General Motors 2010 Annual Report Download - page 113

GENERAL MOTORS COMPANY AND SUBSIDIARIES
At December 31, 2010 and 2009 the fair value liability of debt and capital leases was $4.8 billion and $16.0 billion. The potential
increase in fair value resulting from a 10% decrease in quoted interest rates would be $166 million and $402 million at December 31,
2010 and 2009.
At December 31, 2010 we had $6.6 billion in marketable securities with exposure to interest rate risk. We invest in securities of
various types and maturities, the value of which are subject to fluctuations in interest rates. The potential decrease in fair value from a
50 basis point increase in interest rates would be $15 million at December 31, 2010. Our exposure to interest rate risk on marketable
securities at December 31, 2009 was insignificant.
Commodity Price Risk
We are and Old GM was exposed to changes in prices of commodities used in the automotive business, primarily associated with
various non-ferrous and precious metals for automotive components and energy used in the overall manufacturing process. Certain
commodity purchase contracts meet the definition of a derivative. Old GM entered into various derivatives, such as commodity swaps
and options, to offset its commodity price exposures. We use commodity options to offset our commodity price exposures.
At December 31, 2010 and 2009 the net fair value asset of commodity derivatives was $84 million and $11 million. The potential
loss in fair value resulting from a 10% adverse change in the underlying commodity prices would be $47 million and $6 million at
December 31, 2010 and 2009. This amount excludes the offsetting effect of the commodity price risk inherent in the physical
purchase of the underlying commodities.
Equity Price Risk
We are and Old GM was exposed to changes in prices of equity securities held. We typically do not attempt to reduce our market
exposure to these equity instruments. Our exposure includes certain investments we hold in warrants of other companies. At
December 31, 2010 and 2009 the fair value of these warrants was $44 million and $25 million. At December 31, 2010 and 2009 our
exposure also includes investments of $43 million and $45 million in equity securities recorded at fair value. These amounts represent
the maximum exposure to loss from these investments.
At December 31, 2010, the carrying amount of cost method investments was $1.7 billion, of which the carrying amounts of our
investments in Ally Financial common stock and Ally Financial preferred stock were $964 million and $665 million. At December 31,
2009 the carrying amount of cost method investments was $1.7 billion, of which the carrying amounts of our investments in Ally
Financial common stock and preferred stock were $970 million and $665 million. These amounts represent the maximum exposure to
loss from these investments.
Counterparty Risk
We are exposed to counterparty risk on derivative contracts, which is the loss we could incur if a counterparty to a derivative
contract defaulted. We enter into agreements with counterparties that allow the set-off of certain exposures in order to manage this
risk.
Our counterparty risk is managed by our Risk Management Committee, which establishes exposure limits by counterparty. We
monitor and report our exposures to the Risk Management Committee on a periodic basis. At December 31, 2010 a majority of all of
our counterparty exposures are with counterparties that are rated A or higher.
Concentration of Credit Risk
We are exposed to concentration of credit risk primarily through holding cash and cash equivalents (which include money market
funds), short- and long-term investments and derivatives. As part of our risk management process, we monitor and evaluate the credit
standing of the financial institutions with which we do business. The financial institutions with which we do business are generally
highly rated and geographically dispersed.
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