Business Context and Reporting Period
Company: General Motors Acceptance Corporation (GMAC), a wholly-owned subsidiary of General Motors Corporation.
Reporting Period: Year ended December 31, 1999.
Operations: GMAC provides automotive financing (retail, wholesale, leasing), commercial financing, insurance, and mortgage banking services globally. Operations are conducted in 36 countries with 27,383 employees as of year-end 1999. The company is a dominant force in automotive financial services, particularly for General Motors dealers.
Key Financial Metrics
| Metric (in millions) | 1999 | 1998 |
|---|---|---|
| Total Assets | $148,789.2 | $131,760.4 |
| Financing Revenue | $13,777.9 | $12,730.7 |
| Net Income | $1,527.3 | $1,325.3 |
| Total Debt | $121,158.2 | $106,173.2 |
| Cash and Cash Equivalents | $704.3 | $618.1 |
| Return on Average Equity | 14.7% | 14.3% |
| Debt-to-Equity Ratio | 10.9:1 | 10.8:1 |
Cash Flow: Operating cash flow was $10.2 billion in 1999, a significant increase from $3.9 billion in 1998, driven by proceeds from mortgage loan sales. Investing activities used $21.4 billion, primarily for finance receivable acquisitions. Financing activities provided $11.3 billion.
Material Changes vs. Prior Period
- Earnings Growth: Net income increased 15% to $1.53 billion, marking the fifth consecutive year of increased earnings.
- Segment Performance:
- Automotive Financing: Net income rose 7.4% to $1.06 billion due to higher volumes and reduced credit losses.
- Mortgage Operations: Net income surged 126.5% to $260.5 million, recovering from unusually low 1998 earnings caused by high prepayment levels.
- Insurance Operations: Net income declined 7.1% to $210 million due to pricing pressure in personal lines.
- Asset Quality: Net retail losses as a percent of total average serviced receivables improved to 0.63% in 1999, down from 0.78% in 1998 and 1.18% in 1997.
- Acquisitions: Significant growth in commercial financing and international operations resulted from the acquisitions of Bank of New York Financial Corporation (BNYFC) and On:Line Finance Holdings.
Outlook, Risks, and Management Commentary
- Liquidity and Capital: GMAC maintains strong access to capital markets with investment-grade ratings (A/A2) from major agencies. Total bank lines of credit were $46.2 billion, with $35.6 billion unused.
- Market Risks: The company is exposed to interest rate, foreign currency, and equity price risks. A hypothetical 10% increase in interest rates could result in a fair value loss of approximately $409 million. A 10% increase in foreign currency exchange rates could result in a loss of approximately $756 million.
- Dependencies: Results are heavily dependent on General Motors' production and sales volumes. A protracted reduction in GM production could have a substantial unfavorable effect.
- Accounting Changes: The company adopted SFAS No. 134 regarding mortgage-backed securities in 1999 (no material effect). SFAS No. 133 regarding derivatives is scheduled for adoption in 2001.
- Year 2000: The company successfully completed its Y2K program with no material adverse effects.
Investor Verification Checklist
- GM Production Volumes: Verify General Motors' vehicle production and sales data to assess the stability of GMAC's core revenue stream.
- Credit Loss Trends: Monitor the provision for credit losses and delinquency rates, particularly in the subprime retail segment.
- Interest Rate Sensitivity: Review the impact of rising interest rates on mortgage prepayment speeds and the valuation of mortgage servicing rights.
- Debt Maturity Profile: Assess the refinancing risk associated with the $121 billion debt portfolio, noting the weighted average borrowing cost of 5.67%.
- Acquisition Integration: Evaluate the financial performance and integration progress of recent acquisitions (BNYFC, On:Line Finance, Arriva).