General Motors 2015 Annual Report Download - page 46

Table of Contents

allowance is required or should be adjusted is based on an evaluation of possible sources of taxable income and also considers all available positive and
negative evidence factors. Our accounting for the valuation of deferred tax assets represents our best estimate of future events. Changes in our current
estimates, due to unanticipated market conditions or events, could have a material effect on our ability to utilize deferred tax assets.
At December 31, 2015 valuation allowances against deferred tax assets were $5.0 billion. Refer to Note 16 to our consolidated financial statements for
additional information on the composition of these valuation allowances and information on the $3.9 billion income tax benefit resulting from the reversal of
valuation allowances against deferred tax assets in Europe.

GM Financial has investments in leased vehicles recorded as operating leases, which relate to vehicle leases to retail customers with lease terms ranging
from two to five years. At the beginning of the lease contract a determination is made of the estimated realizable value (i.e., residual value) of the vehicle at
the end of the lease term, which is the critical assumption underlying the estimated carrying value of leased assets. The estimated realizable value is based on
the lower of the contracted residual value or the current market estimate of residual value based on independent lease guides. Since the customer is not
obligated to purchase the vehicle at the end of the contract, GM Financial is exposed to a risk of loss to the extent the value of the vehicle at the end of the
lease term is below the residual value estimated at contract inception. Over the life of the lease GM Financial evaluates the adequacy of the estimate of the
residual value and may make adjustments to the extent the expected value of the vehicle at lease termination changes. Adjustments could result in a change
in the depreciation rate of the leased asset or if an impairment exists, an impairment charge.
The following table summarizes vehicles included in GM Financial equipment on operating leases, net (vehicles in thousands):


Cars 271
139
Trucks 121
28
Crossovers 401
135
Total 793
302
At December 31, 2015 GM Financial's estimated residual value of the leased assets at the end of the lease term was $13.4 billion. The following table
illustrates the effect of a 1% change in the estimated residual values at December 31, 2015, which will increase or decrease depreciation expense over the
remaining term of GM Financial's operating leases, holding all other assumptions constant (dollars in millions):


Cars $ 31
Trucks 27
Crossovers 76
Total $ 134

In GMNA we accrue the costs for recall campaigns at the time of vehicle sale. In the other regions, there is not sufficient historical data to support the
application of an actuarial-based estimation technique and the estimated costs will be accrued at the time when they are probable and reasonably estimable,
which typically occurs once it is determined a specific recall campaign is needed and announced.
The estimates related to policy and product warranties are established using historical information on the nature, frequency and average cost of claims of
each vehicle line or each model year of the vehicle line and assumptions about future activity and events. When little or no claims experience exists for a
model year or a vehicle line, the estimate is based on comparable models. The estimates related to recall campaigns accrued at the time of vehicle sale are
established by applying a frequency times severity approach that considers the number of recall events, the number of vehicles per recall event, the assumed
number of vehicles that will be brought in by customers for repair (take rate) and the cost per vehicle for each recall event. Estimates contemplate the
43