(Updates throughout with comments from the company and analysts; additional background.)

By Aparajita Saha-Bubna

Of DOW JONES NEWSWIRES

GMAC LLC swung to a loss for the fourth consecutive quarter as slumping resale values of used cars and souring mortgage investments took their toll.

The finance arm of General Motors Corp. (GM) said it would slash its loss- making auto leasing business by at least half. Officials also said the company would continue to support its ailing mortgage unit responsible for the bulk of GMAC's losses.

GMAC said Thursday it had a net loss of $2.48 billion in the second quarter, compared with a profit of $293 million during the same period a year ago. Losses of $717 million stemming from auto leases and $1.86 billion of red ink at Residential Capital LLC, or ResCap, were the main culprits.

The dismal performance of the auto leasing segment doesn't bode well for GM, which has a 49% stake in the finance unit after a consortium led by private equity firm Cerberus Capital Management LP, parent of Chrysler LLC, bought 51% of GMAC in 2006 for about $14 billion.

Not only will the auto maker bear half of the $717 million in second-quarter leasing losses, it also paid out $1.9 billion in leasing-related charges. The losses will burden GM at a time it's already weighed down by restructuring costs fueled by weak sales. The auto maker will post its second-quarter results Friday.

Auto Finance

"Used vehicle balances significantly impacted the portfolio," said Robert Hull, GMAC's chief financial officer, during a conference call Thursday to discuss the company's second-quarter earnings.

"At this point, we took all the impairments we felt were appropriate," said a company official during the call.

GMAC's $30 billion lease portfolio includes about $18 billion on trucks and sport-utility vehicles.

In most cases, when a lease is up, the customer returns the vehicle to the auto finance arm, which then resells the car or truck. The lower worth of the vehicle has spelled losses at these companies at the time of resale, and, a fall in the value of their existing portfolio of lease agreements.

For instance, in June, GMAC recovered only 75% of the expected returns from its SUV leases. Earlier this week, GMAC said it will no longer offer subsidized leases in Canada.

New-auto financing deals at GMAC dropped 11% due to tepid demand from car buyers, while loan charge-offs or losses jumped to 1.68% from 1.03%. The firm's credit-loss provision surged 79% to $771 million.

ResCap Still Struggles

ResCap's net loss ballooned to $1.86 billion from $254 million as it sold off souring mortgages at hefty discounts and set aside funds for potential losses. The company noted that its U.S. residential-finance business "is beginning to stabilize" as ResCap cuts its balance sheet. Loan production was flat.

ResCap, one of the nation's largest subprime-mortgage lenders, has been struggling to turn around its fortunes as GMAC and its owners deliberate the home lender's future. ResCap lost $4.3 billion in 2007, and GMAC spent much of the year restructuring the firm, including job cuts and an overhaul of the business model. But the losses have continued to mount.

"It's not clear to me when they (ResCap) are going to be profitable," said Craig Emrick, an analyst at Moody's Investors Service.

The mortgage unit completed an ambitious refinancing in the quarter and now has $275 million of debt maturing in 2008 and $618 million in 2009. If that refinancing had not been successful, ResCap would have had to pay back $4 billion of debt in 2008 and $2.5 billion of debt next year, a burden that might have hindered its ability to operate. ResCap now has $3.65 billion of debt due in 2010.

GMAC has demonstrated continued support for ResCap by facilitating this debt refinancing and extending credit to the mortgage operator in return for its higher-quality collateral.

"At this point in time we're committed to supporting ResCap," GMAC's Hull during the call, in response to a question about whether ResCap would remain a core business for GMAC.

GM shares recently traded down 0.5% to $11.34.

-By Aparajita Saha-Bubna, Dow Jones Newswires; 201-938-2137; aparajita.saha- bubna@dowjones.com

(Kevin Kingsbury and Cynthia Koons contributed to this report.)

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  07-31-08 1348ET
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