July 31 (Bloomberg) -- GMAC LLC, the auto and mortgage finance company majority owned by Cerberus Capital Management LP, reported a $2.5 billion loss as car leasing shrank and the housing slump boosted foreclosures.

The second-quarter loss, GMAC's fourth straight, compares with profit of $293 million a year earlier, the Detroit-based company said today in a statement. Losses at the Residential Capital LLC home-lending unit jumped to $1.86 billion from $254 million a year earlier, and ResCap suspended almost all production outside the U.S.

Since arranging a $60 billion debt refinancing package last month to keep ResCap out of bankruptcy, GMAC has faced a deteriorating auto market on top of the U.S. housing slump. GMAC took a $716 million impairment charge because of the declining value of leased vehicles and Chief Financial Officer Robert Hull said another may be necessary.

``The headwinds are enormous,'' Hull said in an interview after the report. ``The U.S. economy is really headed down and with it auto sales. Consumer credit is absolutely dissolved on the mortgage side and it continues to degrade now in auto.''

GMAC didn't forecast when it may return to profitability after saying in April that losses may extend through 2008. Hull said the company may have a profit in 2009 depending on ``how much more air comes out of the market in terms of your ability to sell assets at a fair market.''

Today's announcement prompted Standard & Poor's to lower GMAC's credit rating to B- from B. ResCap's rating remained at CCC+. ResCap was once among the nation's biggest originators of subprime mortgages.

ResCap's Losses

ResCap, once among the nation's biggest originators of subprime mortgages, has recorded $7.2 billion of losses in seven quarters. The second-quarter deficit stemmed from losses on sales of pools of mortgages and increased reserves because of ``continued deterioration in certain European markets,'' the company said. ResCap said today it halted all lending outside the U.S. with the exception of Canadian insured loans.

``We won't pretend that our work is done'' when it comes to fixing ResCap, Hull said during a conference call with analysts. While GMAC will consider selling some ResCap assets at a loss, the company is not willing to accept ``fire-sale prices.''

The global automotive-finance unit, which specializes in making loans to consumers, reported a loss of $717 million in the second quarter compared with income of $395 million a year earlier, GMAC said. The impairment charge was reduced because of $1.55 billion that GMAC expects to receive from General Motors Corp. through risk-sharing and other agreements and $350 million in payments already received, Hull said.

Auto Leasing

General Motors, which sold 51 percent of GMAC to Cerberus two years ago, said sales of new cars and light trucks dropped 18 percent in June. GMAC has an exclusive contract to provide loans and leasing incentives to GM car buyers until 2016.

GMAC said this week it will stop subsidized auto leasing in Canada as the value of vehicles declines. While leases account for about 18 percent of General Motors' total sales, ``it's likely to be closer to half of that in the near term,'' GMAC President Bill Muir said.

High gas prices and rising unemployment are dragging down sales at Detroit-based GM, which has lost two-thirds of its stock market value in the past year. Auto-finance units are losing money on existing leases as sport-utility vehicles and trucks plunge in value.

The company said it has $30 billion in leases in North America, including $12 billion in sport-utility vehicles and $6 billion in trucks, categories facing declining sales.

Discounted Debt

GMAC's $1.75 billion of 6.75 percent debt due in 2014 fell 1.5 cents to 58.5 cents on the dollar, compared with 78 cents two months ago, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. At that price, the notes yield 18 percent, an indication that investors are concerned about the possibility of default.

GMAC is at ``the epicenter of the problems in the United States both on the housing side and now in terms of the macro economy,'' said Mirko Mikelic, senior portfolio manager at Fifth Third Asset Management in Grand Rapids, Michigan, which oversees $22 billion in assets, including GM bonds. ``When the economy slows down, two of their main lines of business are tremendously being impacted.''

The upfront cost to protect GMAC bonds with credit-default swaps rose 1.5 percentage points to 34 percentage points, according to CMA Datavision. That's in addition to 5 percentage points a year and means it would cost $3.4 million initially and $500,000 a year for five years to protect $10 million in bonds.

The contracts, used to speculate on a company's ability to pay debt, rise as investor confidence deteriorates. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should the company fail to honor debt agreements.

To contact the reporters on this story: Ari Levy in San Francisco at alevy5@bloomberg.net; David Mildenberg in Charlotte at dmildenberg@bloomberg.net.

Last Updated: July 31, 2008 16:33 EDT