GMAC Chairman Eric Feldstein, in an interview, said GMAC's 2004 earnings will surpass $2 billion, but will likely fall short of the 2003 level of $2.8 billion.

That means GMAC will need to keep expanding nonautomotive businesses and extending the reach of its consumer-finance business into new markets, such as China. While the company has expanded overseas, it isn't yet making loans in all target nations. "We are hopeful that by the second half of this year, we are actually going to be writing loans in China, very cautiously," Mr. Feldstein said.

GMAC's strategic business remains auto financing, but the unit's recent growth has been driven by a shift in focus in 2001 toward mortgage lending and insurance. That year, margins on GMAC's traditional auto-loan business compressed, even as they held up in mortgages and insurance.

Mortgage volumes may decline going forward, but Mr. Feldstein expects other parts of GMAC's business to compensate. For example, GMAC's insurance segment should thrive this year, Mr. Feldstein said, thanks in part to strong premiums and underwriting income. The company also could derive more growth from its commercial and residential development projects, which include land development and acquisition and the financing of residential construction.

GMAC has proved that it can navigate effectively in choppy debt markets. In mid-2002, the company was forced to find a creative way to deal with unprecedented borrowing spreads in the bond market.

Bond investors worried in those post-Enron times about corporations with large concentrations of credit, pushed GMAC's borrowing spreads to as high as 4.40 percentage points over 10-year Treasurys.

"These were junk-bond prices," Mr. Feldstein said. "We were really facing the most difficult bond market we ever saw."

GMAC responded by halting sales of straight corporate bonds, instead preferring to fund itself by packaging and selling asset-backed bonds backed by auto loans at far greater volumes than it had in the past.

"There was this perception that we were just going to continue to supply paper to the market," Mr. Feldstein said. "Our demand for borrowings was so large that it exceeded any supply." Within six months, GMAC's borrowing costs had dropped significantly, as GMAC had demonstrated that it had other borrowing sources and as the market realized that the demand for bond-market money was much less than originally thought.

In addition to helping GMAC find a low-cost source of money, the ordeal altered the way that GMAC, which had traditionally received about 80% of its money from the bond market, borrows money. While the company still receives about half of its funding from the plain-vanilla bonds, the other half comes from asset-backed securities, mainly collateralized by auto loans. "Everybody knows the way $100 million of auto loans pay," Mr. Feldstein said. "We have decades of history and models that work and buyers will buy that stuff all day."

Despite its own financial success, however, GMAC's credit ratings -- a triple-B with a negative outlook from Standard & Poor's, for example -- have been dragged down by investor concerns about GM's car-making side. GM has total liabilities of $424 billion, of which GMAC's finance and insurance liabilities account for $268 billion.

"I think it's fair to say our credit rating is held down by the constrained automotive profitability," Mr. Feldstein said. "But without GM, I'm not sure I'd have 40% of GM's retail business, or the insurance business or the dealer financing, which are very, very profitable for us."

GMAC also gets a boost when GM offers auto loans at 0% interest for five years, because the automotive unit, not GMAC, absorbs the costs. Here's how it works: For its role in the 0% transactions, which are granted to 25% or less of GM customers, GMAC issues loans at a market rate that depends on the prevailing interest rates and on the credit profile of the individual purchaser. GMAC books the income from the financing over the life of the loan. GM, on the other hand, books the expense of all known incentives at the time the vehicle is shipped to the dealer. This is continually adjusted each month if the incentive level changes, so that at the time GM reports its quarterly results, it just about represents the actual incentive expense for that quarter.

Incentives and other perks, GMAC executives say, help GMAC compete against companies with better credit ratings and lower borrowing costs. Today, about 80% of GM dealers do their wholesale financing through GMAC, up from about 66% in 1997. "That's remarkable, given our cost of funds," Mr. Feldstein said.

But looking ahead, GMAC's Mr. Feldstein sees only one way for GMAC to boost its rating: Help GM sell more cars.

Write to Lee Hawkins Jr. at lee.hawkins@wsj.com²