General Motors 2010 Annual Report Download - page 148

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Finance Receivables
Automotive Financing
Pre-Acquisition Finance Receivables
Finance receivables originated prior to the acquisition of AmeriCredit were adjusted to fair value at October 1, 2010. As a result of
the acquisition, the allowance for loan losses at October 1, 2010 was eliminated and a net discount was recorded on the receivables. A
portion of the discount attributable to future credit losses is recorded as a non-accretable discount and utilized as such losses occur.
Any deterioration in the performance of pre-acquisition receivables, indicating that the non-accretable discount has become
insufficient to cover future credit losses, in the pre-acquisition portfolio, will result in an incremental allowance for loan losses being
recorded. Improvements in performance of the pre-acquisition receivables, indicating that the non-accretable discount exceeds
expected future credit losses will not be a direct offset to charge-offs, but will result in a transfer of the excess non-accretable discount
to accretable discount, which will be recorded as finance charge income over the remaining life of the receivables.
A portion of the fair value adjustment on the finance receivables is included as an accretable premium. This premium is accreted
into finance charge income over the remaining life of the receivables utilizing the effective interest method.
Post-Acquisition Finance Receivables
Finance receivables originated after the acquisition of AmeriCredit are carried at amortized cost, net of allowance for loan losses.
Provisions for loan losses are charged to operations in amounts sufficient to maintain an allowance for loan losses at a level
considered adequate to cover probable credit losses inherent in GM Financial’s post-acquisition finance receivables.
The allowance for loan losses is established systematically based on the determination of the amount of probable credit losses
inherent in the post-acquisition finance receivables as of the balance sheet date. We review charge-off experience factors, delinquency
reports, historical collection rates, estimates of the value of the underlying collateral, economic trends, such as unemployment rates,
and other information in order to make the necessary judgments as to probable credit losses. We also use historical charge-off
experience to determine a loss confirmation period, which is defined as the time between when an event, such as delinquency status,
giving rise to a probable credit loss occurs with respect to a specific account and when such account is charged off. This loss
confirmation period is applied to the forecasted probable credit losses to determine the amount of losses inherent in finance
receivables at the balance sheet date.
Allowance For Doubtful Accounts – Trade Receivables
Automotive
We estimate the balance of allowance for doubtful accounts by analyzing accounts receivable balances by age, and our estimate
includes separately providing for specific customer balances when it is deemed probable that the balance is uncollectible. Account
balances are charged off against the allowance when it is probable the receivable will not be recovered.
Inventory
Automotive
Inventories are stated at the lower of cost or market (LCM). In connection with fresh-start reporting, we elected to use the FIFO
costing method for all inventories previously accounted for by Old GM using the LIFO costing method.
146 General Motors Company 2010 Annual Report