General Motors 2015 Annual Report Download - page 63

Table of Contents
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Trading securities are recorded at fair value with changes in fair value recorded in Interest income and other non-operating income, net. We determine
realized gains and losses for all securities using the specific identification method.
We measure the fair value of our marketable securities using a market approach where identical or comparable prices are available and an income approach
in other cases. If quoted market prices are not available, fair values of securities are determined using prices from a pricing service, pricing models, quoted
prices of securities with similar characteristics or discounted cash flow models. These prices represent non-binding quotes. Our pricing service utilizes
industry-standard pricing models that consider various inputs. We conduct an annual review of our pricing service. Based on our review we believe the prices
received from our pricing service are a reliable representation of exit prices.
An evaluation is made quarterly to determine if unrealized losses related to non-trading investments in securities are other-than-temporary. Factors
considered include: (1) the length of time and extent to which the fair value has been below cost; (2) the financial condition and near-term prospects of the
issuer; and (3) the intent to sell or likelihood to be forced to sell the security before any anticipated recovery.
We are required to post cash and marketable securities as collateral as part of certain agreements that we enter into as part of our operations. Cash and
marketable securities subject to contractual restrictions and not readily available are classified as Restricted cash and marketable securities. Restricted cash
and marketable securities are invested in accordance with the terms of the underlying agreements and include amounts related to various deposits, escrows
and other cash collateral.
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Finance receivables are carried at amortized cost, net of allowance for loan losses.
The component of the allowance for retail finance receivables that is collectively evaluated for impairment is based on a statistical calculation which is
supplemented by management judgment. GM Financial uses a combination of forecasting models to determine the allowance for loan losses. Factors that are
considered when estimating the allowance include historical delinquency migration to loss, probability of default and loss given default. The loss
confirmation period is a key assumption within the models and represents the average amount of time from when a loss event first occurs to when the
receivable is charged-off. GM Financial also considers an evaluation of overall portfolio credit quality based on various indicators.
Retail finance receivables are generally charged off in the month in which the account becomes 120 days contractually delinquent if we have not yet
recorded a repossession charge-off. A charge-off generally represents the difference between the estimated net sales proceeds and the amount of the contract,
including accrued interest.
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Inventories are stated at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less
cost to sell, and considers general market and economic conditions, periodic reviews of current profitability of vehicles, product warranty costs and the effect
of current and expected incentive offers at the balance sheet date. Net realizable value for off-lease and other vehicles is current auction sales proceeds less
disposal and warranty costs. Productive material, work in process, supplies and service parts are reviewed to determine if inventory quantities are in excess of
forecasted usage or if they have become obsolete.
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Equipment on operating leases, net is reported at cost, less accumulated depreciation and impairment, net of origination fees or costs and lease incentives.
Estimated income from operating lease assets, which includes lease origination fees, net of lease origination costs, is recorded as operating lease revenue on a
straight-line basis over the term of the lease agreement. Leased vehicles are depreciated on a straight-line basis to an estimated residual value over the term of
the lease agreements.
We have significant investments in vehicle operating lease portfolios, which consist of vehicle leases to retail customers with lease terms of two to five
years and vehicles leased to rental car companies with lease terms that average eight months or less. We are exposed to changes in the residual values of those
assets. For impairment purposes the residual values represent estimates of the values of the vehicles leased at the end of the lease contracts and are determined
based on forecasted auction proceeds when there is a reliable basis to make such a determination. Realization of the residual values is dependent on the
future ability to market
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