General Motors 2010 Annual Report Download - page 271

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Financial’s standard residual value. As it relates to Ally Financial’s U.S. lease originations and U.S. balloon retail contract
originations occurring after April 30, 2006, Old GM agreed to pay the present value of the expected residual support owed to Ally
Financial at the time of contract origination as opposed to after contract termination when the off-lease vehicles are sold. The actual
residual support amount owed to Ally Financial is calculated as the contracts terminate and, in cases where the actual amount differs
from the expected amount paid at contract origination, the difference is paid to or paid by Ally Financial, depending if sales proceeds
are lower or higher than estimated at contract origination.
Under a risk-sharing arrangement, residual losses are shared equally with Ally Financial to the extent that remarketing proceeds are
below Ally Financial’s standard residual value (limited to a floor). As a result of revisions to the risk-sharing arrangement, Old GM
agreed to pay Ally Financial a quarterly fee through 2014.
In the event it is publicly announced that a GM vehicle brand will be discontinued, phased-out, sold or other strategic options are
being considered, the residual value of the related vehicles may change. If such an announcement in the U.S. or Canada results in an
estimated decrease in the residual value of the related vehicles, Ally Financial will be reimbursed for the estimated decrease for
certain vehicles for a certain period of time. If such an announcement results in an increase in the residual value of the related
vehicles, Ally Financial will pay the increase in the sale proceeds received at auction.
Under a capitalized cost reduction program, Ally Financial is paid an amount at the time of lease or retail contract origination to
reduce the principal amount implicit in the lease or retail contract below the standard manufacturers’ suggested retail price.
Under a lease pull-ahead program, a customer is encouraged to terminate their lease early and buy or lease a new GM vehicle. As
part of such a program, Ally Financial waives the customer’s remaining payment obligation under their current lease, and Ally
Financial is compensated for any foregone revenue from the waived payments. Since these programs generally accelerate the resale of
the vehicle, the proceeds are typically higher than if the vehicle had been sold at contract maturity. The reimbursement to Ally
Financial for the foregone payments is reduced by the amount of this benefit. Anticipated payments are made to Ally Financial each
month based on the estimated number of customers expected to participate in a lease-pull ahead program. These estimates are adjusted
once all vehicles that could have been pulled-ahead have terminated and the vehicles have been sold. Any differences between the
estimates and the actual amounts owed to or from Ally Financial are subsequently settled.
In May 2009 Old GM entered into the Amended and Restated United States Consumer Financing Services Agreement (Amended
Financing Agreement) with an effective date of December 29, 2008. The terms of the Amended Financing Agreement included
conditions of interest rate support, residual support, risk sharing, capitalized cost reduction, and lease pull-ahead programs.
Exclusivity Arrangement
In November 2006 Old GM granted Ally Financial exclusivity for U.S., Canadian and international GM-sponsored consumer and
wholesale marketing incentives for products in specified markets around the world, with the exception of Saturn branded products. In
return for exclusivity, Ally Financial paid an annual exclusivity fee of $105 million ($75 million for the U.S. retail business,
$15 million for the Canadian retail business, $10 million for the international operations retail business, and $5 million for the dealer
business).
As a result of the Amended Financing Agreement, Old GM and Ally Financial agreed to modify certain terms related to the
exclusivity arrangements: (1) for a two-year period, retail financing incentive programs can be offered through a third party financing
source under certain specified circumstances, and in some cases subject to the limitation that pricing offered by such third party meets
certain restrictions, and after such two-year period any such incentive programs can be offered on a graduated basis through third
parties on a non-exclusive, side-by-side basis with Ally Financial provided that pricing with such third parties meets certain
requirements; (2) Ally Financial has no obligation to provide financing; and (3) Ally Financial has no targets against which it could be
assessed penalties. After December 24, 2013 we will have the right to offer retail financing incentive programs through any third party
financing source, including Ally Financial, without any restrictions or limitations.
General Motors Company 2010 Annual Report 269