General Motors 2012 Annual Report Download - page 61

GENERAL MOTORS COMPANY AND SUBSIDIARIES
Valuation allowance reversals in the U.S. and Canada contributed to goodwill impairment charges of $26.4 billion in the GMNA
reporting unit in the three months ended December 31, 2012. In South Korea future valuation allowance reversals may result in
additional goodwill impairment. Refer to Note 12 to our consolidated financial statements for additional information related to
goodwill impairment charges.
In future periods, our effective tax rate should approach the U.S. statutory tax rate. If law is enacted that reduces the U.S. statutory
rate, we would record a significant reduction to the net deferred tax assets and related increase to income tax expense in the period
that includes the enactment date of the tax rate change.
Valuation of Vehicle Operating Leases
In our and GM Financial’s accounting for vehicle operating leases, a determination is made at the inception of a lease of the
estimated realizable value (i.e., residual value) of the vehicle at the end of the lease. Residual values represent estimates of the market
values of the vehicles at the end of the lease term. A retail lease customer is obligated to make payments during the term of a lease, up
to five years, to the contract residual. A retail lease customer is not obligated to purchase a vehicle at the end of a lease. Sales to daily
rental car companies with guaranteed repurchase obligations are accounted for as operating leases. Generally, the terms under these
arrangements are up to 24 months, however, the daily rental car companies can and do return the vehicles earlier, averaging nine
months or less. We and GM Financial are exposed to a risk of loss to the extent the value of a vehicle is below the residual value
estimated at contract inception.
Realization of residual values is dependent on the future ability to market vehicles under prevailing market conditions. Over the life
of a lease, the adequacy of the estimated residual values are evaluated and adjustments are made to the extent the expected values of
the vehicles 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 expected future cash flows, which include estimated residual values, are
lower than the corresponding carrying amount.
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.
We and GM Financial continue to use forecasted 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.
The following table summarizes recorded impairment charges related to leases to daily rental car companies (dollars in millions):
Years Ended December 31,
2012 2011 2010
Automotive leases to daily rental car companies ....................................... $181 $151 $49
Impairment of Goodwill
In the three months ended December 31, 2012, 2011 and 2010 we performed our annual goodwill impairment testing as of
October 1 for all reporting units, which are GMNA, GME, GM Financial and various reporting units within the GMIO and GMSA
segments. In the years ended December 31, 2012 and 2011, we performed event-driven goodwill impairment tests at various dates for
certain of our reporting units. Based on our testing procedures we recorded Goodwill impairment charges of $27.1 billion and $1.3
billion in the years ended December 31, 2012 and 2011 associated with our GMNA, GME, GM Korea, GM South Africa and
GM Holden, Ltd. (Holden) reporting units.
General Motors Company 2012 ANNUAL REPORT58