retail lease terminations. In normal market conditions, there's seasonality in these figures. However, current conditions are of course far from normal. The table shows the trends based on the original lease term, which influences the amount of lease value we expect to cover through the vehicle remarketing.

Generally speaking, shorter-term leases have higher residual values at lease inception due to the relatively lower proportion represented by the customer payments. All three lines, however, tell the exact same tale, used vehicle values have declined. And we'll go into those implications in a moment.

Okay. So for now, let's turn to Slide Seven and the income statement for auto. Net financing revenue, or margin, was down year-over-year due to the lease impairment, and we'll talk about that in greater detail on the next slide. For now, if you back out the impairment, net financing revenue would have been up modestly. While the total asset base was fairly stable, the mix shifted to a higher proportion of leases, which drove up both consumer revenue and depreciation.

You'll notice that interest expense was relatively flat, despite higher debt balances. This is due to lower benchmark interest rates and higher ratio of secured funding, which brought down our weighted average cost of funding.

Adverse credit trends had a significant impact on auto's results as we again increased our allowance coverage ratio. In North America, the fall in used vehicle prices has put a lot of pressure on severity. Our international portfolio had seen a slight worsening in credit in Latin America while credit performance in Europe has actually improved.

At the end of Q2, our consumer coverage ratio was 3.7% for our North American operations and 1.56% for our international operations. We also saw other non-interest expense increase by more than $300 million year-over-year. The key drive there is losses of off-lease vehicle remarketing, which drove this line up by approximately $100 million year-over-year.

Ultimately, as you might imagine, the biggest driver of the auto finance results this quarter was the impairment on our lease book. We recorded an impairment, as mentioned, of $716 million for trucks and SUVs in our U.S. and Canadian portfolios. So, let's talk about that.

At the end of the second quarter, our lease book was $33 billion. About 90% of that, or roughly $30 billion, was North American leases. Residual values represent about two-thirds of that $30 billion. As a result, used vehicle prices significantly influenced the expected cash flows on this portfolio.

There has been a major dislocation in the used vehicle market, as you probably know by now, evidenced by both the Manheim Index and our own remarketing experience, as you can see on Slide Eight. The two graphs on this page lay out the actual sales proceeds from returned vehicles compared to our original expectation.

In the graph on the left, you can see that our performance through '08 has been well below what we experienced in the prior three years with Q2 sharply below prior years and even the first quarter. The next graph explodes the '08 data by vehicle segment. The chart makes it clear that SUVs have fallen well below original expectation. In June, we were only able at termination to recover an average 75% of what we had originally expected. By the way, we've not seen the same sort of declines outside of North America.

Given the severity of the pricing drop in used vehicles, especially SUVs, we concluded an impairment event had occurred. We reviewed roughly 1.5 million individual lease records. We evaluated our lease portfolio by segment, as illustrated on Slide Nine. Our analysis indicated that certain SUV and truck lease assets were impaired.

We focused our analysis on make and model, lease, lease term, vintage and country, country meaning U.S. and Canada. Shorter lease terms generally resulted in greater impairments than longer terms, again because of their dependency on residual. The analysis required that we make some assumptions about future used vehicle prices and remarketing proceeds. We used June remarketing experience, a low point here, as a basis for sale proceeds.

As I mentioned, this resulted in an impairment on SUVs and trucks in the U.S. and Canada. Nearly all the impairment was actually related to SUVs, no surprise. In addition, the bulk of the charge was due to U.S. leases with Canada only about 3% of the impairment.

At first blush, the $716 million figure might seem low, given the drastic move in vehicle prices, however all the cash flows related to an asset are considered when we perform the impairment analysis. This is important to note. We've listed some of the key cash flows on Slide Ten.

As a part of our operating agreement with GM, we have a number of risk-sharing and other arrangements. Under these arrangements, we've already received roughly $350 million of cash up front, and based on current conditions, we'd expect to receive another $1.5 billion in the future. Once we considered these additional cash flows in our analysis, the resulting net impairment to GMAC was $716 million.

In addition, our lease book tends to have a long average duration, making it somewhat less dependent upon residual values. While these additional cash flows support the value of our lease book, we believe that the inherent risk in auto leasing is testing its place and scale in our business model.

We have laid out for you what we are doing to mitigate the risk of the lease portfolio. We're reducing the volume of new lease originations in the U.S., largely through product and pricing refinement. We're exploring ways to originate leasing within GMAC Bank with its funding advantage. We're suspending all incentivized leasing in Canada since the product return is too low to support the risk. And finally, we're implementing a consumer vehicle program to keep customers in their vehicles at maturity to reduce losses on the existing book.

In fact, we're taking this opportunity to review our entire leasing and lending business, the entire product suite, in North America with an eye to optimize profitability and risk. We're ending our SmartBuy balloon contract, and we're increasing pricing on our other auto products.

Unfortunately, used vehicle prices affect more than our lease book. The falling prices have also had a negative impact on our credit losses. Slide 11 shows you the trends. Even though the average delinquency levels and frequency of loss are trending down overall, severity has driven losses up sharply in North America. Globally, our annualized credit losses rose to 1.4% in the second quarter, the highest level we've seen over the last two years.

Our average loss severity in North America is now around $11,000 per unit. Our international portfolio market conditions have caused losses in Brazil, Colombia and Mexico to tick up. The UK, Germany and Italy have actually seen some improvement while longer average terms in Spain are causing deterioration in losses there.

And regardless of conditions in local markets, foreign currency trends are driving up the severity of loss in dollar terms in most of our international operations. As a result, our loan loss reserves in Global Auto now stand at $1.4 billion, a coverage ratio of 1.74%, which we think is appropriate in the current environment.

Our delinquency trends on Slide 12 look a little counter intuitive in light of loss trends. Average delinquencies on our managed portfolio dropped sharply compared to last quarter and even a year ago. Intensified collections and tightened underwriting were the key drivers for this improvement. We expect that Q3 levels will be higher than the 2.3% figure we saw in Q2 due to seasonality and the weak U.S. economy.

It would be premature to say that we conquered this problem obviously, especially given the trends in severity. We believe we've taken appropriate actions to ride out the current economic trends.

Before we leave the auto finance section, I'd like to give you an update on the restructuring we announced back in February to our North American operations. Through June, we completed roughly half the expected work force reduction, the physical merger of offices is on track, and we expect the total restructuring charge to remain within the $65 million to $85 million range we originally established. We continue to look for additional ways to improve the efficiency of our auto finance unit.

Okay. Turning now to GMAC Insurance, Slide 13 lays out what we consider to be the key measures for this business. Net income for the second quarter of $135 million was up slightly compared to year-ago levels, despite higher losses and soft market conditions due to a $50 million one-time item stemming from the resolution of a tax audit.

Core earnings, which is shown to the right, strips out the one-time items and gives you a better idea of the operating performance of the unit. Remember that core earnings excludes capital gains and is the industry's standard of year-over-year performance.

Q2 losses were up compared to a very favorable experience a year ago, driving core earnings down. Unusually good weather in '07 kept losses low that year while weather patterns have been much more normal this year. The increased losses drove the combined ratio, as you can see on the lower left-hand corner, to 97.8% for the second quarter. If you look at the premiums written graph, results are up year-over-year, but the market remains intensely competitive.

Our international operations are posting strong growth, which has more than offset difficult pricing for personalized price in the U.S. and lower sales of our extended service contracts matching the lower auto volume. Our Mexican operation, ABA Seguros, and our UK operation, Provident, are driving most of the increase in the international business.

On Slide 14, we lay out a condensed income statement for insurance, which gives you additional detail about the business. Earned premiums have increased, driven by growth in the international operations, as I mentioned. Investment income was up, despite challenging market conditions.

We've maintained our shift to a defensive posture in our $7 billion portfolio so that more than 90% of the assets are in low-risk, fixed-income securities. The insurance loss line is up year-over-year due in large part to the flooding in the upper Midwest and parts and other normal spring and summer weather incidents.

One comment on insurance before we move on, as we've said before, a strong rating is critical to the health and growth of this business. We've completed a restructuring of the ownership of insurance, which has enabled this business to maintain its financial strength rating from A.M. Best.

So, let's move on to ResCap on Slide 15. Immense effort has gone into restructuring ResCap to reflect the reality of today's mortgage market, and I want to spend a few moments outlining what we've accomplished. We reduced the size and risk of ResCap's balance sheet at the end of the second quarter. The balance sheet was $73 billion, roughly half of what it was at its peak at the end of '06 and down $8 billion since the end of the last quarter.

We amended our bank line covenants to increase our flexibility to reduce the balance sheet. We stabilized ResCap's near-term liquidity profile and restructured the maturity ladder. In the process, we have addition runway to complete our transformation of ResCap.

We executed a bond exchange capturing approximately $1.7 billion in discount. We revised our mortgage origination strategy. We now originate prime mortgages in the U.S. and high-quality, insured mortgages in Canada. All other originations worldwide have been suspended. Now to be fair, we expect this to be a temporary halt for certain key markets like the UK, but it highlights the seriousness of our commitment to liquidity and quality.

This progress has come at a cost however. We've sold assets at a loss, given the weak market. We continue to mark down assets on our balance sheet. Credit performance remains weak around the world. Liquidity for mortgage products is still limited, and volumes have decreased sharply. Nevertheless, these are the right actions to take. We're confident of that and will continue to pursue them, despite the impact to short-term earnings.

In the second quarter, these actions resulted in a loss of $1.9 billion, as you can see on Slide 16 in the upper left corner. We'll get to the details behind that loss in a moment. The graph just to the right illustrates what I was saying earlier about the reduction in ResCap's balance sheet. We accomplished this through asset sales, runoff and to be frank, write-downs and impairments.

The bottom half of the page illustrates the other key components of our ResCap strategy. The size of our servicing portfolio has declined some due to the reduced level of originations. Nevertheless, we remain highly committed to our servicing operation and continue to make the right investments in people and technology.

I should mention here that we sold off all our payment option ARM servicing in the quarter. We do still have a small amount of exposure to POA product, but we don't expect this to be an issue for us. The last graph captures production at ResCap.

Loan volumes continued to fall in the second quarter, but the mix is now heavily weighted to prime conforming. ResCap's income statement on Slide 17 provides yet another view of these trends. Net financing revenue, or margin, was down again this quarter. Our total financing revenue fell by $751 million year-over-year due to the balance sheet reduction, but our interest expense only declined by $695 million. Although debt balances at ResCap have decreased, the cost of our funding has risen.

Servicing fees are down by $60 million in the quarter due to the sale of certain servicing assets in the last half of '07. At that same time, servicing asset valuations, net of our hedge, were $33 million worse due to increased costs to service non-prime assets.

Ultimately, the largest performance driver in the quarter came from the gain or loss on sale line. What you see there is the impact of the mortgage market disruption combined with our willingness to sell certain high-risk assets, even if that results in a loss.

During Q2, we sold roughly $1.4 billion and $3.7 billion of assets in the U.S. and overseas respectively, resulting in losses of nearly $1 billion. In addition, we've reduced the carrying values of other assets in our HFS book. Despite the markdowns on our riskier assets, sales of domestic prime-conforming product continue at reasonable margins.

The other income line showed a slight decrease versus last year, down $17 million, due to FAS 159 adjustments and impairments on real estate assets, which offset gains from debt retirement. I'm sure it doesn't surprise anyone that the provision for credit losses is up compared to year-ago levels. As with auto, severity is also the main driver here, especially in the U.S.

Frequency of loss as well as severity are up in our international book, which in part reflect foreign exchange trends and the aging of our European HFI assets. Our coverage ratio was 3.26% without FAS 159 assets and 3.03% including them. Non-interest expense is fairly flat as costs from our restructuring efforts were offset by reduced employee costs.

Slide 18 is an overview of non-prime risk. You can see that we can continue to bring that risk down but at a slower rate now that we've eliminated the bulk of the exposure. This trend could continue for some time. One quick reminder, we don't own a lot of the non-prime risk on our HFI book. Eight billion of the total $31 billion in HFI is on-balance-sheet securitizations, and we only have $190 million of economic risk against those loans.

With that, let's move on to credit trends on Slide 19. The trend you see in the blue bars on the upper left-hand corner looks alarming, but there's some noise in the Q1 and Q2 '08 numbers. The non-accrual percentage of 17% includes HFI loans for which we've adopted fair-value accounting resulting in a markdown of those loans at $7 billion. We've recalculated the ratio excluding the loans impacted by FAS 159, providing a more realistic view of non-accrual levels. The 12.4% figure for Q2 therefore is fairly flat compared to last quarter.

If you look at the graph below, you can see that the switch to fair-value accounting on some of our assets has also impacted losses. The loans we fair value are not charged off. Instead, they're simply marked down as the value declines, so the total dollar value of our charge-offs has fallen, distorting this calculation somewhat.

We think the orange bar gives you a more accurate picture of losses. The increase is driven, to a large extent, by increased severity and frequency of loss on our international assets, as mentioned before, and an increase in severity only on our domestic book.

Moving over to the top right graph, ResCap's lending receivables portfolio is showing the effect of our wind-down strategy. As we reduce the size of the portfolio, it tends to be the weaker credits that remain. The last graph on this page illustrates the lumpy nature of charge-offs in our lending receivables portfolio. During Q2 '08, the ratio fell sharply versus year-ago levels when we wrote off several large accounts.

ResCap ended the quarter with high levels of equity and cash, which we show on Slide 20. The cash balance at $6.6 billion is up quite a bit from year-end levels, partially due to GMAC Bank, which built up cash of $3.7 billion to fund future originations and maintain safe capital levels.

ResCap ended the quarter with total equity of $4 billion. During the quarter, GMAC contributed ResCap bonds with a face value of $249 million and a market value of just over $199 million in exchange for a preferred instrument with an equivalent market value. This equity increase was more than offset by losses in the quarter on the equity base. ResCap metric seizes equity and cash bank covenants during the quarter.

To wrap up the ResCap discussion, we won't pretend that our work is done. We still have a number of asset sales and business wind-downs to complete, and they're substantial. The changes in our bank covenants provide us with some additional flexibility to sell those assets at a loss if it's the right thing to do economically and to reduce risk.

It doesn't mean though that we're willing to take fire sale prices for the assets. We're looking for other opportunities to reduce risk and leverage in this business. We remain focused on the liquidity picture. We'll continue to monitor mortgage conditions around the world and, as I've said before, we'll only originate loans if there's a distribution channel available to sell those loans. I believe these actions should allow ResCap to ride out the current mortgage market turmoil and will lay the groundwork for the future for us.

So now, let's move to the GMAC consolidate, top-of-the-house level. I'd like to take a second to highlight an area where we've had some real success in the quarter, and that's liquidity. There have been two major wins on the liquidity front. First was the bank and bond REIT financing we completed this quarter, which is outlined on Slide 21.

In a really challenging market, GMAC and ResCap refinanced roughly $60 billion of debt and funding commitments. We converted $7.8 billion of unsecured revolvers and $11.4 billion of usable credit capacity, secured by U.S. and Canadian auto assets. The transaction created flexibility for our NCAT single seller conduit program by providing access to bank funding in addition to funding in the asset-backed CP market.

We converted two unused facilities at ResCap, known as MALA and RLA, into a new $2.5 billion whole loan repurchase facility to fund conforming mortgages. GMAC provided ResCap with a $3.5 billion fully secured funding facility.

We extended all of ResCap's $11.6 billion of major secured bilateral credit facilities to the May and June timeframe of 2009. These facilities have also been resized to reflect our current product mix. We also completed an exchange and tender offer for approximately $14 billion of unsecured ResCap bonds, reshaping ResCap's maturity ladder, as you'll see on Slide 23.

Finally, during the second quarter, GMAC and Cerberus took $2.4 billion of actions to support ResCap's near-term liquidity. I'll also mention that GMAC continues to develop private funding transactions and facilities to build liquidity and to reduce our reliance on the public capital markets.

The second major liquidity event for the quarter was the FDIC approving GMAC and Cerberus ownership of GMAC Bank, our ILC for the next decade. This outcome removes some of the uncertainty around our funding strategy. GMAC Bank funds mortgage and auto assets at a much lower cost than our other liquidity sources.

At the end of the second quarter, the bank was financed with roughly $11 billion of current FHLB funding and $17 billion of deposits. The bank is a critical part of our funding strategy, and with the FDIC's oversight, we intend to carefully grow it.

Slide 23 shows the new maturity profile of ResCap. And on Slide 24, you can see the changes in cash from the first quarter to the second quarter. Consolidated cash balances fell by $500 million. Nearly $10 billion of debt maturities and repurchases were largely offset by reducing the size of the balance sheet, increasing on-balance-sheet securitizations and selling $2.5 billion of highly-liquid marketable securities.

Wrapping up, even though we're only two quarters in, 2008 has been one of the most challenging and long years we've seen. The U.S. economy remains weak. Fuel prices are at record levels, and the credit and capital markets have been disrupted for more than a year. These factors have directly impacted our bottom line, driving down the value of our assets and driving up our reserves.

While we don't believe this level of losses will continue, it's clear that headwinds we face will persist for the balance of 2008, at least. At the same time, we're focused on transforming GMAC, as I said, from a captive to an independent, bank-funded lender and servicer by one, de-levering and de-risking our balance sheet, two, building out the financial control infrastructure, three, evaluating and shedding non-core operations, four, changing the risk-adjusted returns on our auto finance suite of products and five, growing GMAC Bank within regulatory guidelines. Ultimately, this should lay the groundwork for better quarters in 2008 and after. Let's move to Q&A.

Thank you, Rob. Operator, we're now ready to take calls from investors. Would you please inform the callers how to queue up for a question?

(OPERATOR INSTRUCTIONS). And your first question comes from the line of Sarah Thompson with Lehman Brothers. Please proceed.

Good morning. When you talk about the $1.5 billion of cash coming from GM, what's the time period on that?

The $1.5 billion cash from GM, which for those who weren't paying close attention, it tends to the lease impairment, or subsidy or subvention model, that we have. There are a couple of components to it, and they're covered on the slide.

Part of the full $1.5 billion, and you see the detail on Slide Ten, the risk sharing and the residual support -- I'm sorry? Yes. Those come at the back end, or termination, and the other related support, the 350 was primarily a prepaid that came early on settlement with GM. So, you have some that matched the weighted average terms of the book and some that came up-front.

So just big picture, you would kind of think about it as the next couple of years?

That's right.

That's the right way to think about it? Okay. And then on your liquidity picture, at this point I guess GMAC overall, not necessarily specifically ResCap, but what do your maturities look like for the second half of 2008?

Second half of the 2008 maturities, I think we're about $4 billion for the second half of the year.

Okay. And do you have any update in terms of -- I believe you had some conduits that were maturing. Can you just give us an update on if you have anything else?

I don't have an update on those conduits for you at this time.

Okay, thank you.

You're welcome.

Your next question comes from the line of Monica Keany with Morgan Stanley. Please proceed.

Hi. A couple of questions, one on GMAC Auto, starting on Slide Nine, it says that 98% of the charge is related to SUVs. So what about pickups? Those dropped a lot in the quarter as well.

Right. When we ran the impairment analysis, obviously it has to do with cash flows and support, and it obviously has to do with our expectation of residual value at the back end. And so, the results of that analysis largely proved out that the biggest miss was in SUVs. There is some miss in trucks, but it's nowhere near the order of magnitude of SUVs. And you can see that in ALG values and Manheim values on SUVs. It's consistent with the market external data.

But, do you specifically book below ALG? How conservative are you typically vis-a-vis ALG? And then also, what's your outlook vis-a-vis residual values going forward in '08?

Well, there are a couple of questions in there. But first of all, the truck book is considerably smaller than the SUV book. And you can see that in some of the slides there. Our SUV book is roughly $13 billion of the $30 billion, and our truck book is sort of a little under $6 billion, so you have different orders of magnitude.

Going forward, what we've done to assume this value, and I mentioned this in my speech, was we grabbed remarketing proceeds as of the end of June, and that sales percentage as a percent of ALG, we carried forward. So, we took a very conservative view at one point in time, and if you look at the graphs on remarketing proceeds and the charts, that's a low point for the year.

Now, it's drifted a little bit lower in July, but it's also been lumpy in July. So, we grabbed a low point for sales proceeds and said, for the balance of the weighted average terms across all of our assets. That would be our expectation for remarketing proceeds. So --

Okay. So no further deterioration? Just here basically flat-lining this (inaudible).

That's right. But, that's right. That was on everything. So, there are some automobiles in there that are going to -- or some vehicles in there that are going to find their value never near that low. There's some that could be lower, but we took a very conservative average view across the entire book.

And then in Slide Ten, you talked about the impairment charge of $716 million. It would have been higher without GM support. Now, should we read it as it's $716 million plus $750 million, and that would have been the charge? Or, is it $716 million plus all the three elements below it? I just wanted to isolate what the charge was.

It's a great question. When we run our impairment analysis across 1.5 million vehicles, the complexity of our risk-sharing agreement is such that all vehicles in the entire book get to share in a risk-support model. All of that factors into what assets actually get impaired, so where the cash flows are insufficient to cover the net book value, which is effectively the accounting test.

So, while I wouldn't say you could strictly add them one for one, I would say a very large part of all three of those items on the slide could be additive to that $716 million to get what might be the gross impairment.

Okay. So, it's not for the -- because I guess one way to think of it is that I was a little confused by is the $800 million and $350 million. Is that sort of normal course when you're booking a lease, and therefore it's not kind of part of this drop-off that we've seen in used prices? And so, it would be more like the $716 million plus the $750 million? That's all I was a little -- what sort of normal course in terms of your relationship with GM versus what would be isolated to the charge?

I wouldn't look at --

Just give us ballpark.

No. I wouldn't look at either of those elements you mentioned as the ordinary course. They are not. Ordinary course, we depreciate our residual assets and adjust that depreciation over time within certain lighter parameters. When you have a large disruption in the market, a large value change, then you take an impairment. All of these are extraordinary.

Got you, okay. And then a really quick question on ResCap, what was that -- this is something I asked last quarter. Do you have a liquidity portfolio at the end of the quarter? And then also on GMAC Bank --

Hold it. Hold it. I'm sorry. Can you go back to the liquidity portfolio and ResCap? What's your question about that?

What was it at the end of the quarter?

What was the liquidity portfolio?

Yes that's what you typically quote in the 10-Q. Well basically it was 1.3 at the end of March 31 and you say that basically the liquidity portfolio is cash readily available to cover operating demands across the business operations.

Those numbers aren't available just yet. I know what you're talking about, you're talking about sort of liquid cash components.

Yes. Do you think directionally they're higher, [the rest of the] cash is higher risk cap?

Yes they were higher than prior quarter.

And then my last question is on GMAC's bank. So obviously you have these requirements from the FDIC on total equity, total assets. Do you know what those numbers were at the end of the quarter?

We do. So at the end of the quarter GMAC Bank -- there are a couple ratios but the primary one is Tier 1 leverage for GMAC Bank. And obviously that's really no different than most bank-regulated entities. So we finished the quarter, after contributing some auto assets to that business to make sure they had right capital number, at about 11.18 Tier 1 leverage. Just over the 11% that we've been asked to maintain by the FDIC, so it's 11.18 is the final number.

And then the total equity is total assets to GMAC.

That number is roughly 5.4 I think.

Great, thanks so much.

You're welcome.

Our next question comes from Douglas Karson of Banc of America. Please proceed.

Great, guys, thanks. I want to talk about the impairment charge for just a second. When you look at the GMAC's 10-K they talk about a $1.1 billion cap on the residual support program and then it looks like potentially a separate $1.1 billion risk-sharing arrangement. Should we look at it that GM has a potential of $2.2 billion total to support future charges related to this lease book? Or am I looking at that the wrong way?

Yes I don't think you can frame it that way. The $1.5 billion is sort of a ceiling exposure cap with GM, so I wouldn't look at it that way. But what you can look at is those numbers on page 10 or whatever it was in the deck, that frame, the support that GM will provide given the current view of residuals in the book and the current view of assets on the book. So it could go lower or it could go higher depending on how those values move, so the $1.5 billion is a broader cap. It doesn't necessarily augment or change this number.

I guess I'm talking about in the K and we'll take it offline I guess, but there's a $1.1 billion mentioned twice in the K. I'm just wondering how that foots to on page 10 in the deck. Could this be a $3 billion charge one day for GM? Or is it capped at what's in the K? But I'll circle back. Separately on originations, originations were down it looks like about $2 million year-over-year but revenues were up.

We're talking about auto presumably, right?

Yes.

Yes.

Can you just give us some more color on that?

Yes originations were down year on year, that's for sure, and we mentioned that in the speech, and that's just what you think it is. And what was the second part of your question?

But the revenue in GMAC Auto was higher.

Right. That's a larger component of lease business in that mix driving revenue up.

Okay. And then my final question kind of leads into the lease, lease was higher than as a component, now it could potentially lower. In North America I know you're still working on what you want to do with the Lease business. How much lower is the target for that business to be? What type of penetration in GM's business do you have now and where could it go to?

Yes you know there are couple ways to look at that on penetration over time. And while I'm not going to forecast that for you, I'll turn that to Bill Muir, who is President of GMAC and runs the auto groups, and let him address that for you.

Okay, thank you.

Great. Thanks, Rob. Historically if you look back over the past couple years, the portion of GM vehicles leased or under some type of a lease type of a contract has been around 18% to total sales. And that also happens to be what the percentage was during the first six months of this year.

If I look forward, my guess is we're probably going to see a number closer to half of that in terms of what the overall percentage will be in the near term. And I'm talking about in the very near term. And then beyond that I guess it's going to depend on market conditions. You know I think overall it may continue to trend even lower than that.

The 18% of total sales that were lease for GM, how much of those were leased by GMAC?

All of them.

All of them, okay.

There's no other lease source.

All right, thank you very much. That's it for me.

You're welcome.

Your next question comes from the line of Peter Plaut with Imperial Capital. Please proceed.

Hey, good morning, I have two questions. One is I was hoping you can give me a little more granularity regarding the liquidity situation and, in particular, we talk on page 21 about all the different facilities that were available for GMAC and ResCap.

But focusing just on ResCap in particular, I would assume on page 21 where you talk about the 2.5 billion whole loan repurchase facility, I would assume that's the Banc of America facility that was recently completed. Is that correct?

Yes it's led by Banc of America, it's not --

That's right, yes. And at the end of the first quarter there was about $5.671 billion in secured committed availability under repurchase agreements with a number of banks. Could you give us some color on what the availability is on your repurchase agreements now in terms of supporting your liquidity?

You know we haven't finished our quarter-end summary on our committed facilities. That'll be in the Q though. I don't have that for you now.

Okay. I guess the next question would be, in terms of the extension of these bilateral credit facilities of $11.6 billion into May or June of next year, is that an actual amount that you expect to borrow under those facilities? So that could be a number that we're going to need to add to the maturities for '09?

There is an intended run off to that book as we sell assets. I don't know if it's strictly additive or not. I'm not sure I get to the heart of your question.

Just the question basically is simply do you expect -- you know your assets, I understand how that works, but do you expect to be using most of that facility that that could be a potential additive to your overall maturity profile in May of '09 next year?

You know Sam Ramsey is our Chief Risk Officer and also the architect of that transaction, he's here and I'll let him take that.

Yes the size of the facilities and the refinancing were structured to support the assets and the business model as it had been redefined. As Rob said, as we sell down assets we will be reducing that exposure. So you should not presume that, either one, there'll be $11.6 billion outstanding at maturity, or that that's the amount that would have to be renewed.

The amount that will have to be renewed will be based off of whatever our asset position is at that point in time. Most of those bilaterals, or a significant portion, cover assets that would be in run off. And a minority would be what I would refer to as operating facilities related to MSR. So there will be some amount that will be renewed but it's primarily driven by what the level of assets are at that point in time.

Last question with regards to liquidity, in terms of the FHLB Advances that have clearly been very supportive to the business over the more challenging environment. It seems that's only $500 million available. I guess for that to grow the FHLB Advances would require GMAC Bank to grow its assets as well. Would that be correct?

Yes that is correct. And obviously there are a couple key sources of funding, there's the FHLB paper and there's also the deposit, which is both an institutional and retail base of funding. Growing, we absolutely can grow.

We can grow constrained by two factors, one is a business plan registered with the FDIC. So we review that with them, we live under that with them, they want to make sure our growth isn't unchecked, but we work through that with them cooperatively. And two, within Tier 1 leverage, so you've got to also measure your growth that way.

Okay. And then just the last question, more of an operational, I know in the strategy section you talk about the sale of non-core assets. If we assume the securitization markets don't come back in size for the next several years, would ResCap still be considered as a core business as part of the over all GMAC business?

We won't comment on specific businesses that we're doing as core or non-core. And at this point in time we're committed to supporting ResCap.

Thank you.

Next question?

Your next question comes from the line of James Leda with Merrill Lynch. Please proceed.

Good morning, can you hear me?

Yes.

Good. I apologize, I'm out of the office so I'm working with a little bit limited information here. But I want to prod just a little bit more on the expected cash flows from GM. As I understood it there were two components, there's the $300 million or $350 million that's already been paid. Is that the present value of the expected difference of the residuals at the time that the operating lease is booked?

No. The $350 million was an up-front settlement when we moved from a back-end to front-end residual support model. So that was a change in model at the time the deal was done in 2006.

And then there was $1.5 billion remaining over time that you expected. Now how does that relate to the caps that are in place, just so that I can understand? Or that puts you at the cap, sort of establishes both residual support and risk sharing?

It does put us at the caps.

Okay. So then the last question I was going to ask is probably irrelevant then. I was going to ask if there were certainly buckets within that agreement, but I guess if your asset cap -- I guess it doesn't really matter. But just out of curiosity, were their buckets let's say per vehicle line?

Yes we're not free to address specific sections of that outside of our partnership with GM.

Okay. I think I'm all set for now, thank you.

Thanks.

Your next question comes from the line of Ethan Auerbach with Marathon Asset Management. Please proceed.

Hi. I was just wondering if you could state the book value of the assets that are pledged to the new $3.5 billion credit facility at ResCap. I believe it was something like $8 odd billion when you guys issued the bonds during the second quarter, what's that number now? And what's the split between directly-pledged assets versus equity in subs?

Sure. It was $8 billion, you're right, at the time the deal was cut in June. It has declined and that information will be in the 10-Q.

Can you give us an order of magnitude or no?

No.

Your next question comes from the line of [Jean Rozzi] with Citigroup.

Hi. I'm sorry, you may have addressed this already, but I had a question on the $14.4 billion facility that was put in place last September that's shared with ResCap. And I believe that comes due or you can renegotiate this coming September. So can you give us an update on where you stand or what's used under that and what you expect to happen come September?

Yes we'll have Sam Ramsey address that.

I won't give you a lot of details, but yes we are in discussions at this point on the refinancing of that facility, which we expect to complete obviously in the next 30 to 45 days. And further details will be forthcoming when we complete that.

Okay. And we should think of that as being completely separate from the $11.6 billion that was negotiated as part of the global liquidity actions that somebody had asked about before.

It is completely separate.

Okay. And then I had one other question on ResCap, the committed facilities, and I may have to wait for the Q on this. But can you update us or just comment on what will happen, given the pull back in origination internationally, to the secured committed facilities that you have that, in the 10-Q they're listed under other and it was total capacity of $8.9 billion at the end of March? Do you anticipate that that will shrink?

Sam?

In the refinancing we sized all of the ResCap facilities according to what we anticipated the needs of the business were. And certainly in areas where we are shrinking we would expect to shrink our commitments, because we don't need to pay for commitments we can't use. And we don't need our bankers to be holding capital against facilities we can't use. So as we shrink our operations it is our intent to shrink the financing commitments.

But international commitments, would that have been included in the bilateral facility that ResCap renegotiated?

Some of them were, yes.

Okay. And then I had one question on this lease issue and I'm going to probably take a crack at it from a slightly different angle. If GMAC were to take another lease impairment charge this year or next year, can we assume that it would be offset to the same extent from a payment from GM?

Or is it kind of always the same proportion? Or could it be the case that GMAC would take another impairment charge for leases in the near term and GM would have reached its limit in terms of contributing cash to help offset that?

Well two pieces, one is we absolutely could take another impairment. We think we've done what we need to do now but if markets trend down there could be more. The second piece is, it's a theoretical piece of math by looking at all the potential leases. That risk share can expand or contract depending on how we do the analysis, subject to the caps you heard discussed before. That's how I address it. So those risk numbers could move if the value of the underlying assets move. So no, this isn't a static number.

Okay. All right thanks a lot, that's it for me.

You're welcome.

Your next question comes from the line of Louise Pitt with Goldman Sachs.

: Yes hi, good morning guys. I just wanted to ask a little bit more about the net loss on the sale of mortgage loans that you mentioned was $1.4 billion in the U.S. and $1.7 overseas in terms of the sales which resulted in slightly less than a billion of losses. Can you drill down a little bit more or give us a bit more information on what types of assets you sold or at what level?

Sure. First of all, yes largely our IBG International unit divesting in assets and so that you're right in sourcing it there. Let me ask Jim Young, who is the CFO of ResCap, to talk about what assets we move there.

So the asset sales, as Rob indicated, the losses were coming primarily from the IBG, so those are mortgage loans, whole loans. And we also had whole loans in the U.S. that were sold to a lesser extent.

The valuation losses that Rob mentioned also include a write down for the sale of the Resort Finance business that we held for sale. At the end of June that was the subject of a previously disclosed affiliate transaction with Commercial Finance within GMAC. Those are the largest components of those losses.

And in terms of the whole loan sales, was that to the programs that you already have set up for whole loan sales? Or was that to a third-party buyer of a portfolio of the assets?

Third-party buyers.

And any indication of valuation? Or what type of assets were in there? Was it prime loan conforming?

Well the international assets are obviously not conforming type of assets. And in fact the asset sales driving losses are not a conforming asset base in the U.S. They're international assets and there are non-conforming assets in the U.S.

And no valuation, Rob Hull?

No we're not going to disclose marks at this point.

Will they be in the Q?

The assets and the marks you mean?

Yes.

No.

At this time I don't believe so.

I mean we transact, we record the loss, we don't disclose the amount of what the mark was for the losses for the sale.

Okay great, thanks.

No problem. Next question?

Your next question comes from the line of Michael Rosenthal with QVT Financial. Please proceed.

Hi good morning.

Good morning.

I was wondering if the GM liability is collateralized.

No, it's unsecured largely.

Okay thank you.

You're welcome.

Your next question comes from the line of [Tai Wallage] with Paulson & Company. Please proceed.

Good morning, guys, a couple questions. First, could you tell us what GMAC's book equity was at the end of the quarter and how that stands up versus the 11 times net worth covenant?

Sure we finished the quarter, total GMAC, at 12.3. The leverage covenant now is altered, it no longer is across the total enterprise, it's basically everything but ResCap in that covenant. And I want to say it was 10.2 roughly, so it was under the 11 leverage cap. Does that answer your question, Tai?

Yes it does. One quick follow up, I think you said earlier in the Q&A that there was $4 billion of maturities in the second half. Can you just clarify what that includes? Because the numbers in the 10-K kind of a consolidated debt but that comes due or are pretty big and that seems like a low number to me.

It's basically part of our unsecured bond portfolio.

Okay. So that doesn't include any other facilities that come due?

No it doesn't.

Okay. Can you tell us what those are, if there's anything else?

Sam, do you want to take that?

The other primary maturity in the second half of the year is the facility that was referenced before that was in place, announced I believe September of last year, the $14.4 billion.

Okay. And then lastly, do you know when you're going to file the Q?

It should be August 8 plus or minus.

Great. All right, thanks very much.

You're welcome.

Your next question next question comes from the line of [Vald Shatenberg] with Lehman Brothers. Please proceed.

Yes, Vald Shatenberg with Lehman Brothers, how are you?

Good thanks.

A couple of questions, just on that leverage number that you just cited, that includes up to $5 billion of ResCap equity right? So it includes the 4-point-something that you cited for this quarter?

No. Ask the question again. The leverage covenant you're talking about right?

Yes the leverage covenant that you said is 10.2 times, I understand it excludes the debt for ResCap. But I thought the definition allows it to include up to $5 billion of ResCap equity.

No that's not right, it does not include --

Okay.

It backs it out of, subject to a cap.

Yes let me explain how that leverage covenant was structured to work, because you've got the components but not exactly the way they work. As Rob said, the leverage covenant takes GMAC Consolidated and backs out the ResCap numbers.

And as part of the agreement with the banks, they wanted to ensure that our leverage covenant would capture any future support over and above the $5 billion that was anticipated in the refinancing support from GMAC to ResCap.

So to the extent GMAC were to extend additional facilities and outstandings beyond that $5 billion mark, that excess would be a deduct to the equity number in the leverage ratio for the purposes of the 11 to one. And at the end of Q2 I don't believe there was anything in excess of that. Does that clarify how it works?

Yes okay thank you. My other question was, did you guys tap into the secured revolver?

Yes. I don't consider it tapping the secured revolver, we have been using that facility for some time now since it's origination, so yes we've used it.

Okay. And then just on the mix of SUVs in your lease portfolio, does that include CUVs? Or do you lump CUVs with your cars?

Does it include what?

Crossovers.

Crossovers are included with SUVs, yes. So for example, the Cadillac SRX wagon, that's really a crossover that's included with the SUVs.

Right. And what's the impact on depreciation rates going forward, given you're taking this write-down this quarter? Do you expect them to drop from levels in Q2?

No. I mean two things, one, what this number is true us up to schedule depreciations more than not. But even that, we adjust those depreciations, as we said, to get within sort of an immaterial amount on a per-contract basis. So we continue to tweak depreciation over the course of time and you'll see that as remarking losses in our performance. So I don't expect to get some big savings on our depreciation line from this impairment.

Okay. And just a last question on this impairment is, if we're to think about any other potential impairment, are we -- as far as GM's liability, do I think about the ceiling as now 1.1 less 800 for residual support and 1.1 less 750 the risk sharing? Or will those ceiling numbers change also?

You know it's generally not our policy to comment on exposures for GM to us in that context, other than what we put in the Q. GM has an earnings release tomorrow, I'd suggest you ask that question to them.

Okay, thank you.

If I can interrupt for a moment, Operator, we will take two more questions and then we will open up the line to the financial press please.

Your next question comes from the line of Mike Heifler with Deutsche Bank. Please proceed.

Thanks. Good morning, everyone, I just have a few questions. And I apologize if you already talked about this but can you go into a little bit more detail on the strategy for the ResCap portfolio? Are you expecting additional asset sales? If so, from where?

The answer is we are expecting additional divestment out of their book now, their $70 billion balance sheet. And I'm not going to derive strategy, it's opportunistic. Obviously the core business right now is generating prime conforming product in the U.S. and delivering to the GSEs or into the bank.

And so with that as the strategy, one could conclude that our Business Capital Group and our International Business Group portfolios we would seek to liquidate over time. So as I said in my comments, if we can find hospitable markets and reasonable marks, we will sell those assets.

Okay. And did you comment on the FDIC requirement that either GMAC or Cerberus provide a $3 billion facility to GMAC Bank?

I didn't comment on it but I will. It's not Cerberus. There is an extent $3 billion undrawn facility that's been in place between GMAC parents, effectively, and GMAC Bank for some time. And it was a term of the agreement with the FDIC that we maintain it and it remains undrawn. We test it once a year.

So if that gets drawn, does that go against your leverage covenant?

Not to my knowledge.

Okay. One last one, I think you mentioned that you used June ALG residual values to determine the impairment charge.

Not exactly. We used our sales proceeds as a percent of June ALGs, but go ahead.

Okay well is June the latest ALG update? Or wasn't there one that was done a few days ago?

ALG data continues to stream in I believe it's weekly. But that was the latest month-end debt point that we could get at the time we were doing the analysis, which has been over the past three or four weeks. So there is more ALG out there and I would tell you that, from what I understand, it's not moving upward. But there has been some movement up and down in the month of July.

Okay, thank you.

Operator, we'll take one more call from investors or analyst and then would you please remind the press how to queue for calls?

Your final question comes from the line of Neil Chatterjee with AIG. (OPERATOR INSTRUCTIONS)

Hi. I just want a forecast cash flow at GMAC and I was wondering if you could give me a little bit of an idea of what the weighted average life is for the commercial and wholesale assets, as well as the lease assets and the corresponding advance rates in the secure facilities again, Sam?

Okay, back up. So the first question, the weighted average life on commercial what?

The commercial and the wholesale financing assets as well as the lease assets please.

You're talking about on the mortgage side or the --

On the auto side.

Okay. Well the auto loans are prime based and they're basically 90-day assets. So there's your weighted average term and there's your index. So what was your second question?

What was the corresponding advance rates on the secured facilities that backs up these assets on your books, so that I know exactly how much cash is released when these assets roll out?

Yes, we really generally don't disclose that information.

Okay. And I had another question to help me model the cash flow going forward. So if you guys go to an originated sell model, what kind of margins are you experiencing on the whole loan facilities? I mean should I be correct in assuming that they would be lower than doing private or public ABS transactions?

I don't think that's a fair assumption when I think about it. But it's tough for me to give you an answer to that.

The reason I say that is because when you actually sell these loans to a whole loan facility you're renting someone else's balance sheet. So I was just wondering if they would obviously want some of the price action on the sales.

Well we only have two major whole loan facilities where we're renting balance sheets in the United States for our auto business. They were cut not recently and I'm not in the market cutting new ones at this point so I really couldn't say what the pricing is.

I can tell you what the pricing is on our last $1.5 billion ABS transaction we did this quarter and the subordination on that, but I don't really have anything to compare it to in terms of current whole loan agreements.

And the last question in terms of working capital, what kind of subordinations are you seeing on ABS transactions going forward? I mean I pulled up the last deal you did and I saw the weighted average cost of capital on all the different traunches, you know, essentially in trying to multiply [duration times your act] to get the cash fee. So what kind of subordinations are you seeing on deals going forward? What do you expect?

So it's still a 6% attachment or a 94% model and that was the last deal we did. I think spreads are 140 basis points across that transaction. So that's a high price to pay on the spread part. I would hope that would reduce in the marketplace and we watch it very, very closely and we go out when we can do it profitability. But I can't predict what they'll be or I'd be in a different line of business if I could.

So would it be fair to say that in order to determine the cash profits per ABS deal that you do, do you congregate the assets and then sell them off? Like the interest or whatever the weighted average cost of funding is, that minus whatever you get from your customers times the average life should be the actual cash fees you get? I mean duration time spread?

Neil, this is Susan. Why don't we take this conversation offline. It sounds like you've got some very specific questions and we'd like to --

Yes they're good modeling questions, I think we can take those offline if you like.

Thank you, sir.

You're welcome. Okay I think we're on to the press calls right, Susan?

Yes.

Okay. Any queued?

You have a question from the line of Joseph Skitsvenwein with Oakland Press. Please proceed.

Yes I have a question about what are your plans for folding Daimler Financial Services into your organization.

There's been plenty of speculation about Chrysler Financial and GMAC because of some common ownership through Cerberus. And we simply can't comment on that transaction at this time.

And one follow-up question, is the insurance business considered core? Or is that one of the assets that you would consider selling?

There are parts of the insurance business that are absolutely core, like the extended warranty business. And that shouldn't be any signaling whatsoever. There are parts of insurance that are core.

Okay, but you're trying to lessen your dependence on the auto business, why would the extended warranty business remain core?

I never said that. We're not trying to lessen our dependency on an OEM, i.e. General Motors. It would be nice to diversify away from more than one, which we've done in some very, very small ways, but that doesn't mean that -- our core model still turns around product support with General Motors.

Okay, thank you.

You're welcome.

Your next question comes from the line of David Mildenberg with Bloomberg. Please proceed.

Good morning, Mr. Hull. Given the spreads in the market, I just wonder how do you characterize the reliability of ResCap's debt? I mean what doubts out there about its viability as a going concern?

First of all, our view on ResCap, and you saw that commitment to them in the June refinancing and the affiliate transactions that we did and that Cerberus did and, frankly, General Motors contributed to, is that we're committed to ResCap. And we're committed to seeing it through so it would be foolish for me to say anything other than that and we support the position. How it trades in the market is something I can't control.

On the auto side, are you expecting more residual losses? I'm not clear on your outlook on that.

It's a fair question. All we can do on auto residuals and therefore our leased assets sitting on our books is look at the data as time series flow. And so we have looked at our experience with our sales proceeds in ALGs and Manheim and made a conclusion for this period. We'll tune it if it's on the margin going forward, as we always have, by adjusting depreciation.

At this point, we took all the impairment, obviously subsidized by support of General Motors as we felt was appropriate to do, with the full oversight of our auditors. And that was where we went then. If I thought there was more to take now I'd take it now. So time will tell what happens.

Finally, with all the speculation about leasing what do you think would happen if you were to halt the program or severely limit it even more than you have so far?

Halt the leasing program?

Yes.

Well I'm not comment on what might happen with the manufacturers because you really have to ask them that, they're the closest to their fate. But I would also tell you that I think we made it pretty clear that we've stopped leasing in Canada, we've stopped selling our SmartBuy, which is effectively a lease look-alike product, and we're going to be reducing lease volumes in the United States.

So assume that there is a lower availability of lease product in the marketplace over time. And I think if you watch the press you know that we're not alone in this behavior. So I'm not going to predict what it would be like if we shut it down. But we have no intention, we intend to support GM going forward within the realm of our liquidity capacity.

Thank you.

You're welcome.

Okay, that was the last question. We thank you very much for listening and all of your continued support. Thanks to Rob Hull for doing the presentation and thank you, Operator, for your help.

Thank you for your participation in today's conference. This concludes the presentation, you may now disconnect. Good day.