General Motors 2010 Annual Report Download - page 104

GENERAL MOTORS COMPANY AND SUBSIDIARIES
estimated residual value is evaluated and adjustments are made to the extent the expected value of a vehicle at lease termination
declines. Adjustments may be in the form of revisions to depreciation rates or recognition of impairment charges. Impairment is
determined to exist if the undiscounted expected future cash flows are lower than the carrying amount of the leased vehicle.
Additionally, for automotive retail leases, an adjustment may also be made to the estimate of sales incentive accruals for residual
support and risk sharing programs initially recorded when the vehicles are sold.
With respect to residual values of automotive leases to daily rental car companies, due to the short-term nature of the operating
leases, Old GM historically had forecasted auction proceeds at lease termination. In the three months ended December 31, 2008
forecasted auction proceeds in the United States differed significantly from actual auction proceeds due to highly volatile economic
conditions, in particular a decline in consumer confidence and available consumer credit, which affected the residual values of
vehicles at auction. Due to these significant uncertainties, Old GM determined that it no longer had a reliable basis to forecast auction
proceeds in the United States and began utilizing current auction proceeds to estimate the residual values in the impairment analysis
for the automotive leases to daily rental car companies, which is consistent with Old GM’s impairment analyses for automotive retail
leases. As a result of this change in estimate, Old GM recorded an incremental impairment charge of $144 million in the three months
ended December 31, 2008 related to the automotive leases to daily rental car companies.
The following table summarizes recorded impairment charges related to automotive retail leases to daily rental car companies and
automotive retail leases (dollars in millions):
Successor Predecessor
Year Ended
December 31, 2010
July 10, 2009
Through
December 31, 2009
January 1, 2009
Through
July 9, 2009
Year Ended
December 31, 2008
Automotive retail leases to daily rental car companies ........ $49 $18 $47 $382
Automotive retail leases (a) ............................. $— $— $16 $377
(a) The year ended December 31, 2008 includes an increase in intersegment residual support and risk sharing reserves of $220
million recorded as a reduction of revenue in GMNA.
We continue to use the lower of forecasted or current auction proceeds to estimate residual values for impairment purposes.
Significant differences between the estimate of residual values and actual experience may materially affect impairment charges
recorded, if any, and the rate at which vehicles in Equipment on operating leases, net are depreciated. Significant differences will also
affect the residual support and risk sharing reserves established as a result of certain agreements with Ally Financial, whereby Ally
Financial is reimbursed up to an agreed-upon percentage of certain residual value losses they experience on their operating lease
portfolio. During the year ended December 31, 2010 we recorded favorable adjustments to our residual support and risk sharing
liabilities of $0.6 billion in the U.S. due to increases in estimated residual values.
The following table illustrates the effect of changes in our estimate of vehicle sales proceeds at lease termination on residual
support and risk sharing reserves related to vehicles owned by Ally Financial at December 31, 2010 and 2009 holding all other
assumptions constant (dollars in millions):
Successor
December 31, 2010
Effect on Residual
Support and Risk
Sharing Reserves
December 31, 2009
Effect on Residual
Support and Risk
Sharing Reserves
10% increase in vehicle sales proceeds .............................................. –$ 73 –$534
10% decrease in vehicle sales proceeds .............................................. +$196 +$381
The critical assumptions underlying the estimated carrying amount of leased vehicles included within Equipment on operating
leases, net include: (1) estimated market value information obtained and used in estimating residual values; (2) proper identification
and estimation of business conditions; (3) remarketing abilities; and (4) vehicle and marketing programs. Changes in these
assumptions could have a significant effect on the estimate of residual values.
102 General Motors Company 2010 Annual Report