General Motors Co | 2013 | FY | 3


GM Financial Receivables, net

In the year ended December 31, 2013 GM Financial acquired certain international operations in Europe and Latin America from Ally Financial that conduct consumer and commercial lending activities. All of the loans acquired were made on a secured basis.

The following table summarizes the components of consumer and commercial finance receivables, net (dollars in millions):
 
December 31, 2013
 
December 31, 2012
 
Consumer
 
Commercial
 
Total
 
Consumer
 
Commercial
 
Total
Pre-acquisition finance receivables, outstanding amount
$
1,294

 
$

 
$
1,294

 
$
2,162

 
$

 
$
2,162

Pre-acquisition finance receivables, carrying amount
$
1,174

 
$

 
$
1,174

 
$
1,958

 
$

 
$
1,958

Post-acquisition finance receivables, net of fees
21,956

 
6,050

 
28,006

 
8,831

 
560

 
9,391

Finance receivables
23,130

 
6,050

 
29,180

 
10,789

 
560

 
11,349

Less: allowance for loan losses
(497
)
 
(51
)
 
(548
)
 
(345
)
 
(6
)
 
(351
)
GM Financial receivables, net
$
22,633

 
$
5,999

 
$
28,632

 
$
10,444

 
$
554

 
$
10,998

 
 
 
 
 
 
 
 
 
 
 
 
Fair value of GM Financial receivables, net
 
 
 
 
$
28,668

 
 
 
 
 
$
11,313



Of the total allowance for loan losses in the above table, $427 million and $266 million were current at December 31, 2013 and 2012.
 
 
 
 
 
 
 
 
 
 
 
 

GM Financial determined the fair value of consumer finance receivables using observable and unobservable inputs within a cash flow model. The inputs reflect assumptions regarding expected prepayments, deferrals, delinquencies, recoveries and charge-offs of the loans within the portfolio. The cash flow model produces an estimated amortization schedule of the finance receivables which is the basis for the calculation of the series of cash flows that derive the fair value of the portfolio. The series of cash flows is calculated and discounted using a weighted-average cost of capital (WACC) using unobservable debt and equity percentages, an unobservable cost of equity and an observable cost of debt based on companies with a similar credit rating and maturity profile as the portfolio. Macroeconomic factors could negatively affect the credit performance of the portfolio and therefore could potentially affect the assumptions used in GM Financial's cash flow model. Substantially all commercial finance receivables either have variable interest rates and maturities of one year or less, or were acquired or originated within the past year. Therefore, the carrying amount is considered to be a reasonable estimate of fair value.

GM Financial reviews its pre-acquisition finance receivables portfolios for differences between contractual cash flows and the cash flows expected to be collected to determine if the difference is attributable, at least in part, to credit quality. In the years ended December 31, 2013 and 2012 as a result of improvements in credit performance of the pre-acquisition finance receivables, GM Financial transferred the amount of excess cash flows from the non-accretable difference to accretable yield. GM Financial will recognize this excess as finance charge income over the remaining life of the portfolio.

The following table summarizes the activity for accretable yield (dollars in millions):
 
Years Ended December 31,
 
2013
 
2012
Balance at beginning of period
$
404

 
$
737

Ally Financial international operations acquisition
127

 
 
Accretion of accretable yield
(342
)
 
(503
)
Transfer from non-accretable difference
74

 
170

Effect of foreign currency
(8
)
 

Balance at end of period
$
255

 
$
404



The following table summarizes activity for the allowance for loan losses on consumer and commercial finance receivables (dollars in millions):
 
Years Ended December 31,(a)
 
2013
 
2012
 
2011
Balance at beginning of period
$
351

 
$
179

 
$
26

Provision for loan losses
475

 
304

 
178

Charge-offs
(643
)
 
(304
)
 
(66
)
Recoveries
362

 
172

 
41

Effect of foreign currency
3

 

 

Balance at end of period
$
548

 
$
351

 
$
179

________
(a)
The balances and activity of the allowance for commercial loan losses included in the amounts at and for the years ended December 31, 2013 and 2012 were insignificant.

Credit Quality

Consumer Finance Receivables

GM Financial uses proprietary scoring systems that measure the credit quality of the receivables using several factors, such as credit bureau information, consumer credit risk scores (e.g. FICO score) and contract characteristics. In addition to GM Financial's proprietary scoring systems GM Financial considers other individual consumer factors such as employment history, financial stability and capacity to pay. Subsequent to origination GM Financial reviews the credit quality of retail receivables based on customer payment activity. At the time of loan origination substantially all of GM Financial's international consumers have prime credit scores. In North America sub-prime is typically defined as a loan with a borrower that has a FICO score of less than 620. At December 31, 2013 and 2012 88% and 84% of the consumer finance receivables in North America were consumers with FICO scores less than 620.

An account is considered delinquent if a substantial portion of a scheduled payment has not been received by the date such payment was contractually due. At December 31, 2013 and 2012 the accrual of finance charge income has been suspended on delinquent consumer finance receivables based on contractual amounts due of $642 million and $503 million.

GM Financial purchases consumer finance contracts from automobile dealers without recourse and, accordingly, the dealer has no liability to GM Financial if the consumer defaults on the contract. Finance receivables are collateralized by vehicle titles and GM Financial has the right to repossess the vehicle in the event the consumer defaults on the payment terms of the contract.

The following table summarizes the contractual amount of delinquent contracts, which is not materially different from the recorded investment of the consumer finance receivables (dollars in millions):
 
December 31, 2013
 
December 31, 2012
 
Amount
 
Percent of Contractual Amount Due
 
Amount
 
Percent of Contractual Amount Due
Delinquent contracts
 
 
 
 
 
 
 
31-to-60 days
$
952

 
4.1
%
 
$
672

 
6.1
%
Greater-than-60 days
408

 
1.7
%
 
230

 
2.1
%
Total finance receivables more than 30 days delinquent
1,360

 
5.8
%
 
902

 
8.2
%
In repossession
41

 
0.2
%
 
31

 
0.3
%
Total finance receivables more than 30 days delinquent or in repossession
$
1,401

 
6.0
%
 
$
933

 
8.5
%

Impaired Finance Receivables - Troubled Debt Restructurings
The following table summarizes the outstanding recorded investment for consumer finance receivables that are considered to be TDRs and the related allowance (dollars in millions):
 
December 31, 2013
 
December 31, 2012
Outstanding recorded investment
$
767

 
$
228

Less: allowance for loan losses
(103
)
 
(32
)
Outstanding recorded investment, net of allowance
$
664

 
$
196

 
 
 
 
Unpaid principal balance
$
779

 
$
232



Commercial Finance Receivables

GM Financial's commercial finance receivables consist of dealer financings. A proprietary model is used to assign a risk rating to each dealer. A credit review of each dealer is performed at least annually and, if necessary, the dealer's risk rating is adjusted on the basis of the review. At December 31, 2013 and 2012 the commercial finance receivables or loans on non-accrual status were insignificant.

The following table summarizes the credit risk profile by dealer grouping of the commercial finance receivables (dollars in millions): 
 
December 31, 2013
 
December 31, 2012
Group I - Dealers with strong to superior financial metrics
$
549

 
$
99

Group II - Dealers with fair to favorable financial metrics
1,460

 
278

Group III - Dealers with marginal to weak financial metrics
1,982

 
171

Group IV - Dealers with poor financial metrics
1,462

 
12

Group V - Dealers warranting special mention due to potential weaknesses
385

 
 
Group VI - Dealers with loans classified as substandard, doubtful or impaired
212

 
 
 
$
6,050

 
$
560



The credit lines for Group VI dealers are suspended and no further funding is extended to these dealers.

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