General Motors 2011 Annual Report Download - page 70

GENERAL MOTORS COMPANY AND SUBSIDIARIES
We invest in marketable securities of various types and maturities, the value of which are subject to fluctuations in interest rates.
Our marketable securities portfolio includes marketable securities classified as Available-for-sale and Trading.
At December 31, 2011 and 2010 we had marketable securities of $10.1 billion and $5.4 billion classified as Available-for sale with
exposure to interest rate risk. The potential decrease in fair value from a 50 basis point increase in interest rates would be $28 million
and $9 million at December 31, 2011 and 2010.
At December 31, 2011 and 2010 we had marketable securities of $6.0 billion and $107 million classified as Trading with exposure
to interest rate risk. The potential decrease in fair value from a 50 basis point increase in interest rates would be $20 million and $6
million at December 31, 2011 and 2010.
Commodity Price Risk
We are exposed to changes in prices of commodities 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. We use commodity options to offset our commodity price exposures.
At December 31, 2011 and 2010 the net fair value (liability) asset of commodity derivatives and commodity related embedded
derivatives was $(11) million and $84 million. The potential loss in fair value resulting from a 10% adverse change in the underlying
commodity prices would be $24 million and $47 million at December 31, 2011 and 2010. This amount excludes the offsetting effect
of the commodity price risk inherent in the physical purchase of the underlying commodities.
Equity Price Risk
At December 31, 2011 the carrying amount of cost method investments was $439 million, of which the carrying amount of our
investment in Ally Financial common stock was $403 million. In March 2011 we sold our investment in Ally Financial preferred
stock for net proceeds of $1.0 billion. 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. These amounts represent the maximum exposure to loss from these investments. Refer to Note 10 to our
consolidated financial statements for further details on the sale of the Ally Financial preferred stock.
Automotive Financing — GM Financial
Fluctuations in market interest rates affect GM Financial’s credit facilities and securitization transactions. GM Financial’s gross
interest rate spread, which is the difference between interest earned on finance receivables and interest paid, is affected by changes in
interest rates as a result of GM Financial’s dependence upon the issuance of variable rate securities and the incurrence of variable rate
debt to fund purchases of finance receivables.
Credit Facilities
Fixed interest rate receivables purchased by GM Financial are pledged to secure borrowings under its credit facilities. Amounts
borrowed under these credit facilities bear interest at variable rates that are subject to frequent adjustments to reflect prevailing market
interest rates. To protect the interest rate spread within each credit facility, GM Financial is contractually required to enter into interest
rate cap agreements in connection with borrowings under its credit facilities. The purchaser of the interest rate cap pays a premium in
return for the right to receive the difference in the interest cost at any time a specified index of market interest rates rises above the
stipulated cap or “strike” rate. The purchaser of the interest rate cap bears no obligation or liability if interest rates fall below the cap
or “strike” rate. As part of GM Financial’s interest rate risk management strategy and when economically feasible, it may
simultaneously enter into a corresponding interest rate cap agreement in order to offset the premium paid by the trust to purchase the
interest rate cap and thus retain the interest rate risk. The fair value of the interest rate cap agreement purchased is included in GM
Financial Other assets and the fair value of the interest rate cap agreement sold is included in GM Financial Other liabilities.
68 General Motors Company 2011 Annual Report