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EX-12.1 - EXHIBIT 12.1 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - General Motors Financial Company, Inc.gmfexhibit121ye12312017.htm
EX-32.1 - EXHIBIT 32.1 OFFICERS' CERTIFICATIONS OF PERIODIC REPORT PURSUANT TO SECTION 906 - General Motors Financial Company, Inc.gmfexhibit321officerscerti.htm
EX-31.1 - EXHIBIT 31.1 OFFICERS' CERTIFICATIONS OF PERIODIC REPORT PURSUANT TO SECTION 302 - General Motors Financial Company, Inc.gmfexhibit311officerscerti.htm
EX-23.1 - EXHIBIT 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - General Motors Financial Company, Inc.gmfexhibit231consentofinde.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________________________ 
FORM 10-K
(Mark One)
ý
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period ________________ to ________________
Commission file number 1-10667
______________________________________________ 
General Motors Financial Company, Inc.
(Exact name of registrant as specified in its charter)
Texas
 
75-2291093
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
801 Cherry Street, Suite 3500, Fort Worth, Texas 76102
(Address of principal executive offices, including Zip Code)
(817) 302-7000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each Exchange on which registered
5.250% Senior Notes due 2026
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
(Title of each class)
 __________________________________________ 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes    ý    No    ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes    ¨    No    ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes    ý   No    ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes    ý    No    ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K.  ý
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
ý
Smaller reporting company
o
Emerging growth company
o
(Do not check if a smaller reporting company)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes    ¨    No    ý
As of February 5, 2018, there were 5,050,000 shares of the registrant’s common stock, par value $0.0001 per share, outstanding. All of the registrant’s common stock is owned by General Motors Holdings LLC, a wholly-owned subsidiary of General Motors Company.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
The registrant is a wholly-owned subsidiary of General Motors Company and meets the conditions set forth in General Instructions (I)(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K with a reduced disclosure format as permitted by Instruction I(2).



INDEX
 
 
Page
 
Forward-Looking Statements
 
PART I
 
Item 1.
Business
Item 1A.
Risk Factors
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
 
PART II
 
Item 5.
Market for Registrant's Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.
Selected Financial Data
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
 
Consolidated Balance Sheets
 
Consolidated Statements of Income and Comprehensive Income
 
Consolidated Statements of Shareholders' Equity
 
Consolidated Statements of Cash Flows
 
Notes to Consolidated Financial Statements
 
Note 1. Summary of Significant Accounting Policies
 
Note 2. Discontinued Operations
 
Note 3. Related Party Transactions
 
Note 4. Finance Receivables
 
Note 5. Leased Vehicles
 
Note 6. Goodwill
 
Note 7. Equity in Net Assets of Non-consolidated Affiliate
 
Note 8. Debt
 
Note 9. Variable Interest Entities
 
Note 10. Derivative Financial Instruments and Hedging Activities
 
Note 11. Commitments and Contingencies
 
Note 12. Shareholders' Equity
 
Note 13. Parent Company Stock-Based Compensation
 
Note 14. Employee Benefit Plans
 
Note 15. Income Taxes
 
Note 16. Supplemental Cash Flow Information
 
Note 17. Segment Reporting and Geographic Information
 
Note 18. Accumulated Other Comprehensive Loss
 
Note 19. Regulatory Capital and other Regulatory Matters
 
Note 20. Quarterly Financial Data (unaudited)
 
Note 21. Guarantor Consolidating Financial Statements
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
 
PART III
 
Directors and Executives Officers and Corporate Governance
Executive and Director Compensation
Security Ownership of Certain Beneficial Owners and Management
Certain Relationships, Related Transactions and Director Independence
Principal Accounting Fees and Services
 
PART IV
 
Item 15.
Exhibits and Financial Statement Schedules
Item 16.
Form 10-K Summary
 
Signatures
 
Index to Exhibits


GENERAL MOTORS FINANCIAL COMPANY, INC.

Forward-Looking Statements
This Form 10-K contains several "forward-looking statements." Forward-looking statements are those that use words such as "believe," "expect," "intend," "plan," "may," "likely," "should," "estimate," "continue," "future" or "anticipate" and other comparable expressions. These words indicate future events and trends. Forward-looking statements are our current views with respect to future events and financial performance. These forward-looking statements are subject to many assumptions, risks and uncertainties that could cause actual results to differ significantly from historical results or from those anticipated by us. The most significant risks are detailed from time to time in our filings and reports with the Securities and Exchange Commission (SEC), including this Annual Report on Form 10-K for the year ended December 31, 2017. It is advisable not to place undue reliance on our forward-looking statements. We undertake no obligation to, and do not, publicly update or revise any forward-looking statements, except as required by federal securities laws, whether as a result of new information, future events or otherwise.
The following factors are among those that may cause actual results to differ materially from historical results or from the forward-looking statements:
GM's ability to sell new vehicles that we finance in the markets we serve;
the viability of GM-franchised dealers that are commercial loan customers;
the availability and cost of sources of financing;
our joint venture in China, which we cannot operate solely for our benefit and over which we have limited control;
the level of net charge-offs, delinquencies and prepayments on the loans and leases we originate;
the effect, interpretation or application of new or existing laws, regulations, court decisions and accounting pronouncements;
the prices at which used cars are sold in the wholesale auction markets;
vehicle return rates and the residual value performance on vehicles we lease;
interest rate fluctuations and certain related derivatives exposure;
foreign currency exchange rate fluctuations;
our financial condition and liquidity, as well as future cash flows and earnings;
changes in general economic and business conditions;
competition;
our ability to manage risks related to security breaches and other disruptions to our networks and systems; and
changes in business strategy, including expansion of product lines and credit risk appetite, acquisitions and divestitures.
If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may vary materially from those expected, estimated or projected.

PART I
Item 1. Business
General General Motors Financial Company, Inc. (sometimes referred to as we, us, our, the Company, or GM Financial), the wholly-owned captive finance subsidiary of General Motors Company (GM), is a global provider of automobile finance solutions. We were acquired by GM in October 2010 to provide captive financing capabilities in support of GM’s U.S. and Canadian markets. In 2013, we expanded the markets we serve by acquiring Ally Financial Inc.'s (Ally Financial) auto finance operations in Europe and Latin America. In January 2015, we completed the acquisition of an equity interest in SAIC-GMAC Automotive Finance Company Limited (SAIC-GMAC), a joint venture that conducts auto finance operations in China, from Ally Financial. On October 31, 2017, we completed the sale of certain of our European subsidiaries and branches (collectively, the European Operations) to Banque PSA Finance S.A. and BNP Paribas Personal Finance S.A. The results of operations of the European Operations are presented as discontinued operations in our consolidated financial statements for all periods presented. The assets and liabilities of the European Operations are presented as held for sale in our consolidated financial statements as of December 31, 2016. Unless otherwise indicated, information contained herein relates to our continuing operations. Refer to Note 2 to our consolidated financial statements for additional details regarding our disposal of these operations.
We offer substantially similar products and services throughout many different regions, subject to local regulations and market conditions. We evaluate our business in two operating segments: North America (the North America Segment) and International (the International Segment). Refer to Note 17 to our consolidated financial statements for more information relating to our operating segments. Our global footprint covers approximately 90% of GM’s worldwide market. Except as otherwise specified, amounts presented within the tables are stated in millions.

1

GENERAL MOTORS FINANCIAL COMPANY, INC.

North America Segment Our North America Segment includes operations in the U.S. and Canada. We have been operating in the automobile finance business in the U.S. since September 1992. Our retail automobile finance programs include prime and sub-prime lending and full credit spectrum leasing offered through GM-franchised dealers under the GM Financial brand. We also offer a sub-prime lending product through non-GM-franchised and select independent dealers under the AmeriCredit brand. Our sub-prime lending program is designed to serve customers who have limited access to automobile financing through banks and credit unions. Therefore, we generally charge higher rates than those charged by banks and credit unions and expect to sustain a higher level of credit losses than on prime lending. Our commercial lending programs are offered primarily to our GM-franchised dealer customers and their affiliates.
International Segment Our International Segment includes operations in Brazil, Chile, Colombia, Mexico and Peru, as well as our equity investment in SAIC-GMAC Automotive Finance Company Limited (SAIC-GMAC), a joint venture that conducts automobile finance operations in China. Certain of our international operations were originally a part of General Motors Acceptance Corporation, the former captive finance subsidiary of GM. Due to this longstanding relationship, the international operations have substantial business related to GM and its dealer network. The retail lending and leasing programs in our International Segment focus on financing new GM vehicles and select used vehicles. We also offer finance- and/or vehicle-related insurance and other products.
Retail Finance In our retail finance business the term "loan" refers to retail installment contracts we purchase from automobile dealers or other vehicle financing products. We also originate operating lease contracts for new GM vehicles.
Marketing As an indirect auto finance provider, we focus our marketing activities on automobile dealers. We primarily pursue franchised dealerships with new and used car operations; however, we also conduct business with a limited number of independent dealerships. We generally finance new GM vehicles, moderately-priced new vehicles from other manufacturers, and later-model, low-mileage used vehicles.
We maintain non-exclusive relationships with the dealers and actively monitor our dealer relationships with the objective of maximizing the volume of retail financing applications received from dealerships with whom we do business that meet our underwriting standards and profitability objectives. Due to the non-exclusive nature of our relationships with dealers, the dealers retain discretion to determine whether to obtain financing from us or from another source for a customer seeking to make a vehicle purchase.
Subvention Programs GM offers subvention programs, under which GM provides us cash payments in order for us to be able to provide for lower customer payments on finance and lease contracts originated through GM's dealership network, making credit more affordable to customers purchasing vehicles manufactured by GM.
Origination Data Our business strategy is to help GM sell vehicles while earning an appropriate risk-adjusted return. This includes increasing new GM automobile sales by offering a full spectrum of competitive financing programs. The following table sets forth the retail loan and lease origination levels:
 
Years ended December 31,
 
2017
 
2016
 
2015
New GM
$
40,326

 
$
35,044

 
$
28,994

Other
5,015

 
4,645

 
5,053

Total
$
45,341

 
$
39,689

 
$
34,047

Underwriting We utilize proprietary credit scoring systems to support our credit approval process. The credit scoring systems were developed through statistical analysis of customer demographics, credit bureau attributes and portfolio databases and are tailored to each country where we conduct business. Credit scoring is used to differentiate credit applications and to statistically rank-order credit risk in terms of expected default rates, which enables us to evaluate credit applications for approval, contract pricing and structure.
In addition to our proprietary credit scoring systems, we utilize other underwriting guidelines. These underwriting guidelines are comprised of numerous evaluation criteria, including, but not limited to: (i) identification and assessment of the applicant's willingness and capacity to repay the loan or lease, including consideration of credit history and performance on past and existing obligations; (ii) credit bureau data; (iii) collateral identification and valuation; (iv) payment structure and debt ratios; (v) insurance information; (vi) employment, income and residency verifications, as considered appropriate; and (vii) in certain cases, the creditworthiness of a co-obligor. These underwriting guidelines and the minimum credit risk profiles of applicants we will approve, as rank-ordered by our credit scorecards, are subject to change from time to time based on economic, competitive and capital market conditions as well as our overall origination strategies.

2

GENERAL MOTORS FINANCIAL COMPANY, INC.

Servicing Our business strategy includes increasing the loyalty and retention of GM customers through our customer service activities. Our servicing activities include collecting and processing customer payments, responding to customer inquiries, initiating contact with customers who are delinquent, maintaining our security interest in financed vehicles, arranging for the repossession of financed vehicles, liquidation of collateral and pursuit of deficiencies when appropriate.
Operating Leases Most of our operating leases are closed-end leases; therefore, we assume the residual risk on the leased vehicle. The lessee may purchase the leased vehicle at the maturity of the lease by paying the purchase price stated in the lease contract, which equals the contract residual value determined at origination of the lease, plus any fees and all other amounts owed under the lease. If the lessee decides not to purchase the leased vehicle, the lessee must return it to the dealer by the lease's scheduled lease maturity date. Extensions may be granted to the lessee for up to six months. If the lessee extends the maturity date on their lease contract, the lessee is responsible for additional monthly payments until the leased vehicle is returned or purchased.
We seek to maximize net sales proceeds on returned leased vehicles. Net sales proceeds equal gross proceeds less fees and costs for reconditioning and transporting the leased vehicles. We sell returned leased vehicles through either our exclusive online channel or our nationwide wholesale auction partners.
Commercial Finance Commercial lending products include floorplan financing, also known as wholesale or inventory financing, which is lending to finance vehicle inventory, as well as dealer loans, which are loans to finance improvements to dealership facilities, to provide working capital, and to purchase and/or finance dealership real estate. Other commercial products include financing for parts and accessories, dealer fleets and storage centers.
Floorplan Financing We support the financing of new and used vehicle inventory primarily for our GM-franchised dealerships and their affiliates before sale or lease to the retail customer. Financing is provided through lines of credit extended to individual dealerships. In general, each floorplan line is secured by all financed vehicles and by other dealership assets and, when available, the continuing personal guarantee of the dealership's owners. Under certain circumstances, such as repossession of dealership inventory, GM and other manufacturers may be obligated by applicable law, or under agreements with us, to reassign or to repurchase new vehicle inventory within certain mileage and model year parameters, further minimizing our risk. The amount we advance to a dealership for new vehicles purchased through the manufacturer is equal to 100% of the wholesale invoice price of new vehicles, which includes destination and other miscellaneous charges, and a price rebate from the manufacturer to the dealer in varying amounts stated as a percentage of the invoice price. We advance the loan proceeds directly to the manufacturer. To support a dealership's used car inventory needs, we advance funds to the dealership or auction to purchase used vehicles for inventory based on the appropriate wholesale book value for the region in which the dealer is located.
Floorplan lending is typically structured to yield interest at a floating rate indexed to an appropriate benchmark rate. The rate for a particular dealership is based on, among other things, the dealership's creditworthiness, the amount of the credit line, the dealer's risk rating and whether or not the dealership is in default. Interest on floorplan loans is generally payable monthly. GM offers floorplan interest subvention, under which GM makes payments to us to cover certain periods of interest on certain floorplan loans.
Upon the sale or lease of a financed vehicle, the dealer must repay the advance on the vehicle according to the repayment terms. These repayment terms may vary based on the dealer's risk rating. As a result, funds advanced may be repaid in a short time period, depending on the length of time the dealer holds the vehicle until its sale. We periodically inspect and verify the location of the financed vehicles that are available for sale. The timing of the verifications varies and no advance notice is given to the dealer. Among other things, verifications are intended to determine dealer compliance with its credit agreement as to repayment terms and to determine the status of our collateral.
Dealer Loans We also make loans to finance parts and accessories as well as improvements to dealership facilities, to provide working capital and to purchase and finance dealership real estate. These loans are typically secured by mortgages or deeds of trust on dealership land and buildings, security interests in other dealership assets and often the continuing personal guarantees from the owners of the dealerships and/or the real estate, as applicable. Dealer loans are structured to yield interest at fixed or floating rates, which are indexed to an appropriate benchmark rate. Interest on dealer loans is generally payable monthly.
Underwriting Each dealership is assigned a risk rating based on various factors, including, but not limited to, capital sufficiency, operating performance, financial outlook and credit and payment history, if available. The risk rating affects loan pricing and guides the management of the account. We monitor the level of borrowing under each dealership's account daily. When a dealer's outstanding balance exceeds the availability on any given credit line with that dealership, we may reallocate balances across existing lines, temporarily suspend the granting of additional credit, increase the dealer's credit line or take other actions following an evaluation and analysis of the dealer's financial condition and the cause of the excess or overline. Under the terms of the credit agreement with the dealership, we may call the floorplan loans due and payable and receive payment typically within 60 days of the call.

3

GENERAL MOTORS FINANCIAL COMPANY, INC.

Servicing Commercial loan servicing activities include dealership customer service, account maintenance, credit line monitoring and adjustment, exception processing and insurance monitoring. In the North America Segment, our commercial lending servicing operations are centrally located, while in our International Segment, they are conducted primarily in-country, usually located within retail lending and servicing centers.
Sources of Financing We primarily finance our loan, lease and commercial origination volume through the use of our secured and unsecured credit facilities, through public and private securitization transactions where such markets are developed and through the issuance of unsecured debt in the public markets. Generally, we seek to fund our operations through local sources of funding to minimize currency and country risk, although we may issue debt globally in order to enhance funding source diversification and support financing needs for the U.S. As such, the mix of funding sources varies from country to country based on the characteristics of our earning assets and the relative development of the capital markets in each country. We actively monitor the capital markets and seek to optimize our mix of funding sources to minimize our cost of funds.
Secured Credit Facilities Some loans and leases are funded using secured credit facilities with participating banks providing financing either directly or through institutionally-managed conduits. Under these funding agreements, we transfer financial assets to special purpose finance subsidiaries. These subsidiaries, in turn, issue notes to the bank participants or agents, collateralized by such financial assets. The bank participants or agents provide funding under the notes to the subsidiaries pursuant to an advance formula, and the subsidiaries forward the funds to us in consideration for the transfer of financial assets. While these subsidiaries are included in our consolidated financial statements, these subsidiaries are separate legal entities and the assets held by these subsidiaries are legally owned by them and are not available to our creditors or creditors of our other subsidiaries. Advances under our funding agreements bear interest at commercial paper, London Interbank Offered Rates (LIBOR), Canadian Dollar Offered Rate (CDOR), The Interbank Equilibrium Interest Rate (TIIE) or prime rates plus a credit spread and specified fees, depending upon the source of funds provided by the bank participants or agents. In certain markets in the International Segment, we also finance loans through the sale of receivables to banks under a full recourse arrangement.
Unsecured Credit Facilities We utilize both committed and uncommitted unsecured credit facilities as an additional source of funding. The financial institutions providing the uncommitted facilities are not obligated to advance funds under them.
Securitizations We also fund loans and leases through public and private securitization transactions. Proceeds from securitizations are used primarily to fund initial cash credit enhancement requirements in the securitization and to pay down borrowings under our credit facilities, thereby increasing availability thereunder for further originations.
In our securitizations, we transfer loans or lease-related assets to securitization trusts (Trusts), which issue one or more classes of asset-backed securities. The asset-backed securities are in turn sold to investors. When we transfer securitized assets to a Trust, we make certain representations and warranties regarding the securitized assets. These representations and warranties pertain to specific aspects of the securitized assets, including the origination of the securitized assets, the obligors of the securitized assets, the accuracy and legality of the records, schedules containing information regarding the securitized assets, the financed vehicles securing the securitized assets, the security interests in the securitized assets, specific characteristics of the securitized assets, and certain matters regarding our servicing of the securitized assets, but do not pertain to the underlying performance of the securitized assets. Upon the breach of one of these representations or warranties (subject to any applicable cure period) that materially and adversely affects the noteholders' interest in any securitized assets, we are obligated to repurchase the securitized assets from the Trust. Historically, repurchases due to a breach of a representation or warranty have been insignificant.
We utilize senior-subordinated securitization structures which involve the public and private sale of subordinated asset-backed securities to provide credit enhancement for the senior, or highest rated, asset-backed securities. The level of credit enhancement in future senior-subordinated securitizations will depend, in part, on the net interest margin, collateral characteristics and credit performance trends of the assets transferred, as well as our credit trends and overall auto finance industry credit trends. Credit enhancement levels may also be impacted by our financial condition, the economic environment and our ability to sell lower-rated subordinated bonds at rates we consider acceptable.
The credit enhancement requirements in our securitization transactions may include restricted cash accounts that are generally established with an initial deposit and may subsequently be funded through excess cash flows from the securitized assets. An additional form of credit enhancement is provided in the form of overcollateralization, whereby the value of the securitized assets transferred to the Trusts is greater than the amount due on asset-backed securities issued by the Trusts. In the International Segment, our securitization transactions may contain portfolio performance ratios or loss-based advance rate calculations which could increase the credit enhancement levels. In the North America Segment, our securitization transactions typically do not contain these performance ratios.

4

GENERAL MOTORS FINANCIAL COMPANY, INC.

Unsecured Debt We also access the capital markets through the issuance of unsecured notes in the public markets. In Latin America, we issue, to a limited extent, other unsecured debt through commercial paper offerings and other non-bank funding instruments. GM also provides us with financial resources through a $1.0 billion unsecured intercompany revolving credit facility (the Junior Subordinated Revolving Credit Facility).
Trade Names We and GM have obtained federal trademark protection for the AmeriCredit, GM Financial and GMAC names and the logos that incorporate those names. Certain other names, logos and phrases we use in our business operations have also been trademarked. The trademarks that GM and we hold are very important to our identity and recognition in the marketplace.
Regulation Our operations are subject to regulation, supervision and licensing by governmental authorities under various national, state and local laws and regulations.
North America Segment In the U.S., we are subject to extensive federal regulation, including the Truth in Lending Act, the Equal Credit Opportunity Act and the Fair Credit Reporting Act. Additionally, we are subject to the Gramm-Leach-Bliley Act, which requires us to maintain the privacy of certain consumer data in our possession and to periodically communicate with consumers on privacy matters, and the Servicemembers Civil Relief Act, which has limitations on the interest rate charged to customers who have subsequently entered military service, and provides other protections such as early lease termination and restrictions on repossession.
The primary federal agency responsible for ensuring compliance with these consumer protection laws is the Consumer Financial Protection Bureau (CFPB). The CFPB has broad rule-making, examination and enforcement authority over non-bank automobile finance companies like us. We are subject to supervision and examination by the CFPB as a “larger participant” in the automobile finance market.
In most states and other jurisdictions in which we operate, consumer credit regulatory agencies regulate and enforce laws relating to sales finance companies and consumer lenders or lessors like us. These laws and regulations generally provide for licensing as a sales finance company or consumer lender or lessor, limitations on the amount, duration and charges, including interest rates, requirements as to the form and content of finance contracts and other documentation, and restrictions on collection practices and creditors' rights. In certain jurisdictions, we are subject to periodic examination by regulatory authorities.
In Canada, we are subject to both federal and provincial laws and regulations, including the Interest Act, the Consumer Protection Acts and Cost of Credit Disclosure regulations. Additionally, we are subject to certain provincial Consumer Reporting Acts and the Personal Information Protection and Electronic Documents Act, as well as provincial counterparts, which regulates how we can collect, use, and/or disclose consumers' personal information. 
International Segment In certain countries in the International Segment, we operate in local markets as either banks or regulated finance companies and are subject to legal and regulatory restrictions which vary country to country and may change from time to time. The regulatory restrictions, among other things, may require that the regulated entities meet certain minimum capital requirements, may restrict dividend distributions and ownership of certain assets, and may require certain disclosures to prospective purchasers and lessees and restrict certain practices related to the servicing of consumer accounts. 
Competition The automobile finance market is highly fragmented and is served by a variety of financial entities, including the captive finance affiliates of other major automotive manufacturers, banks, thrifts, credit unions, leasing companies and independent finance companies. Many of these competitors have substantial financial resources, highly competitive funding costs and significant scale and efficiency. Capital inflows from investors to support the growth of new entrants in the automobile finance market, as well as growth initiatives from more established market participants has resulted in generally increasing competitive conditions. While we have a competitive advantage when GM-sponsored subvention or other support programs are offered exclusively through us to targeted GM dealers and their customers, when no subvention or other support programs are offered our competitors can often provide financing on terms more favorable to customers or dealers than we may offer. Many of these competitors also have long standing relationships with automobile dealerships and may offer the dealerships or their customers other products and services, which we may not currently provide.

5

GENERAL MOTORS FINANCIAL COMPANY, INC.

Employees At December 31, 2017, we employed approximately 9,000 people, excluding SAIC-GMAC employees. We participate in mandatory national collective bargaining agreements where they are required, and maintain satisfactory working relationships with trade union representatives where they exist. 
As of February 6, 2018, the names and ages of our executive officers and their positions with GM Financial are as follows: 
Name (Age)
 
Present GMF Position (Effective Date)
 
Position Held During the Past Five Years
if other than present GMF position (Effective Date)
Daniel E. Berce (64)
 
President and Chief Executive Officer (2005)
 
 
Kyle R. Birch (57)
 
Executive Vice President and Chief Operating Officer - North America (2013)
 
 
Mark F. Bole (54)
 
President, International Operations (2013)
 
 
Steven P. Bowman (50)
 
Executive Vice President and Chief Credit and Risk Officer (2005)
 
 
Chris A. Choate (55)
 
Executive Vice President and Chief Financial Officer (2005)
 
 
Connie Coffey (46)
 
Executive Vice President, Corporate Controller and Chief Accounting Officer (2014)
 
Executive Vice President and Corporate Controller (2012)
Michael S. Kanarios (47)
 
Executive Vice President and Chief Strategy Officer (2017)
 
Executive Vice President and Chief Operating Officer, International Operations (2015), Executive Vice President and Chief Financial Officer, International Operations (2013)
Susan B. Sheffield (51)
 
Executive Vice President and Treasurer (2014)
 
Executive Vice President, Corporate Finance (2008)
Available Information We make available free of charge through our website, www.gmfinancial.com, our public securitization information and all materials that we file electronically with the SEC, including our reports on Form 10-K, Form 10-Q, Form 8-K, and amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practical after filing or furnishing such material with or to the SEC. We encourage the public to visit our website, as we frequently update and post new information about our company on our website and it is possible that this information could be deemed to be material information. Our website and information included or linked to our website are not part of this Form 10-K.
The public may read and copy any materials we file with or furnish to the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains a website, www.sec.gov, which contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.
Item 1A. Risk Factors
The profitability and financial condition of our operations are dependent upon the operations of our parent, GM.
A material portion of our retail finance business, and substantially all our commercial lending activities, consist of financing associated with the sale and lease of new GM vehicles and our relationship with GM-franchised dealerships. If there were significant changes in GM's liquidity and capital position and access to the capital markets, the production or sales of GM vehicles to retail customers, the quality or resale value of GM vehicles, GM's operations that may require restructuring or rationalization actions, or other factors impacting GM or its products, such changes could significantly affect our profitability, financial condition, and access to the capital markets. In addition, GM sponsors special-rate financing and down payment assistance programs available through us. Under these programs, GM makes interest supplements or other support payments to us. These programs increase our financing volume and our share of financed GM vehicle sales. If GM were to adopt marketing strategies in the future that de-emphasized such programs in favor of other incentives, our financing volume could be reduced.
There is no assurance that the global automotive market or GM's share of that market will not suffer downturns in the future, and any negative impact could in turn have a material adverse effect on our financial position, liquidity and results of operations.

6

GENERAL MOTORS FINANCIAL COMPANY, INC.

Our operations are heavily reliant on automotive dealers, and our profitability could be adversely affected by a change in dealers’ relationships with us or in their financial condition.
Substantially all of our revenue is generated from financial products offered to or through automotive dealers. Whether we are able to originate automotive loans and leases, as well as maintain and grow our commercial lending portfolio, is dependent upon the willingness and ability of dealers to effectively market our financial products to their retail and lease customers and select our commercial lending products over those of our competitors. As a result, our ability to cultivate and maintain strong relationships with dealers, particularly GM-franchised dealers, is essential to our operations.
Given the reliance of our operations on GM-franchised dealers, we have significant exposure to their financial condition. Dealers compete in a highly competitive market, and GM-franchised dealers are vulnerable to both decreased demand for new GM vehicles and periods of economic slowdown or recession. Negative changes in the financial condition of GM-franchised dealers could result in decreased loan and lease originations, reduced demand for financing of dealer inventory, construction projects and working capital, and increased defaults and net loss rates in our commercial lending portfolio, which in turn could adversely impact our profitability and financial results.
Our ability to continue to fund our business and service our debt is dependent on a number of financing sources and requires a significant amount of cash.
We depend on various financing sources, including credit facilities, securitization programs and unsecured debt issuances, to finance our loan and lease originations and commercial lending business. Additionally, our ability to refinance or make payments on our indebtedness depends on our access to financing sources in the future and our ability to generate cash. Our access to financing sources depends upon our financial position, general market conditions, availability of bank liquidity and the bank regulatory environment, our compliance with covenants imposed under our financing agreements, the credit quality of the collateral we can pledge to support secured financings, and other factors. Changes in GM's and our credit ratings may also impact our access to and cost of financing. There can be no assurance that funding will be available to us through these financing sources or, if available, that the funding will be on acceptable terms. If these financing sources are not available to us on a regular basis for any reason, or we are not otherwise able to generate significant amounts of cash, then we would not have sufficient funds and would be required to revise the scale of the business, including the possible reduction or discontinuation of origination activities, which would have a material adverse effect on our financial position, liquidity and results of operations.
Our substantial indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations under existing indebtedness.
We currently have a substantial amount of outstanding indebtedness. In addition, we have guaranteed a substantial amount of indebtedness incurred by our International Segment and our principal Canadian operating subsidiary. Additionally, we have entered into intercompany loan agreements with several of our International Segment subsidiaries, providing these companies with access to our liquidity to support originations and other activities. Our ability to make payments of principal or interest on, or to refinance, our indebtedness will depend on our future operating performance, and our ability to enter into additional credit facilities and securitization transactions as well as other debt financings, which, to a certain extent, are subject to economic, financial, competitive, regulatory, capital markets and other factors beyond our control.
If we are unable to generate sufficient cash flows in the future to service our debt, we may be required to refinance all or a portion of our existing debt or to obtain additional financing. There can be no assurance that any refinancing will be possible or that any additional financing could be obtained on acceptable terms. The inability to service or refinance our existing debt or to obtain additional financing would have a material adverse effect on our financial position, liquidity and results of operations.
The degree to which we are leveraged creates risks, including:
we may be unable to satisfy our obligations under our outstanding indebtedness;
we may find it more difficult to fund future credit enhancement requirements, operating costs, tax payments, capital expenditures or general corporate expenditures;
we may have to dedicate a substantial portion of our cash resources to payments on our outstanding indebtedness, thereby reducing the funds available for operations and future business opportunities; and
we may be vulnerable to adverse general economic, capital markets and industry conditions.
Our credit facilities may require us to comply with certain financial ratios and covenants, including minimum asset quality maintenance requirements. These restrictions may interfere with our ability to obtain financing or to engage in other necessary or desirable business activities.

7

GENERAL MOTORS FINANCIAL COMPANY, INC.

If we cannot comply with the requirements in our credit facilities, then the lenders may increase our borrowing costs, remove us as servicer or declare the outstanding debt immediately due and payable. If our debt payments were accelerated, any assets pledged to secure these facilities might not be sufficient to fully repay the debt. These lenders may foreclose upon their collateral, including the restricted cash in these credit facilities. These events may also result in a default under our senior note indentures. We may not be able to obtain a waiver of these provisions or refinance our debt, if needed. In such case, our financial condition, liquidity and results of operations would materially suffer.
Defaults and prepayments on loans and leases purchased or originated by us could adversely affect our operations.
Our financial condition, liquidity and results of operations depend, to a material extent, on the performance of loans and leases in our portfolio. Obligors under contracts acquired or originated by us, including dealer obligors in our commercial lending portfolio, may default during the term of their loan or lease. Generally, we bear the full risk of losses resulting from defaults. In the event of a default, the collateral value of the financed vehicle or, in the case of a commercial obligor, the value of the inventory and other commercial assets we finance usually does not cover the outstanding amount due to us, including the costs of recovery and asset disposition.
The amounts owed to us by any given dealership or dealership group in our commercial lending portfolio can be significant. The amount of potential loss resulting from the default of a dealer in our commercial lending portfolio can, therefore, be material even after liquidating the dealer's inventory and other assets to offset the defaulted obligation. Additionally, because the receivables in our commercial lending portfolio may include complex arrangements including guarantees, inter-creditor agreements, mortgages and other liens, our ability to recover and dispose of the underlying inventory and other collateral may be time-consuming and expensive, thereby increasing our potential loss.
We maintain an allowance for loan losses on our finance receivables which reflects management's estimates of inherent losses for these receivables. If the allowance is inadequate, we would recognize the losses in excess of that allowance as an expense and results of operations would be adversely affected. A material adjustment to our allowance for loan losses and the corresponding decrease in earnings could limit our ability to enter into future securitizations and other financings, thus impairing our ability to finance our business.
An increase in defaults would reduce the cash flows generated by us, and distributions of cash to us from our secured debt facilities would be delayed and the ultimate amount of cash distributable to us would be less, which would have an adverse effect on our liquidity.
Customer prepayments and dealer repayments on commercial obligations, which are generally revolving in nature, affect the amount of finance charge income we receive over the life of the loans. If prepayment levels increase for any reason and we are not able to replace the prepaid receivables with newly-originated loans, we will receive less finance charge income and our results of operations may be adversely affected.
A portion of our origination and servicing activities in the North America Segment have historically involved sub-prime automobile receivables. Sub-prime borrowers are associated with higher-than-average delinquency and default rates. The actual rates of delinquencies, defaults, repossessions and losses with respect to those borrowers could also be more dramatically affected by a general economic downturn. While we believe that we effectively manage these risks with our proprietary credit scoring system, risk-based pricing and other underwriting policies, and our servicing and collection methods, no assurance can be given that our methods will be effective in the future. In the event that we underestimate the default risk or underprice contracts that we purchase, our financial position, liquidity and results of operations would be adversely affected.
We operate in a highly competitive industry, and competitive pressures could have a significant negative effect on our pricing, market share and operating results.
The automotive finance industry is highly competitive, and we compete with a large number of banks, credit unions, independent finance companies and other captive automotive finance subsidiaries. Our ability to maintain and expand our market share is contingent upon us offering competitive pricing, developing and maintaining strong relationships with dealers and customers, making substantial investments in our technological infrastructure, and effectively responding to changes in the automotive industry. In addition, any expansion into new markets may require us to compete with more experienced and established market participants. Failure to effectively manage these challenges could adversely affect our market share, and pressure to provide competitive pricing could have a negative effect on our operating results.
Compliance with laws and regulations can significantly increase our costs and affect how we do business.
We are subject to a wide variety of laws and regulations in the jurisdictions where we operate, including supervision and licensing by numerous governmental entities. These laws and regulations can create significant constraints on our operations and

8

GENERAL MOTORS FINANCIAL COMPANY, INC.

result in significant costs related to compliance. Failure to comply with these laws and regulations could impair our ability to continue operating and result in substantial civil and criminal penalties, monetary damages, attorneys’ fees and costs, possible revocation of licenses, and damage to reputation, brand and valued customer relationships.
In the United States, the Dodd-Frank Act imposes significant regulatory oversight on the financial industry and grants the CFPB extensive rulemaking and enforcement authority, all of which may substantially impact our operations. As a “larger participant” in the automobile finance market, we are subject to possible comprehensive and rigorous on-site examinations by the CFPB. Any violations of law or unfair lending practices found during these examinations could result in enforcement actions, fines, and mandated process, procedure or product-related changes or consumer refunds.
We could be materially adversely affected by significant legal and regulatory proceedings.
We are subject to various legal and regulatory proceedings and governmental investigations in the ordinary course of our business. An adverse outcome in one or more of these proceedings or investigations could result in substantial damages, settlements, fines, penalties, diminished income or reputational harm. For a further discussion of these matters, refer to Note 11 to our consolidated financial statements.
Our profitability is dependent upon retail demand for automobiles and related automobile financing and the ability of customers to repay loans and leases, and our business may be negatively affected during times of low automobile sales, fluctuating wholesale prices and lease residual values, and high unemployment.
General We are subject to changes in general economic conditions that are beyond our control. During periods of economic slowdown or recession, delinquencies, defaults, repossessions and losses generally increase. These periods also may be accompanied by increased unemployment rates, decreased demand for automobiles and declining values of automobiles securing outstanding loans and leases, which weakens collateral coverage and increases the amount of a loss in the event of default. Additionally, higher gasoline prices, declining stock market values, unstable real estate values, increasing unemployment levels, general availability of consumer credit and other factors that impact consumer confidence or disposable income could increase loss frequency and decrease demand for automobiles as well as weaken collateral values on certain types of automobiles. In addition, during an economic slowdown or recession, our servicing costs may increase without a corresponding increase in our revenue. While we seek to manage these risks through the underwriting criteria and collection methods we employ, no assurance can be given that these criteria or methods will afford adequate protection against these risks. Any sustained period of increased delinquencies, defaults, repossessions or losses or increased servicing costs could adversely affect our financial position, liquidity, results of operations and our ability to enter into future securitizations and credit facilities.
Wholesale Auction Values We sell automobiles returned to us at the end of lease terms primarily through our exclusive online channel. We also sell repossessed automobiles at wholesale auction markets located throughout the countries where we have operations. Depressed wholesale prices for used automobiles may result in or increase a loss upon our disposition of off-lease or repossessed vehicles and, in the case of a repossessed vehicle we may be unable to collect the resulting deficiency balance. Depressed wholesale prices for used automobiles may result from significant liquidations of rental or fleet inventories, financial difficulties of new vehicle manufacturers, discontinuance of vehicle brands and models and increased volume of trade-ins due to promotional programs offered by new vehicle manufacturers. Additionally, higher gasoline prices may decrease the wholesale auction values of certain types of vehicles. Decreased auction proceeds resulting from the depressed prices at which used automobiles may be sold during periods of economic slowdown or low retail demand will result in higher losses for us.
Leased Vehicle Residual Values and Return Rates We project expected residual values and return volumes of the vehicles we lease. At the inception of a lease, we determine the amount of lease payments we charge our lease customer based, in part, on our estimated residual value. Actual proceeds realized by us upon the sale of a returned leased vehicle at lease termination may be lower than the amount projected, which reduces the profitability of the lease transaction to us. Among the factors that can affect the value of returned lease vehicles are the volume of vehicles returned, economic conditions and the quality or perceived quality, safety or reliability of the vehicles. Actual return volumes may be higher than expected and can be influenced by contractual lease-end values relative to then-existing market values, marketing programs for new vehicles and general economic conditions. All of these, alone or in combination, have the potential to adversely affect the profitability of our lease program and financial results. Further, a material decrease in the value of a leased asset group could result in an impairment charge, which could adversely affect our financial results.
Labor Market Conditions Competition to hire and retain personnel possessing the skills and experience required by us could contribute to an increase in our employee turnover rate. High turnover or an inability to attract and retain qualified personnel could have an adverse effect on our delinquency, default and net loss rates, our ability to grow and, ultimately, our financial condition, liquidity and results of operations.

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GENERAL MOTORS FINANCIAL COMPANY, INC.

Our hedging strategies may not be successful in minimizing risks from unfavorable changes in interest rates and foreign currency exchange rates.
Unfavorable changes in interest rates and foreign currency exchange rates may adversely affect our financial condition, liquidity and results of operations. We utilize various hedging strategies to mitigate our exposure to rate fluctuations, including entering into derivative contracts with various major financial institutions that we believe are creditworthy. However, changes in interest rates and currency exchange rates cannot always be predicted or hedged, and there can be no assurance that our hedging strategies will be effective in minimizing interest rate and foreign currency risks. Our results of operations may be adversely impacted by volatility in the valuation of derivative contracts. Additionally, we may be unable to find creditworthy counterparties willing to enter derivative contracts on acceptable terms, and counterparties may be unable to meet their financial obligations under our derivative contracts.
We do not control the operations of SAIC-GMAC, and we are subject to the risks of operating in China.
We do not control the operations of SAIC-GMAC, as it is a joint venture, and we do not have a majority interest in the joint venture. In the joint venture, we share ownership and management with other parties who may not have the same goals, strategies, priorities, or resources as we do and may compete with us outside the joint venture. Joint ventures are intended to be operated for the equal benefit of all co-owners, rather than for our exclusive benefit. Operating a business as a joint venture often requires additional organizational formalities, as well as time-consuming procedures for sharing information and making decisions that must further take into consideration our co-owners' interest. In joint ventures, we are required to foster our relationship with our co-owners as well as promote the overall success of the joint venture, and if a co-owner changes or relationships deteriorate, our success in the joint venture may be materially adversely affected. The benefits from a successful joint venture are shared among the co-owners, and as such, we do not receive the full benefits from a successful joint venture. As a result of having limited control over the actions of the joint venture, we may be unable to prevent misconduct or other violations of applicable laws. Moreover, the joint venture may not follow the same requirements regarding internal controls and internal control over financial reporting that we follow. To the extent another party makes decisions that negatively impact the joint venture or internal control issues arise within the joint venture, we may have to take responsive or other actions or we may be subject to penalties, fines or other related actions for these activities that could have a material adverse impact on our business, financial condition and results of operations. In addition, we are subject to the risks of operating in China. The automotive finance market in China is highly competitive and subject to significant governmental regulation. As the Chinese market continues to develop, we anticipate that additional competitors, both international and domestic, will seek to enter the Chinese market and that existing market participants will act aggressively to increase their market share. Increased competition may result in reduced margins and our inability to gain or hold market share. In addition, business in China is sensitive to economic and market conditions that drive sales volume in China. If SAIC-GMAC is unable to maintain its position in the Chinese market or if vehicle sales in China decrease or do not continue to increase, our business and financial results could be materially adversely affected.
Security breaches and other disruptions to systems and networks owned or maintained by us, or third-party vendors or suppliers on our behalf, could interfere with our operations and could compromise the confidentiality of private customer data or our proprietary information.
We rely upon information technology systems and networks, some of which are managed by third parties, to process, transmit and store electronic information, and to manage or support a variety of our business processes, activities and products. Additionally, we collect and store sensitive data, including intellectual property, proprietary business information, and personally identifiable information of our customers and employees in data centers and on information technology networks. The secure operation of these systems and networks, and the processing and maintenance of the information processed by these systems and networks, is critical to our business operations and strategy. Despite security measures and business continuity plans, these systems and networks may be vulnerable to damage, disruptions or shutdowns due to attacks by hackers, computer viruses or breaches due to errors or malfeasance by employees, contractors and others who have access to these systems and networks. The occurrence of any of these events could compromise the operational integrity of these systems and networks. Similarly, such an occurrence could result in the compromise or loss of the information processed by these systems and networks. Such events could result in, among other things, the loss of proprietary data, interruptions or delays in our business operations and damage to our reputation. In addition, such events could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, disruption of operations, or reduction in the competitive advantage we hope to derive from our investment in advanced technologies. We have experienced such events in the past and, although past events were immaterial, future events may occur and may be material.

10

GENERAL MOTORS FINANCIAL COMPANY, INC.

Portions of our information technology systems and networks also may experience interruptions, delays or cessations of service or produce errors due to regular maintenance efforts, such as systems integration or migration work that takes place from time to time. We may not be successful in implementing new systems and transitioning data, which could cause business disruptions and be more expensive, time-consuming, disruptive and resource intensive. Such disruptions could adversely impact our ability to originate receivables and service customer accounts, and may interrupt other business processes.
Our operations outside the U.S. expose us to additional risks.
Our operations outside the U.S. are subject to many of the same risks as our U.S. operations. In addition to those risks, our non-U.S. operations, including the operations of SAIC-GMAC, are subject to certain additional risks, such as the following:
economic downturns in foreign countries or geographic regions where we have significant operations, such as Brazil, Mexico and China;
multiple foreign regulatory requirements that are subject to change;
difficulty in establishing, staffing and managing foreign operations;
differing labor regulations;
consequences from changes in tax laws;
restrictions on the ability to repatriate profits or transfer cash into or out of foreign countries and the tax consequences of such repatriations and transfers;
fluctuations in foreign currencies;
political and economic instability, natural calamities, war, and terrorism; and
compliance with laws and regulations applicable to international operations, including anti-corruption laws such as the Foreign Corrupt Practices Act and international trade and economic sanctions laws.
The effects of these risks may, individually or in the aggregate, adversely affect our business.
Item 2. Properties
Our executive offices are located in Fort Worth, Texas. We operate credit centers, collections and customer service centers and administrative offices in facilities in North America and Latin America. SAIC-GMAC operates in offices located in China.

Item 3. Legal Proceedings
Refer to Note 11 to our consolidated financial statements for information relating to legal proceedings.

Item 4. Mine Safety Disclosure
Not applicable.

PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
All of our common stock is owned by General Motors Holdings LLC, a wholly-owned subsidiary of GM, therefore, there is no public trading market for our common stock. In November 2017, following the sale of our European Operations, we paid a $550 million special dividend to GM. We currently intend to retain future earnings for use in the operation of the business and do not anticipate paying any cash dividends in the foreseeable future; provided, however, that we may reexamine this policy with our sole shareholder at any time.
Item 6. Selected Financial Data
Omitted in accordance with General Instruction I to Form 10-K.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
General We are a global provider of automobile finance solutions, and we operate in the auto finance market as the wholly-owned captive finance subsidiary of GM. We evaluate our business in two operating segments: the North America Segment, which includes our operations in the U.S. and Canada, and the International Segment, which includes operations in Brazil, Chile, Colombia, Mexico and Peru and in China through our joint venture relationship with SAIC-GMAC.

11


Peugeot S.A. Transaction On July 31, 2017, GM closed the sale of the Opel and Vauxhall businesses and certain other assets in Europe to Peugeot S.A., and on October 31, 2017, we closed the sale of certain of our European subsidiaries and branches (collectively, our European Operations) to Banque PSA Finance S.A. and BNP Paribas Personal Finance S.A., as described in Note 2 to our consolidated financial statements.
The net consideration paid at closing for our European Operations was $1.1 billion, and we recognized a disposal loss of $525 million, which includes $197 million related to the recognition of foreign currency translation losses. In November 2017, following the sale of our European Operations, we paid a $550 million special dividend to GM.
Our principal focus is on expanding our business in the U.S. to reach full captive penetration levels on a consistent basis; therefore, we do not expect that the sale of our European Operations will have a materially adverse effect on our consolidated results of operations, financial condition, liquidity or financing strategies, including the mix of secured and unsecured debt issuances. We also do not expect that the sale of our European Operations will result in a material increase in our ratio of total debt to total equity or our earning assets leverage ratio as calculated under our Support Agreement with GM. Due to the size of the prime retail loan portfolio that was held by our European Operations, we expect that, for a period of time, retail operating leases will make up a greater percentage of our earning assets than they have historically. As our U.S. operations increase purchases of prime retail loans, we expect that our earning asset mix will return to more recent historical levels.
We continue to expect pre-tax income to double from 2014 earnings of $815 million once full captive penetration levels are achieved on a consistent basis.
Critical Accounting Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions which affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the financial statements and the amount of revenue and expenses during the reporting periods. Actual results could differ from those estimates, due to inherent uncertainties in making estimates, and those differences may be material. Refer to Note 1 to our consolidated financial statements for our significant accounting policies related to our critical accounting estimates. The accounting estimates that we believe are the most critical to understanding and evaluating our reported financial results include the following:
Residual Value of Leased Vehicles We have investments in leased vehicles recorded as operating leases. Each leased asset in our portfolio represents a vehicle that we own and have leased to a customer. At the time we purchase a lease, we establish an expected residual value for the vehicle at the end of the lease term, which typically ranges from two to five years. We estimate the expected residual value based on third-party data which considers inputs including recent auction values, the expected future volume of returning leased vehicles, used car prices, manufacturer incentive programs and fuel prices.
The customer is obligated to make payments during the term of the lease for the difference between the purchase price and the contract residual value plus a money factor. However, since the customer is not obligated to purchase the vehicle at the end of the contract, we are exposed to a risk of loss to the extent the customer returns the vehicle at the end of the lease term and the value of the vehicle is lower than the residual value estimated at inception of the lease.
At December 31, 2017, the estimated residual value of our leased vehicles at the end of the lease term was $30.4 billion. Depreciation reduces the carrying value of each leased asset in our operating lease portfolio over time from its original acquisition value to its expected residual value at the end of the lease term. We periodically perform a review of the adequacy of the depreciation rates. If we believe that the expected residual values for our leased assets have changed, we revise the depreciation rate to ensure that our net investment in operating leases will be adjusted to reflect our revised estimate of the expected residual value at the end of the lease term. Such adjustments to the depreciation rate would result in a change in the depreciation expense on the leased assets, which is recorded prospectively on a straight-line basis. The effect of a 1% change in our assumption regarding residual values would increase or decrease depreciation expense on the operating lease portfolio over the remaining term of the leases as follows:
 
Impact to
Depreciation Expense
Cars
$
57

Trucks
72

CUVs
137

SUVs
38

Total
$
304


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GENERAL MOTORS FINANCIAL COMPANY, INC.

During 2017 we experienced a decline in used car prices in the U.S. of approximately 5% as compared to 2016. For 2018, an increasing supply of used vehicles resulting from off-lease returns will continue to pressure used car prices. As a result, we expect a further decline in used car prices in the U.S. of between 5% and 6% as compared to 2017. Used car prices are an input to estimated residual values, and to the extent that used car prices decrease more than anticipated by the estimated residual values, we will record increased depreciation expense.
We also evaluate the carrying value of the operating leases aggregated by vehicle make, year and model into leased asset groups, check for indicators of impairment and test for impairment to the extent necessary in accordance with applicable accounting standards. A leased asset group is considered impaired if impairment indicators exist and the undiscounted expected future cash flows (including the expected residual value) are lower than the carrying value of the asset group. We believe no impairment indicators existed during 2017, 2016 or 2015.
Retail Finance Receivables and the Allowance for Loan Losses Our retail finance receivables portfolio consists of smaller-balance, homogeneous loans which are carried at amortized cost, net of allowance for loan losses. These loans are divided among pools based on common risk characteristics, such as internal credit score, origination period, delinquent status and geography. An internal credit score, of which FICO is an input in North America, is created by using algorithms or statistical models contained in origination scorecards. The scorecards are used to evaluate a consumer’s ability to pay based on statistical modeling of their prior credit usage, structure of the loan and other information. The output of the scorecards rank-order consumers from those that are most likely to pay to those that are least likely to pay. By further dividing the portfolio into pools based on internal credit scores we are better able to distinguish expected credit performance for different credit risks. These pools are collectively evaluated for impairment based on a statistical calculation, which is supplemented by management judgment. The allowance is aggregated for each of the pools.
We use a combination of forecasting methodologies to determine the allowance for loan losses, including roll rate modeling and static pool modeling techniques. A roll rate model is generally used to project near-term losses and static pool models are generally used to project losses over the remaining life. Probable losses are estimated for groups of accounts aggregated by past-due status and origination month. Generally, up to the last 10 years of loss experience is evaluated. Recent performance is more heavily weighted when determining the allowance to result in an estimate that is more reflective of the current internal and external environments. Factors that are considered when estimating the allowance include historical delinquency migration to loss, probability of default (PD) and loss given default (LGD). PD and LGD are specifically estimated for each monthly vintage (i.e., group of originations) in cases where vintage models are used. PD is estimated based on expectations that are aligned with internal credit scores. LGD is projected based on historical trends experienced over the last 10 years, weighted toward more recent performance in order to consider recent market supply and demand factors that impact wholesale used vehicle pricing. While forecasted probable losses are quantitatively derived, we assess the recent internal operating and external environments and may qualitatively adjust certain assumptions to result in an allowance that is more reflective of losses that are expected to occur in the current environment.
We also use historical charge-off experience to determine a loss confirmation period (LCP). The LCP is a key assumption within our models and represents the average amount of time between when a loss event first occurs to when the receivable is charged-off. This LCP is the basis of our allowance and is applied to the forecasted probable credit losses to determine the amount of losses we believe exist at the balance sheet date.
We believe these factors are relevant in estimating incurred losses and also consider an evaluation of overall portfolio credit quality based on indicators such as changes in our credit evaluation, underwriting and collection management policies, changes in the legal and regulatory environment, general economic conditions and business trends and uncertainties in forecasting and modeling techniques used in estimating our allowance. We update our retail loss forecast models and portfolio indicators on a quarterly basis to incorporate information reflective of the current economic environment.
Assumptions regarding credit losses and LCPs are reviewed periodically and may be impacted by actual performance of finance receivables and changes in any of the factors discussed above. Should the credit loss assumption or LCPs increase, there would be an increase in the amount of allowance for loan losses required, which would decrease the net carrying value of finance receivables and increase the amount of provision for loan losses.
Finance receivables that are considered impaired, including troubled debt restructurings (TDRs), are individually evaluated for impairment. In assessing the risk of individually impaired loans such as TDRs, among the factors we consider are the financial condition of the borrower, geography, collateral performance, historical loss experience, and industry-specific information that management believes is relevant in determining the occurrence of a loss event and measuring impairment. These factors are based on an evaluation of historical and current information, and involve subjective assessment and interpretation.

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GENERAL MOTORS FINANCIAL COMPANY, INC.

We believe that the allowance for loan losses on retail finance receivables is adequate to cover probable losses inherent in our retail finance receivables; however, because the allowance for loan losses is based on estimates, there can be no assurance that the ultimate charge-off amount will not exceed such estimates or that our credit loss assumptions will not increase. A 10% and 20% increase in cumulative charge-offs after recoveries on the portfolio over the LCP would increase the allowance for loan losses at December 31, 2017 by $89 million and $178 million. 
Income Taxes We account for income taxes on a separate return basis using an asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to differences between financial statements' carrying amounts of existing assets and liabilities and their respective tax basis, net operating loss and tax credit carryforwards.
We are subject to income tax in the U.S. and various other state and foreign jurisdictions. Since October 1, 2010, we have been included in GM's consolidated U.S. federal income tax returns. As described in Note 15 to our consolidated financial statements, we have a tax sharing agreement with GM for our U.S. operations.
In the ordinary course of business, there may be transactions, calculations, structures and filing positions where the ultimate tax outcome is uncertain. At any point in time, multiple tax years are subject to audit by various taxing jurisdictions and we record liabilities for estimated tax results based on the requirements of the accounting for uncertainty in income taxes. Management believes that the estimates it records are reasonable. However, due to expiring statutes of limitations, audits, settlements, changes in tax law or new authoritative rulings, no assurance can be given that the final outcome of these matters will be comparable to what was reflected in the historical income tax provisions and accruals. We may need to adjust our accrued tax assets or liabilities if actual results differ from estimated results or if we adjust the assumptions used in the computation of the estimated tax results in the future. These adjustments could materially impact the effective tax rate, earnings, accrued tax balances and cash.
The ability to realize deferred tax assets depends on the ability to generate sufficient taxable income within the carryback or carryforward periods provided for in the tax law for each applicable tax jurisdiction. The assessment regarding whether a valuation 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 deferred tax consequences 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.
On December 22, 2017, the Tax Cuts and Jobs Act (the Act) was signed into law. The Act changed many aspects of U.S. corporate income taxation and included reduction of the corporate income tax rate from 35% to 21%, implementation of a territorial tax system and imposition of a tax on deemed repatriated earnings of foreign subsidiaries. At December 31, 2017, we had not completed our accounting for the tax effects of enactment of the Act; however, we made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax. We will continue to assess our provision for income taxes as future guidance is issued, but do not currently anticipate significant revisions will be necessary. Any such revisions will be treated in accordance with the measurement period guidance outlined in Staff Accounting Bulletin No. 118.

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GENERAL MOTORS FINANCIAL COMPANY, INC.

Results of Operations
In our tabular presentation of the changes in results between financial periods, we provide the following information: (i) the amount of change excluding the impact of foreign currency translation (FX); (ii) the amount of the impact of foreign currency translation; and (iii) the total change. The amount of the impact of foreign currency translation is derived by translating current year results at the average of prior year exchange rates, and is driven by the change in the U.S. Dollar against the currencies used by our foreign operations. We believe the amount of change excluding the foreign currency translation impact facilitates a better comparison of results. In our discussion below, we discuss changes in relevant items excluding any foreign currency translation impact. Average balances are calculated using daily balances, where available. Otherwise, average balances are calculated using monthly balances.
Year Ended December 31, 2017 compared to Year Ended December 31, 2016
Average Earning Assets
Years Ended December 31,
 
2017 vs. 2016
 
2017
 
2016
 
Change excluding FX
 
FX
 
Total change
 
%
Average retail finance receivables
$
30,619

 
$
24,275

 
$
6,186

 
$
158

 
$
6,344

 
26.1
%
Average commercial finance receivables
9,060

 
6,133

 
2,892

 
35

 
2,927

 
47.7
%
Average finance receivables
39,679

 
30,408

 
9,078

 
193

 
9,271

 
30.5
%
Average leased vehicles, net
39,255

 
27,817

 
11,393

 
45

 
11,438

 
41.1
%
Average earning assets
$
78,934

 
$
58,225

 
$
20,471

 
$
238

 
$
20,709

 
35.6
%
 
 
 
 
 
 
 
 
 
 
 
 
Retail finance receivables purchased
$
19,920

 
$
14,468

 
$
5,317

 
$
135

 
$
5,452

 
37.7
%
Leased vehicles purchased
$
25,421

 
$
25,221

 
$
169

 
$
31

 
$
200

 
0.8
%
Average finance receivables increased as a result of our increasing finance penetration of GM's retail sales and more GM-franchised dealer commercial lending relationships. The increase in average leased vehicles, net primarily resulted from our exclusive lease subvention arrangement in the U.S. with GM.
Revenue
Years Ended December 31,
 
2017 vs. 2016
 
2017
 
2016
 
Change excluding FX
 
FX
 
Total change
 
%
Finance charge income
 
 
 
 
 
 
 
 
 
 
 
Retail finance receivables
$
2,840

 
$
2,580

 
$
221

 
$
39

 
$
260

 
10.1
%
Commercial finance receivables
$
416

 
$
266

 
$
144

 
$
6

 
$
150

 
56.4
%
Leased vehicle income
$
8,606

 
$
5,896

 
$
2,698

 
$
12

 
$
2,710

 
46.0
%
Other income
$
289

 
$
241

 
$
41

 
$
7

 
$
48

 
19.9
%
Equity income
$
173

 
$
151

 
$
25

 
$
(3
)
 
$
22

 
14.6
%
Effective yield - retail finance receivables
9.3
%
 
10.6
%
 
 
 
 
 
 
 
 
Effective yield - commercial finance receivables
4.6
%
 
4.3
%
 
 
 
 
 
 
 
 
Finance charge income on retail finance receivables increased for 2017, compared to 2016, due to growth in the portfolio, offset by a decrease in effective yield. The effective yield on our retail finance receivables decreased due primarily to a decrease in the average annual percentage rate on new originations in the U.S. to 6.1% for 2017 from 6.6% for 2016, as we have increased our lending to borrowers with prime credit. The effective yield represents finance charges and fees recorded in earnings during the period as a percentage of average retail finance receivables. The effective yield, as a percentage of average retail finance receivables, is higher than the contractual rates of our auto finance contracts primarily because the effective yield includes, in addition to the contractual rates and fees, the impact of rate subvention provided by GM.
Finance charge income on commercial finance receivables increased due to growth in the portfolio, and due to an increase in the effective yield resulting from rising benchmark interest rates.
The increase in leased vehicle income reflects the growth of the leased asset portfolio.

15

GENERAL MOTORS FINANCIAL COMPANY, INC.

Equity income in our China joint venture increased due primarily to growth in asset levels driven by increased financing penetration of retail sales, as well as improved credit performance.
Costs and Expenses
Years Ended December 31,
 
2017 vs. 2016
 
2017
 
2016
 
Change excluding FX
 
FX
 
Total change
 
%
Operating expenses
$
1,390

 
$
1,250

 
$
127

 
$
13

 
$
140

 
11.2
%
Leased vehicle expenses
$
6,415

 
$
4,506

 
$
1,901

 
$
8

 
$
1,909

 
42.4
%
Provision for loan losses
$
757

 
$
644

 
$
111

 
$
2

 
$
113

 
17.5
%
Interest expense
$
2,566

 
$
1,972

 
$
570

 
$
24

 
$
594

 
30.1
%
Average debt outstanding
$
74,912

 
$
54,827

 
$
19,890

 
$
195

 
$
20,085

 
36.6
%
Effective rate of interest on debt
3.4
%
 
3.6
%
 
 
 
 
 
 
 
 
Operating Expenses The increase in operating expenses relates to the growth in earning assets and investments to support origination and servicing capabilities in the U.S. Operating expenses as a percentage of average earning assets decreased to 1.8% for 2017 from 2.1% for 2016, due primarily to efficiency gains achieved through higher earning asset levels.
Leased Vehicle Expenses Leased vehicle expenses, which are primarily comprised of depreciation of leased vehicles, increased due to the growth of the leased asset portfolio.
Provision for Loan losses The provision for retail loan losses increased due primarily to the growth in the retail finance receivables portfolio. As a percentage of average retail finance receivables, the provision for retail loan losses decreased to 2.4% for 2017 from 2.6% for 2016, due primarily to a shift in the credit mix of the portfolio to a larger percentage of prime loans. The provision for commercial loan losses was insignificant for 2017 and 2016.
Interest Expense Interest expense increased due primarily to an increase in the average debt outstanding resulting from growth in the loan and lease portfolios.
Taxes Our consolidated effective income tax rate was 10.9% and 17.2% of income before income taxes and equity income for 2017 and 2016. The decrease in the effective income tax rate is due primarily to a favorable impact from the U.S. tax reform legislation and an increase in certain U.S. federal tax credits.
Other Comprehensive Income (Loss)
Foreign Currency Translation Adjustment Foreign currency translation adjustments included in other comprehensive income (loss) were $450 million and $(144) million for 2017 and 2016. Translation adjustments resulted from changes in the values of our international currency-denominated assets and liabilities as the value of the U.S. Dollar changed in relation to international currencies. Foreign currency translation adjustments for the year ended December 31, 2017 include the reversal of $197 million in accumulated translation losses that were recognized as part of the disposal loss on the sale of the European Operations.

16

GENERAL MOTORS FINANCIAL COMPANY, INC.

Earning Asset Quality
We have been the exclusive subvented lease provider for GM in the U.S. since April 2015 and the exclusive subvented loan provider for GM in the U.S. since January 2016. Therefore, leasing and prime lending have become a larger percentage of our originations and retail portfolio balance. The following table presents our retail loan and lease originations by FICO score band or equivalents:
 
Years ended December 31,
 
2017
 
2016
 
2015
 
Amount
 
Percentage
 
Amount
 
Percentage
 
Amount
 
Percentage
Prime - FICO Score 680 and greater
$
33,850

 
74.7
%
 
$
28,106

 
70.8
%
 
$
22,390

 
65.8
%
Near-prime - FICO Score 620 to 679
5,400

 
11.9

 
5,121

 
12.9

 
5,032

 
14.8

Sub-prime - FICO Score less than 620
6,091

 
13.4

 
6,462

 
16.3

 
6,625

 
19.4

Total originations
$
45,341

 
100.0
%
 
$
39,689

 
100.0
%
 
$
34,047

 
100.0
%
Retail Finance Receivables
December 31, 2017
 
December 31, 2016
Retail finance receivables, net of fees
$
32,802

 
$
26,400

Less: allowance for loan losses
(889
)
 
(765
)
Retail finance receivables, net
$
31,913

 
$
25,635

Number of outstanding contracts
2,308,826

 
2,011,818

Average amount of outstanding contracts (in dollars)(a)
$
14,207

 
$
13,122

Allowance for loan losses as a percentage of retail finance receivables, net of fees
2.7
%
 
2.9
%
_________________ 
(a)
Average amount of outstanding contracts consists of retail finance receivables, net of fees, divided by number of outstanding contracts.
At December 31, 2017, the allowance for loan losses as a percentage of retail finance receivables, net of fees, decreased from the level at December 31, 2016 consistent with the improved credit mix in our portfolio resulting from our expansion of prime lending.
Delinquency and TDRs Refer to Note 4 to our consolidated financial statements for further discussion of delinquent retail finance receivables and TDRs.
Deferrals In accordance with our policies and guidelines in the North America Segment, we, at times, offer payment deferrals to retail consumers, whereby the borrower is allowed to move up to two delinquent payments to the end of the loan generally by paying a fee (approximately the interest portion of the payment deferred, except where state law provides for a lesser amount). Our policies and guidelines limit the number and frequency of deferments that may be granted. Additionally, we generally limit the granting of deferments on new accounts until a requisite number of payments have been received. Contracts receiving a payment deferral as an average quarterly percentage of average retail finance receivables outstanding were 4.8%, 5.1% and 5.9% for 2017, 2016 and 2015. Deferrals in the International Segment were insignificant.
Net Charge-offs The following table presents charge-off data with respect to our retail finance receivables portfolio:  
 
Years Ended December 31,
 
2017
 
2016
 
2015
Charge-offs
$
1,171

 
$
1,136

 
$
966

Less: recoveries
(552
)
 
(542
)
 
(469
)
Net charge-offs
$
619

 
$
594

 
$
497

Net charge-offs as a percentage of average retail finance receivables
2.0
%
 
2.4
%
 
2.4
%
 
Net charge-offs as a percentage of average retail finance receivables decreased during 2017 from the prior years, primarily due to the shift in the North America receivables portfolio toward prime credit quality. The recovery rate as a percentage of gross repossession charge-offs in North America was 51.9%, 52.7% and 56.4% for 2017, 2016 and 2015. The decrease in the recovery rate is primarily due to a decline in used car prices over the past three years.

17

GENERAL MOTORS FINANCIAL COMPANY, INC.

Commercial Finance Receivables
December 31, 2017
 
December 31, 2016
Commercial finance receivables, net of fees
$
10,312

 
$
7,880

Less: allowance for loan losses
(53
)
 
(40
)
Commercial finance receivables, net
$
10,259

 
$
7,840

Number of dealers
1,538

 
1,356

Average carrying amount per dealer
$
7

 
$
6

Allowance for loan losses as a percentage of commercial finance receivables, net of fees
0.5
%
 
0.5
%
There were insignificant charge-offs of commercial finance receivables during 2017, 2016 and 2015. At December 31, 2017 and 2016, substantially all of our commercial finance receivables were current with respect to payment status and none were classified as TDRs.
Leased Vehicles At December 31, 2017 and 2016, 98.7% and 98.8% of our operating leases were current with respect to payment status.
The following table summarizes the residual value and the number of units included in leased vehicles, net by vehicle type (units in thousands):
 
December 31, 2017
 
December 31, 2016
 
Residual Value
 
Units
 
Percentage
of Units
 
Residual Value
 
Units
 
Percentage
of Units
Cars
$
5,701

 
450

 
27.2
%
 
$
5,240

 
420

 
31.7
%
Trucks
7,173

 
285

 
17.3

 
5,231

 
224

 
16.9

CUVs
13,723

 
818

 
49.5

 
10,349

 
604

 
45.7

SUVs
3,809

 
99

 
6.0

 
2,791

 
75

 
5.7

Total
$
30,406

 
1,652

 
100.0
%
 
$
23,611

 
1,323

 
100.0
%
The following table summarizes additional information for operating leases (in thousands):
 
Years ended December 31,
 
2017
 
2016
 
2015
Operating leases originated
678

 
672

 
550

Operating leases terminated
349

 
138

 
62

Operating lease vehicles returned(a)
238

 
69

 
25

Return rate(b)
68
%
 
50
%
 
40
%
________________ 
(a)
Represents the number of vehicles returned to us for remarketing.
(b)
Calculated as the number of operating leases returned divided by the number of operating leases terminated.
Operating leases terminated and operating lease vehicles returned increased due to the growth and maturity of the leased asset portfolio. Due to the current age and size of our lease portfolio, the current return rate is lower than we expect it to be in future periods as our lease portfolio grows and matures.
Liquidity and Capital Resources
General Our primary sources of cash are finance charge income, leasing income and proceeds from the sale of terminated leased vehicles, servicing fees, net distributions from credit facilities, securitizations, secured and unsecured borrowings and collections and recoveries on finance receivables. Our primary uses of cash are purchases of retail finance receivables and leased vehicles, the funding of commercial finance receivables, repayment of secured and unsecured debt, funding credit enhancement requirements in connection with securitizations and secured credit facilities, operating expenses and interest costs.
Typically, our purchase and funding of retail and commercial finance receivables and leased vehicles are financed initially utilizing cash and borrowings on our secured credit facilities. Subsequently, we typically obtain long-term financing for finance receivables and leased vehicles through securitization transactions and the issuance of unsecured debt.

18

GENERAL MOTORS FINANCIAL COMPANY, INC.

Cash Flow During 2017, net cash provided by operating activities increased due primarily to an increase in lease vehicle income, partially offset by increased interest expense and increased operating expenses.
During 2017, net cash used in investing activities decreased due to an increase in proceeds received on terminated leases of $4.1 billion, increased collections and recoveries on retail finance receivables of $3.0 billion and a decrease in purchases of leased vehicles of $303 million, offset by an increase in net purchases of retail finance receivables of $5.3 billion and an increase in net fundings of commercial finance receivables of $117 million.
During 2017, net cash provided by financing activities decreased due primarily to an increase in debt repayments of $12.0 billion and a special dividend payment to GM of $550 million, offset by an increase in borrowings of $8.5 billion and the net proceeds of $985 million from the issuance of preferred stock.
Liquidity
December 31, 2017
 
December 31, 2016
Cash and cash equivalents(a)
$
4,265

 
$
2,815

Borrowing capacity on unpledged eligible assets
12,533

 
8,321

Borrowing capacity on committed unsecured lines of credit
129

 
105

Borrowing capacity on the Junior Subordinated Revolving Credit Facility
1,000

 
1,000

Available liquidity
$
17,927

 
$
12,241

_________________
(a)
Includes $656 million and $454 million in unrestricted cash outside of the U.S. at December 31, 2017 and 2016. This cash is considered to be indefinitely invested based on specific plans for reinvestment of these earnings.
During 2017 available liquidity increased due primarily to an increase in cash and additional capacity on new and renewed secured credit facilities, resulting from the issuance of securitizations and unsecured debt and preferred stock.
We have the ability to borrow up to $1.0 billion under GM's three-year, $4.0 billion unsecured revolving credit facility and up to $3.0 billion under GM's five-year, $10.5 billion unsecured revolving credit facility, subject to available capacity. Our borrowings under GM's facilities are limited by GM's ability to borrow the entire amount available under the facilities. Therefore, we may be able to borrow up to $4.0 billion in total or may be unable to borrow depending on GM's borrowing activity. If we do borrow under these facilities, we expect such borrowings would be short-term in nature and, except in extraordinary circumstances, would not be used to fund our operating activities in the ordinary course of business. Neither we, nor any of our subsidiaries, guarantee any obligations under these facilities and none of our assets secure these facilities. Liquidity available to us under the GM unsecured revolving credit facilities is not included in the table above. At December 31, 2017, we had no amounts borrowed under either of GM's unsecured revolving credit facilities.
Credit Ratings We receive ratings from four independent credit rating agencies: DBRS Limited, Fitch Rating (Fitch), Moody’s Investor Service (Moody’s) and Standard & Poor’s (S&P). The credit ratings assigned to us from all the credit rating agencies are closely associated with their opinions on GM. The following table summarizes our credit ratings at January 30, 2018:
 
 
Company Rating
 
Bond Rating
 
Outlook
DBRS Limited
 
BBB
 
BBB
 
Stable
Fitch
 
BBB
 
BBB
 
Stable
Moody’s
 
Baa3
 
Baa3
 
Stable
S&P
 
BBB
 
BBB
 
Stable
In January 2017, S&P and Moody's upgraded our company and bond rating to BBB and Baa3 and revised their outlook to Stable. In June 2017, Fitch upgraded our company and bond rating to BBB and revised their outlook to Stable.
Credit Facilities In the normal course of business, in addition to using our available cash, we utilize borrowings under our credit facilities, which may be secured and/or structured as securitizations, or may be unsecured, and we repay these borrowings as appropriate under our liquidity management strategy.

19

GENERAL MOTORS FINANCIAL COMPANY, INC.

At December 31, 2017, credit facilities consist of the following:
Facility Type
 
Facility Amount
 
Advances Outstanding
Revolving retail asset-secured facilities(a)
 
$
22,123

 
$
4,473

Revolving commercial asset-secured facilities(b)
 
3,919

 
221

Total secured
 
26,042

 
4,694

Unsecured committed facilities(c)
 
129

 

Unsecured uncommitted facilities(d)
 
2,368

 
2,368

Total unsecured
 
2,497

 
2,368

Junior Subordinated Revolving Credit Facility
 
1,000

 

Total
 
$
29,539

 
$
7,062

_________________
(a)
Includes committed and uncommitted revolving credit facilities backed by retail finance receivables and leases. The financial institutions providing the uncommitted facilities are not contractually obligated to advance funds under them.  We had $163 million in advances outstanding and $785 million in unused borrowing capacity on these facilities at December 31, 2017.
(b)
Includes revolving credit facilities backed by loans to dealers for floorplan financing.
(c)
Does not include $4.0 billion in liquidity available to us under GM's unsecured revolving credit facilities.
(d)
The financial institutions providing the uncommitted facilities are not contractually obligated to advance funds under them. We had $1.1 billion in unused borrowing capacity on these facilities at December 31, 2017.
Refer to Note 8 to our consolidated financial statements for further discussion of the terms of our revolving credit facilities.
Securitization Notes Payable We periodically finance our retail and commercial finance receivables and leases through public and private term securitization transactions, where the securitization markets are sufficiently developed. A summary of securitization notes payable is as follows:
Year of Transaction
Maturity Date (a)
 
Original Note Issuance (b)
 
Note Balance
At December 31, 2017
2013
April 2021
-
October 2021
 
$
2,958

 
$
335

2014
July 2021
-
March 2022
 
$
4,850

 
1,014

2015
July 2019
-
December 2023
 
$
13,110

 
4,572

2016
May 2019
-
September 2024
 
$
15,405

 
9,393

2017
June 2019
-
May 2025
 
$
22,679

 
19,950

Total active securitizations
 
 
 
 
 
 
35,264

Debt issuance costs
 
 
 
 
 
 
(71
)
     Total
 
 
 
 
 
 
$
35,193

_________________ 
(a)
Maturity dates represent legal final maturity of issued notes. The notes are expected to be paid based on amortization of the finance receivables and leases pledged.
(b)
At historical foreign currency exchange rates at the time of issuance.
Our securitizations utilize special purpose entities (SPEs) which are also variable interest entities (VIEs) that meet the requirements to be consolidated in our financial statements. Refer to Note 9 to our consolidated financial statements for further discussion.
Unsecured Debt We periodically access the unsecured debt capital markets through the issuance of senior unsecured notes, predominantly from registered shelves in the U.S., Europe and Mexico. At December 31, 2017, the aggregate principal amount of our outstanding senior notes was $37.3 billion.
We issue other unsecured debt through commercial paper offerings and other non-bank funding sources. At December 31, 2017, we had $1.6 billion of this type of unsecured debt outstanding.
Support Agreement At December 31, 2017 and 2016, our earning assets leverage ratio was 9.5 and 10.4 and the applicable leverage ratio threshold was 11.5. The leverage ratio decreased primarily due to the issuance of preferred stock, the 2017 impact of tax reform and continued earnings growth.

20

GENERAL MOTORS FINANCIAL COMPANY, INC.

Contractual Obligations The following table presents the expected scheduled principal and interest payments under our contractual debt and lease obligations:
 
Years Ending December 31,
 
2018
 
2019
 
2020
 
2021
 
2022
 
Thereafter
 
Total
Operating leases
$
27

 
$
26

 
$
25

 
$
23

 
$
22

 
$
63

 
$
186

Secured debt
19,348

 
12,406

 
6,203

 
1,775

 
227

 

 
39,959

Unsecured debt
5,154

 
6,083

 
8,493

 
6,027

 
5,096

 
10,477

 
41,330

Interest payments(a)
2,373

 
1,653

 
1,149

 
787

 
532

 
1,144

 
7,638

 
$
26,902

 
$
20,168

 
$
15,870

 
$
8,612

 
$
5,877

 
$
11,684

 
$
89,113

_________________ 
(a)
Interest payments were determined using the interest rate in effect at December 31, 2017 for floating rate debt and the contractual rates for fixed-rate debt. Interest payments on floating rate tranches of the securitization notes payable were converted to a fixed rate based on the floating rate plus any expected hedge payments.
At December 31, 2017, we had liabilities associated with uncertain tax positions of $134 million, including penalties and interest. The table above does not include these liabilities since it is impracticable to estimate the future cash flows associated with these amounts.
Under our tax sharing arrangement with GM, we are responsible for our tax liabilities as if we filed separate returns. As of December 31, 2017, we have no accrued liability to GM. Refer to Note 15 to our consolidated financial statements for more information.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Overview We are exposed to a variety of risks in the normal course of our business. Our financial condition depends on the extent to which we effectively identify, assess, monitor and manage these risks. The principal types of risk to our business include:
Market risk - the possibility that changes in interest and currency exchange rates will adversely affect our cash flow and economic value;
Counterparty risk - the possibility that a counterparty may default on a derivative contract or cash deposit or will fail to meet its lending commitments to us;
Credit risk - the possibility of loss from a customer's failure to make payments according to contract terms;
Residual risk - the possibility that the actual proceeds we receive at lease termination will be lower than our projections or return volumes will be higher than our projections;
Liquidity risk - the possibility that we may be unable to meet all of our current and future obligations in a timely manner; and
Operating risk - the possibility of errors relating to transaction processing and systems, actions that could result in compliance deficiencies with regulatory standards or contractual obligations and the possibility of fraud by our employees or outside persons.
We manage each of these types of risk in the context of its contribution to our overall global risks. We make business decisions on a risk-adjusted basis and price our services consistent with these risks. A discussion of market risk (including interest and currency rate risk), counterparty risk, and operating risk follows.
Market Risk We seek to minimize volatility in our earnings from changes in interest rates and foreign currency exchange rates. Our strategies to manage market risk are approved by our International and North America Asset Liability Committees (collectively, the ALCO). Our Corporate Treasury group is responsible for the development of our interest rate and liquidity management policies as presented to the ALCO.
Interest Rate Risk We depend on accessing the capital markets to fund asset originations. We are exposed to interest rate risks as our financial assets and liabilities have different characteristics that may impact our financial performance. These differences may include tenor, yield, re-pricing timing, and prepayment expectations.
Our assets are primarily comprised of fixed-rate retail installment loans and operating lease contracts under which customers typically make equal monthly payments over the life of the contracts. Our commercial finance receivables primarily earn a floating rate of interest, and are revolving in nature.

21

GENERAL MOTORS FINANCIAL COMPANY, INC.

Our debt includes long-term unsecured debt and securitization notes payable. Our senior note unsecured debt issuances have tenors of up to ten years. Approximately 85% of these debt instruments are fixed-rate and pay equal interest payments over the life of the debt and a single principal payment at maturity. Our securitization notes payable are primarily fixed-rate and amortize as the underlying assets pay down.
Risk Management Our interest rate risk management objective is to reduce volatility in our cash flows and volatility in our economic value from changes in interest rates based on an established risk tolerance that may vary by market. We use economic value of equity sensitivity analysis and duration gap analysis to evaluate potential long-term effects of changes in interest rates. We then enter into interest rate derivatives to convert portions of our floating-rate assets and liabilities to fixed or our fixed-rate assets and liabilities to floating to ensure that our exposure falls within the tolerances established by the ALCO. We also use net interest income sensitivity analysis to monitor the level of near-term cash flow exposure. The net interest income sensitivity analysis measures the changes in expected cash flows associated with our interest-rate-sensitive assets, liabilities, and derivative financial instruments from hypothetical changes in interest rates over a twelve-month period. The ALCO reviews these metrics and approves the derivative strategy required to maintain exposure within approved thresholds prior to execution. Management monitors our hedging activities to ensure that the value of derivative financial instruments, their correlation to the contracts being hedged and the amounts being hedged continue to provide effective protection against interest rate risk. However, there can be no assurance that our strategies will be effective in minimizing interest rate risk or that increases in interest rates will not have an adverse effect on our profitability. We do not engage in any speculative trading in derivatives.
Quantitative Disclosure We have historically presented a quantitative measure of our interest rate risk in a tabular disclosure of our interest-sensitive assets and liabilities. With the expansion of our ALCO to incorporate more asset-liability management strategies, we now measure the sensitivity of our net interest income to changes in interest rates by using interest rate scenarios that assume a hypothetical, instantaneous parallel shift of one hundred basis points in all interest rates across all maturities, as well as a base case that assumes that rates perform at the current market forward curve. However, interest rate changes are rarely instantaneous or parallel and rates could move more or less than the one hundred basis points assumed in our analysis. Therefore, the actual impact to our net interest income could be higher or lower than the results detailed in the table below. These interest rate scenarios are purely hypothetical and do not represent our view of future interest rate movements.
Net Interest Income Sensitivity
December 31, 2017
 
December 31, 2016
One hundred basis points instantaneous increase in interest rates
$
19.4

 
$
(43.9
)
One hundred basis points instantaneous decrease in interest rates(a)
$
(19.4
)
 
$
43.9

________________
(a)
Net interest income sensitivity given a one hundred basis points decrease in interest rates requires an assumption of negative interest rates in markets where existing interest rates are below one percent.
Under these interest rate scenarios, we are asset-sensitive, meaning that we expect more assets than liabilities to re-price within the next twelve months. During a period of rising interest rates, the interest earned on our assets will increase more than the interest paid on our debt, which would initially increase our net interest income. During a period of falling interest rates, we would expect our net interest income to initially decrease. The change in our net interest income sensitivity from 2016 to 2017 was primarily due to the implementation of our ALCO strategy of hedging our fixed–rate asset originations with pay–fixed interest rate swaps.
Additional Model Assumptions The sensitivity analysis presented is our best estimate of the effect of the hypothetical interest rate scenarios; however, our actual results could differ. Our estimates are also based on assumptions including the amortization and prepayment of the finance receivable portfolio, originations of finance receivables and leases, refinancing of maturing debt, replacement of maturing derivatives and exercise of options embedded in debt and derivatives. Our prepayment projections are based on historical experience. If interest rates or other factors change, our actual prepayment experience could be different than projected.

22

GENERAL MOTORS FINANCIAL COMPANY, INC.

Derivative Notional Values The following table presents the outstanding notional value of our derivatives (in billions):
 
December 31, 2017
 
December 31, 2016
Interest rate derivatives
 
 
 
Pay-fixed, receive-floating
$
36

 
$
11

Pay-floating, receive-fixed
24

 
14

Long caps
17

 
10

Short caps
18

 
12

     Total interest rate derivatives
95

 
47

Other derivatives
 
 
 
Cross-currency swaps
3

 
1

     Total notional value
$
98

 
$
48

Derivative Fair Values The net fair value of our derivative financial instruments at December 31, 2017 was an asset of $56 million, compared to a liability of $272 million at December 31, 2016. The fair value of our cross-currency swaps increased due to the weakening of the U.S. Dollar against other currencies, and the fair value of our interest rate swaps increased overall due to changes in the forward interest rate curve. Refer to Note 10 to our consolidated financial statements for more information.
Foreign Currency Exchange Rate Risk We primarily finance receivables and lease assets with debt in the same currency, minimizing exposure to exchange rate movements. When a different currency is used, we may use foreign currency derivatives to minimize any impact to earnings. Exchange rate movements can impact our net investment in foreign subsidiaries, which impacts our tangible equity through other comprehensive income/loss. The following table summarizes the amounts of foreign currency translation and transaction and remeasurement (gains) losses:
 
Years Ended December 31,
 
2017
 
2016
 
2015
Foreign currency translation (gains) losses recorded in accumulated other comprehensive loss
$
(450
)
 
$
144

 
$
669

 
 
 
 
 
 
Losses (gains) resulting from foreign currency transactions and remeasurement recorded in earnings
$
251

 
$
(41
)
 
$
38

(Gains) losses resulting from foreign currency exchange swaps recorded in earnings
(242
)
 
45

 
(28
)
Net losses resulting from foreign currency exchange recorded in earnings
$
9

 
$
4

 
$
10

Most of the international operations use functional currencies other than the U.S. Dollar. Translation adjustments result from changes in the values of our international currency-denominated assets and liabilities as the value of the U.S. Dollar changes in relation to international currencies. The foreign currency translation gain in 2017 was primarily due to increases in the values of the Brazilian Real, the Chinese Yuan and the Canadian Dollar in relation to the U.S. Dollar and also includes the reversal of $197 million in accumulated translation losses that were recognized as part of the disposal loss on the sale of the European Operations. The foreign currency translation losses in 2016 were due primarily to decreases in the values of the British Pound and the Euro in relation to the U.S. Dollar.
Counterparty Risk Counterparty risk relates to the financial loss we could incur if an obligor or counterparty to a transaction is unable to meet its financial obligations. Typical sources of exposure include balances maintained in bank accounts, investments, and derivative contracts. Investments are typically securities representing high quality monetary instruments which are easily accessible and derivative contracts are used for managing interest rate and foreign currency exchange rate risk. We, together with GM, establish exposure limits for each counterparty to minimize risk and provide counterparty diversification.
We enter into arrangements with individual counterparties that we believe are creditworthy and generally settle on a net basis. In addition, the ALCO performs a quarterly assessment of our counterparty credit risk, including a review of credit ratings, credit default swap rates and potential nonperformance of the counterparty.

23

GENERAL MOTORS FINANCIAL COMPANY, INC.

Operating Risk We operate in many locations and rely on the abilities of our employees and computer systems to process a large number of transactions. Improper employee actions, improper operation of systems, or unforeseen business interruptions could result in financial loss, regulatory action and damage to our reputation, and breach of contractual obligations. To address this risk, we maintain internal control processes that identify transaction authorization requirements, safeguard assets from misuse or theft, protect the reliability of financial and other data, and minimize the impact of a business interruption on our customers. We also maintain system controls to maintain the accuracy of information about our operations. These controls are designed to manage operating risk throughout our operation.

24

GENERAL MOTORS FINANCIAL COMPANY, INC.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
General Motors Financial Company, Inc.:

Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of General Motors Financial Company, Inc. and subsidiaries (the "Company") as of December 31, 2017 and 2016, the related consolidated statements of income and comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/Deloitte & Touche LLP
Fort Worth, Texas
February 6, 2018

We have served as the Company's auditor since 2006.

25

GENERAL MOTORS FINANCIAL COMPANY, INC.

Item 8. Financial Statements and Supplementary Data

CONSOLIDATED BALANCE SHEETS
(dollars in millions) 
 
December 31, 2017
 
December 31, 2016
ASSETS
 
 
 
Cash and cash equivalents
$
4,265

 
$
2,815

Finance receivables, net (Note 4; Note 9 VIEs)
42,172

 
33,475

Leased vehicles, net (Note 5; Note 9 VIEs)
42,882

 
34,342

Goodwill (Note 6)
1,197

 
1,196

Equity in net assets of non-consolidated affiliate (Note 7)
1,187

 
944

Property and equipment, net of accumulated depreciation of $159 and $106
259

 
214

Deferred income taxes (Note 15)
249

 
242

Related party receivables (Note 3)
309

 
347

Other assets (Note 9 VIEs)
4,495

 
3,239

Assets held for sale (Note 2)

 
10,951

Total assets
$
97,015

 
$
87,765

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Liabilities
 
 
 
Secured debt (Note 8; Note 9 VIEs)
$
39,887

 
$
35,087

Unsecured debt (Note 8)
40,830

 
29,476

Accounts payable and accrued expenses
1,622

 
1,324

Deferred income
3,221

 
2,355

Deferred income taxes (Note 15)
288

 
223

Related party payables (Note 3)
92

 
320

Other liabilities
781

 
594

Liabilities held for sale (Note 2)

 
9,693

Total liabilities
86,721

 
79,072

Commitments and contingencies (Note 11)

 

Shareholders' equity
 
 
 
Common stock, $0.0001 par value per share, 10,000,000 shares authorized; 5,050,000 shares issued (Note 12)

 

Preferred stock, $0.01 par value per share, 250,000,000 shares authorized; 1,000,000 and 0 shares issued (Note 12)

 

Additional paid-in capital
7,525

 
6,505

Accumulated other comprehensive loss (Note 18)
(768
)
 
(1,238
)
Retained earnings
3,537

 
3,426

Total shareholders' equity
10,294

 
8,693

Total liabilities and shareholders' equity
$
97,015

 
$
87,765

The accompanying notes are an integral part of these consolidated financial statements.

26

GENERAL MOTORS FINANCIAL COMPANY, INC.


CONSOLIDATED STATEMENTS OF INCOME
(in millions) 
 
Years Ended December 31,
 
2017
 
2016
 
2015
Revenue
 
 
 
 
 
Finance charge income
$
3,256

 
$
2,846

 
$
2,848

Leased vehicle income
8,606

 
5,896

 
2,795

Other income
289

 
241

 
224

Total revenue
12,151

 
8,983

 
5,867

Costs and expenses
 
 
 
 
 
Salaries and benefits
845

 
735

 
609

Other operating expenses
545

 
515

 
442

Total operating expenses
1,390

 
1,250

 
1,051

Leased vehicle expenses
6,415

 
4,506

 
2,190

Provision for loan losses (Note 4)
757

 
644

 
603

Interest expense
2,566

 
1,972

 
1,460

Total costs and expenses
11,128

 
8,372

 
5,304

Equity income (Note 7)
173

 
151

 
116

Income from continuing operations before income taxes
1,196

 
762

 
679

Income tax provision (Note 15)
111

 
105

 
194

Income from continuing operations
1,085

 
657

 
485

(Loss) income from discontinued operations, net of tax (Note 2)
(424
)
 
97

 
161

Net income
$
661

 
$
754

 
$
646


 
 
 
 
 
Net income attributable to common shareholder
$
645

 
$
754

 
$
646


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
 
Years Ended December 31,
 
2017
 
2016
 
2015
Net income
$
661

 
$
754

 
$
646

Other comprehensive income (loss), net of tax
 
 
 
 
 
Unrealized (loss) gain on cash flow hedges, net of income tax (benefit) expense of $(2), $11 and $0
(1
)
 
17

 

Defined benefit plans after reclassification adjustment, net of income tax expense (benefit) of $9, $(3) and $(1)
21

 
(7
)
 
(2
)
Foreign currency translation adjustment before reclassification adjustment, net of income tax expense (benefit) of $33, $17 and $(1)
253

 
(144
)
 
(669
)
Reclassification adjustment(a)
197

 

 

Other comprehensive income (loss), net of tax
470

 
(134
)
 
(671
)
Comprehensive income (loss)
$
1,131

 
$
620

 
$
(25
)
_________________
(a)
The reclassification adjustment in 2017 is related to the sale of the European Operations.
The accompanying notes are an integral part of these consolidated financial statements.

27

GENERAL MOTORS FINANCIAL COMPANY, INC.


CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(dollars in millions) 
 
Years Ended December 31,
 
2017
 
2016
 
2015
Common stock shares
 
 
 
 
 
Balance at the beginning of period(a)
5,050,000

 
5,050,000

 
5,050,000

Common stock issued

 

 

Balance at the end of period
5,050,000

 
5,050,000

 
5,050,000

Common stock amount
 
 
 
 
 
Balance at the beginning of period
$

 
$

 
$

Common stock issued

 

 

Balance at the end of period
$

 
$

 
$

Preferred stock shares
 
 
 
 
 
Balance at the beginning of period

 

 

Preferred stock issued
1,000,000

 

 

Balance at the end of period
1,000,000

 

 

Preferred stock amount
 
 
 
 
 
Balance at the beginning of period
$

 
$

 
$

Preferred stock issued

 

 

Balance at the end of period
$

 
$

 
$

Additional paid-in capital
 
 
 
 
 
Balance at the beginning of period
$
6,505

 
$
6,484

 
$
5,799

Stock-based compensation expense
35

 
21

 
35

Capital contributions from related party

 

 
649

Differences between tax payments due under consolidated return and separate return basis

 

 
1

Preferred Stock
985

 

 

Balance at the end of period
$
7,525

 
$
6,505

 
$
6,484

Accumulated other comprehensive loss
 
 
 
 
 
Balance at the beginning of period
$
(1,238
)
 
$
(1,104
)
 
$
(433
)
Other comprehensive income (loss), net of tax
470

 
(134
)
 
(671
)
Balance at the end of period
$
(768
)
 
$
(1,238
)
 
$
(1,104
)
Retained earnings
 
 
 
 
 
Balance at the beginning of period
$
3,426

 
$
2,672

 
$
2,026

Dividends paid
(550
)
 

 

Net income
661

 
754

 
646

Balance at the end of period
$
3,537

 
$
3,426

 
$
2,672

_________________
(a)
All shares have been retroactively adjusted to reflect the stock split executed on September 1, 2017. Refer to Note 12 for further information.
The accompanying notes are an integral part of these consolidated financial statements.




28

GENERAL MOTORS FINANCIAL COMPANY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
 
Years Ended December 31,
 
2017
 
2016
 
2015
Cash flows from operating activities
 
 
 
 
 
Net income
$
1,085

 
$
657

 
$
485

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
 
 
Depreciation and amortization
6,706

 
4,789

 
2,365

Accretion and amortization of loan and leasing fees
(1,711
)
 
(1,136
)
 
(574
)
Amortization of carrying value adjustment

 
(28
)
 
(88
)
Undistributed earnings of non-consolidated affiliate, net
(173
)
 
(22
)
 
(116
)
Provision for loan losses
757

 
644

 
603

Deferred income taxes
42

 
8

 
128

Stock-based compensation expense
48

 
25

 
37

Other operating activities
(306
)
 
(149
)
 
(30
)
Changes in assets and liabilities:
 
 
 
 
 
Other assets
(54
)
 
(432
)
 
(374
)
Accounts payable and accrued expenses
153

 
209

 
251

Taxes payable
(29
)
 
(5
)
 
(10
)
Related party taxes payable

 

 
(636
)
Related party payables
1

 
1

 
6

Net cash provided by operating activities - continuing operations
6,519

 
4,561

 
2,047

Net cash provided by operating activities - discontinued operations
233

 
320

 
121

Net cash provided by operating activities
6,752

 
4,881

 
2,168

Cash flows from investing activities
 
 
 
 
 
Purchases of retail finance receivables, net
(19,524
)
 
(14,180
)
 
(13,905
)
Principal collections and recoveries on retail finance receivables
12,854

 
9,899

 
8,548

Net funding of commercial finance receivables
(2,584
)
 
(2,467
)
 
(863
)
Purchases of leased vehicles, net
(19,180
)
 
(19,483
)
 
(15,276
)
Proceeds from termination of leased vehicles
6,667

 
2,554

 
1,095

Acquisition of equity interest

 

 
(1,049
)
Disposition of equity interest

 

 
125

Purchases of property and equipment
(94
)
 
(93
)
 
(73
)
Other investing activities
2

 
1

 
15

Net cash used in investing activities - continuing operations
(21,859
)
 
(23,769
)
 
(21,383
)
Net cash provided by (used in) investing activities - discontinued operations
3

 
(1,005
)
 
(650
)
Net cash used in investing activities
(21,856
)
 
(24,774
)
 
(22,033
)
Cash flows from financing activities
 
 
 
 
 
Net change in debt (original maturities less than three months)
(105
)
 
(309
)
 
(21
)
Borrowings and issuance of secured debt
32,480

 
27,379

 
19,203

Payments on secured debt
(27,451
)
 
(17,294
)
 
(11,503
)
Borrowings and issuance of unsecured debt
15,883

 
12,234

 
12,043

Payments on unsecured debt
(5,018
)
 
(2,754
)
 
(1,652
)
Borrowings on related party line of credit

 
418

 

Payments on related party line of credit

 
(418
)
 

Debt issuance costs
(155
)
 
(131
)
 
(134
)
Proceeds from issuance of preferred stock
985

 

 

Dividends paid
(550
)
 

 

Capital contributions

 

 
649

Other

 

 
1

Net cash provided by financing activities - continuing operations
16,069

 
19,125

 
18,586

Net cash provided by financing activities - discontinued operations
219

 
1,109

 
1,531

Net cash provided by financing activities
16,288

 
20,234

 
20,117

Net increase in cash, cash equivalents and restricted cash
1,184

 
341

 
252

Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash
81

 
(41
)
 
(295
)
Cash, cash equivalents and restricted cash at beginning of period
5,302

 
5,002

 
5,045

Cash, cash equivalents and restricted cash at end of period
$
6,567

 
$
5,302

 
$
5,002

Cash, cash equivalents and restricted cash from continuing operations at end of period
$
6,567

 
$
4,630

 
$
4,258

Cash, cash equivalents and restricted cash from discontinued operations at end of period
$

 
$
672

 
$
744



29

GENERAL MOTORS FINANCIAL COMPANY, INC.


The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheet:
 
December 31, 2017
 
December 31, 2016
Cash and cash equivalents
$
4,265

 
$
2,815

Restricted cash included in other assets
2,302

 
1,815

Total
$
6,567

 
$
4,630

The accompanying notes are an integral part of these consolidated financial statements.

30

GENERAL MOTORS FINANCIAL COMPANY, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
History and Operations We were formed on August 1, 1986 and have been a wholly-owned subsidiary of GM since October 2010. We acquired Ally Financial's auto finance and financial services operations in Europe and Latin America in 2013. Additionally, on January 2, 2015, we acquired an equity interest in SAIC-GMAC, a joint venture that conducts business in China, from Ally Financial. On October 31, 2017, we completed the sale of certain of our European subsidiaries and branches (collectively, our European Operations) to Banque PSA Finance S.A. and BNP Paribas Personal Finance S.A. The European Operations are presented as discontinued operations in our consolidated financial statements for all periods presented. The assets and liabilities of the European Operations are presented as held for sale in our consolidated financial statements as of December 31, 2016. Refer to Note 2 for additional details regarding our disposal of these operations. Unless otherwise indicated, information in these notes to the consolidated financial statements relates to our continuing operations.
Basis of Presentation The consolidated financial statements include our accounts and the accounts of our consolidated subsidiaries, including certain SPEs utilized in secured financing transactions, which are considered VIEs. All intercompany transactions and accounts have been eliminated in consolidation. Except as otherwise specified, dollar amounts presented within tables are stated in millions.
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions which affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the financial statements and the amount of revenue and expenses during the reporting periods. Actual results could differ from those estimates and those differences may be material.
Generally, the financial statements of entities that operate outside of the U.S. are measured using the local currency as the functional currency. All assets and liabilities of the foreign subsidiaries are translated into U.S. dollars at period-end exchange rates and the results of operations and cash flows are determined using approximate weighted-average exchange rates for the period. Translation adjustments are related to the foreign subsidiaries using local currency as their functional currency and are reported as a separate component of accumulated other comprehensive income/loss. Foreign currency transaction gains or losses are recorded directly to the consolidated statements of income and comprehensive income, regardless of whether such amounts are realized or unrealized. We may enter into foreign currency derivatives to mitigate our exposure to changes in foreign currency exchange rates.
Cash Equivalents Cash equivalents are defined as short-term, highly liquid investments with original maturities of 90 days or less.
Net Presentation of Cash Flows on Commercial Finance Receivables and Related Debt Our commercial finance receivables are primarily comprised of floorplan financing, which are loans to dealers to finance vehicle inventory, also known as wholesale or inventory financing. In our experience, these loans are typically repaid within 90 days of when the credit is extended. Furthermore, we typically have the unilateral ability to call the loans and receive payment within 60 days of the call. Therefore, the presentation of the cash flows related to commercial finance receivables are reflected on the consolidated statements of cash flows as "Net funding of commercial finance receivables."
We have revolving debt agreements to finance our commercial lending activities. The revolving period of these agreements ranges from 12 to 18 months; however, the terms of these financing agreements require that a borrowing base of eligible floorplan receivables, within certain concentration limits, must be maintained in sufficient amounts to support advances. When a dealer repays a floorplan receivable to us, either the amount advanced against such receivables must be repaid by us or the equivalent amount in new receivables must be added to the borrowing base. Despite the revolving term exceeding 90 days, the actual term for repayment of advances under these agreements is when we receive repayment from the dealers, which is typically within 90 days of when the credit is extended. Therefore, the cash flows related to these revolving debt agreements are reflected on the consolidated statements of cash flows as “Net change in debt (original maturities less than three months).”
Retail Finance Receivables and the Allowance for Loan Losses Our retail finance receivables portfolio consists of smaller-balance, homogeneous loans which are carried at amortized cost, net of allowance for loan losses. These loans are divided among pools based on common risk characteristics, such as internal credit score, origination period, delinquent status and geography. An internal credit score, of which FICO is an input in North America, is created by using algorithms or statistical models contained in origination scorecards. The scorecards are used to evaluate a consumer’s ability to pay based on statistical modeling of their prior credit usage, structure of the loan and other information. The output of the scorecards rank-order consumers from those that are most likely to pay to those that are least likely to pay. By further dividing the portfolio into pools based on internal credit scores we are better able to distinguish expected credit performance for different credit risks. These pools are collectively evaluated for

31

GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

impairment based on a statistical calculation, which is supplemented by management judgment. The allowance is aggregated for each of the pools. Provisions for loan losses are charged to operations in amounts sufficient to maintain the allowance for loan losses at levels considered adequate to cover probable losses inherent in our finance receivables.
We use a combination of forecasting methodologies to determine the allowance for loan losses, including roll rate modeling and static pool modeling techniques. A roll rate model is generally used to project near-term losses and static pool models are generally used to project losses over the remaining life. Probable losses are estimated for groups of accounts aggregated by past-due status and origination month. Generally, loss experience over the last 10 years is evaluated. Recent performance is more heavily weighted when determining the allowance to result in an estimate that is more reflective of the current internal and external environments. Factors that are considered when estimating the allowance include historical delinquency migration to loss, probability of default (PD) and loss given default (LGD). PD and LGD are specifically estimated for each monthly vintage (i.e., group of originations) in cases where vintage models are used. PD is estimated based on expectations that are aligned with internal credit scores. LGD is projected based on historical trends experienced over the last 10 years, weighted toward more recent performance in order to consider recent market supply and demand factors that impact wholesale used vehicle pricing. While forecasted probable losses are quantitatively derived, we assess the recent internal operating and external environments and may qualitatively adjust certain assumptions to result in an allowance that is more reflective of losses that are expected to occur in the current environment.
We also use historical charge-off experience to determine a loss confirmation period (LCP). The LCP is a key assumption within our models and represents the average amount of time between when a loss event first occurs to when the receivable is charged off. This LCP is the basis of our allowance and is applied to the forecasted probable credit losses to determine the amount of losses we believe exist at the balance sheet date.
We believe these factors are relevant in estimating incurred losses and also consider an evaluation of overall portfolio credit quality based on indicators such as changes in our credit evaluation, underwriting and collection management policies, changes in the legal and regulatory environment, general economic conditions and business trends and uncertainties in forecasting and modeling techniques used in estimating our allowance. We update our retail loss forecast models and portfolio indicators on a quarterly basis to incorporate information reflective of the current economic environment.
Assumptions regarding credit losses and LCPs are reviewed periodically and may be impacted by actual performance of finance receivables and changes in any of the factors discussed above. Should the credit loss assumption or LCP increase, there would be an increase in the amount of allowance for loan losses required, which would decrease the net carrying value of finance receivables and increase the amount of provision for loan losses.
Finance receivables that are considered impaired, including TDRs, are individually evaluated for impairment. In assessing the risk of individually impaired loans such as TDRs, among the factors we consider are the financial condition of the borrower, geography, collateral performance, historical loss experience, and industry-specific information that management believes is relevant in determining the occurrence of a loss event and measuring impairment. These factors are based on an evaluation of historical and current information, and involve subjective assessment and interpretation.
Commercial Finance Receivables and the Allowance for Loan Losses Our commercial lending offerings consist of floorplan financing as well as dealer loans, which are loans to finance improvements to dealership facilities, to provide working capital, and to purchase and/or finance dealership real estate.
Commercial finance receivables are carried at amortized cost, net of allowance for loan losses. Provisions for loan losses are charged to operations in amounts sufficient to maintain the allowance for loan losses at levels considered adequate to cover probable credit losses inherent in the commercial finance receivables. For the International Segment, we established the allowance for loan losses based on historical loss experience. We have less of a history of commercial lending in the North America Segment; therefore, we have performed an analysis of the experience of comparable commercial lenders in order to estimate probable credit losses inherent in our portfolio. The commercial finance receivables are aggregated into loan-risk pools, which are determined based on our internally-developed risk rating system. Based upon our risk ratings, we also determine if any specific dealer loan is considered impaired. If impaired loans are identified, specific reserves are established, as appropriate, and the loan is segregated for separate monitoring.
Charge-off Policy Our policy is to charge off a retail account in the month in which the account becomes 120 days contractually delinquent if we have not yet recorded a repossession charge-off. In the North America Segment, we charge off accounts in repossession when the automobile is repossessed and legally available for disposition. In the International Segment, we charge off accounts based on the number of days past due or when the automobile is repossessed.

32

GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Commercial finance receivables are individually evaluated and, where collectability of the recorded balance is in doubt, are written down to the fair value of the collateral less costs to sell. Commercial receivables are charged off at the earlier of when they are deemed uncollectible or reach 360 days past due.
Troubled Debt Restructurings In evaluating whether a loan modification constitutes a TDR, our policy for retail loans is that both of the following must exist: (i) the modification constitutes a concession; and (ii) the debtor is experiencing financial difficulties. In accordance with our policies and guidelines, we, at times, offer payment deferrals to customers. Each deferral allows the consumer to move up to two delinquent monthly payments to the end of the loan generally by paying a fee (approximately the interest portion of the payment deferred, except where state law provides for a lesser amount). A loan that is deferred two or more times would be considered significantly delayed and therefore meets the definition of a concession. A loan currently in payment default as the result of being delinquent would also represent a debtor experiencing financial difficulties. Therefore, considering these two factors, we have determined that the second deferment granted by us on a retail loan will be considered a TDR and the loan impaired. Accounts in Chapter 13 bankruptcy that have an interest rate or principal adjustment as part of a confirmed bankruptcy plan will also be considered TDRs. Retail finance receivables that become classified as TDRs are separately assessed for impairment. A specific allowance is estimated based on the present value of expected cash flows of the receivable discounted at the loan's original effective interest rate.
Commercial receivables subject to forbearance, moratoriums, extension agreements, or other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral are classified as TDRs. We do not grant concessions on the principal balance of dealer loans.
Leased Vehicles Leased vehicles consist of automobiles leased to customers and are carried at amortized cost less manufacturer subvention payments, which are received up front. Depreciation expense is recorded on a straight-line basis over the term of the lease agreement. Manufacturer subvention is recognized on a straight-line basis as a reduction to depreciation expense.
We estimate the expected residual value based on third party data which considers inputs including recent auction values, the expected future volume of returning leased vehicles, used car prices, manufacturer incentive programs and fuel prices. Leased vehicles are depreciated to the estimated residual value at the end of the lease term. Changes in the expected residual value result in increased or decreased depreciation of the leased asset over the remaining term of the lease. Upon disposition, a gain or loss is recorded for any difference between the net book value of the lease and the proceeds from the disposition of the asset, including any insurance proceeds. Under the accounting for impairment or disposal of long-lived assets, vehicles on operating leases are evaluated by asset group for impairment. We aggregate leased vehicles into asset groups based on make, year and model. When asset group indicators of impairment exist and aggregate future cash flows from the operating lease, including the expected realizable fair value of the leased assets at the end of the lease, are less than the book value of the lease asset group, an immediate impairment write-down is recognized if the difference is deemed not recoverable.
Variable Interest Entities – Securitizations and Credit Facilities We finance our loan and lease origination volume through the use of our credit facilities and execution of securitization transactions, which both utilize SPEs. In our credit facilities, we transfer finance receivables and lease-related assets to SPEs. These subsidiaries, in turn, issue notes to the agents, collateralized by such assets and cash. The agents provide funding under the notes to the subsidiaries pursuant to an advance formula, and the subsidiaries forward the funds to us in consideration for the transfer of the assets.
In our securitizations, we transfer finance receivables and lease-related assets to SPEs structured as securitization trusts (Trusts), which issue one or more classes of asset-backed securities. The asset-backed securities are in turn sold to investors.
Our continuing involvement with the credit facilities and Trusts consist of servicing assets held by the SPEs and holding residual interests in the SPEs. These transactions are structured without recourse. The SPEs are considered VIEs under U.S. GAAP and are consolidated because we have: (i) power over the significant activities of the entities and (ii) an obligation to absorb losses and the right to receive benefits from the VIEs which could be significant to the VIEs. Accordingly, we are the primary beneficiary of the VIEs and the finance receivables, lease-related assets, borrowings under our credit facilities and, following a securitization, the related securitization notes payable remain on the consolidated balance sheets. Refer to Note 4, Note 8 and Note 9 for further information.
We are not required, and do not currently intend, to provide any additional financial support to SPEs. While these subsidiaries are included in our consolidated financial statements, these subsidiaries are separate legal entities and the finance receivables, lease-related assets and cash held by these subsidiaries are legally owned by them and are not available to our creditors or creditors of our other subsidiaries.

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We recognize finance charge, lease vehicle and fee income on the securitized assets and interest expense on the secured debt issued in securitization transactions, and record a provision for loan losses to recognize probable loan losses inherent in the securitized assets. Cash pledged to support securitization transactions is deposited to a restricted account and recorded on our consolidated balance sheets as restricted cash, which is invested in highly liquid securities with original maturities of 90 days or less.
Property and Equipment Property and equipment additions are carried at amortized cost. Depreciation is generally provided on a straight-line basis over the estimated useful lives of the assets, which ranges from 1 to 30 years. The basis of assets sold or retired and the related accumulated depreciation are removed from the accounts at the time of disposition and any resulting gain or loss is included in other operating expenses. Maintenance, repairs and minor replacements are charged to operations as incurred; major replacements and improvements are capitalized.
Goodwill Goodwill is tested for impairment annually on October 1 or when events occur or circumstances change that would trigger such a review. A two-step impairment test is used to identify potential goodwill impairment. Impairment exists when the carrying amount of goodwill exceeds its implied fair value. When performing our goodwill impairment testing, the fair values of our reporting units are determined based on valuation techniques using the best available information, primarily discounted cash flow projections.
Derivative Financial Instruments We recognize all of our derivative financial instruments as either assets or liabilities on our consolidated balance sheets at fair value. We do not use derivative financial instruments for trading or speculative purposes.
Interest rate risk management contracts are generally expressed in notional principal or contract amounts that are much larger than the amounts potentially at risk for nonpayment by counterparties. Therefore, in the event of nonperformance by the counterparties, our credit exposure is limited to the uncollected interest and the market value related to the contracts that have become favorable to us. We maintain a policy of requiring that all derivative contracts be governed by an International Swaps and Derivatives Association Master Agreement. We enter into derivative contracts and establish risks limits with counterparties that we believe are creditworthy and generally settle on a net basis. In addition, management performs a quarterly assessment of our counterparty credit risk, including a review of credit ratings, credit default swap rates and potential nonperformance of the counterparty.
Interest Rate Swap Agreements We utilize interest rate swap agreements to convert certain floating rate exposures to fixed rate or certain fixed-rate exposures to floating rate in order to manage our interest rate exposure. Cash flows from derivatives used to manage interest rate risk are classified as operating activities.
We designate certain pay-fixed, receive-floating interest rate swaps as cash flow hedges of variable rate debt. The risk being hedged is the risk of variability in interest payments attributable to changes in interest rates. If the hedge relationship is deemed to be highly effective, we record the effective portion of changes in the fair value of the hedge in accumulated other comprehensive income/loss. When the hedged cash flows affect earnings, we reclassify these amounts to interest expense. Any ineffective portion of a cash flow hedge is recorded to interest expense immediately.
We designate certain receive-fixed, pay-floating interest rate swaps as fair value hedges of fixed-rate debt. The risk being hedged is the risk of changes in the fair value of the hedged debt attributable to changes in the benchmark interest rate. If the hedge relationship is deemed to be highly effective, we record the changes in the fair value of the hedged debt related to the risk being hedged in interest expense. The change in fair value of the related derivative (excluding accrued interest) is also recorded in interest expense.
Interest Rate Cap and Floor Agreements We may purchase interest rate cap and floor agreements to limit floating rate exposures in our credit facilities. As part of our interest rate risk management strategy and when economically feasible, we may simultaneously sell a corresponding interest rate cap or floor agreement in order to offset the premium paid to purchase the interest rate cap or floor agreement and thus retain the interest rate risk. Because the interest rate cap and floor agreements entered into by us or our SPEs do not qualify for hedge accounting, changes in the fair value of interest rate cap and floor agreements purchased by the SPEs and interest rate cap and floor agreements sold by us are recorded in interest expense.
Foreign Currency Swaps Our policy is to minimize exposure to changes in currency exchange rates. To meet funding objectives, we borrow in a variety of currencies. We face exposure to currency exchange rates when the currency of our earning assets differs from the currency of the debt funding those assets. When possible, we fund earning assets with debt in the same currency, minimizing exposure to exchange rate movements. When a different currency is used, we may use foreign currency swaps to convert our debt obligations to the local currency of the earning assets being financed.

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GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

We designate certain cross-currency swaps as cash flow hedges of foreign currency-denominated debt. The risk being hedged is the variability in the cash flows for the payments of both principal and interest attributable to changes in foreign currency exchange rates. If the hedge relationship is deemed to be highly effective, we record the effective portion of changes in the fair value of the swap in accumulated other comprehensive income/loss. When the hedged cash flows affect earnings via principal remeasurement or accrual of interest expense, we reclassify these amounts to other operating expenses or interest expense. Any ineffective portion of a cash flow hedge is recorded to interest expense immediately.
Fair Value Financial instruments are considered Level 1 when quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Financial instruments are considered Level 2 when inputs other than quoted prices are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Financial instruments are considered Level 3 when their values are determined using price models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. Level 3 financial instruments also include those for which the determination of fair value requires significant management judgment or estimation.
Income Taxes We account for income taxes on a separate return basis using an asset and liability method which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, net operating loss and tax credit carryforwards. A valuation allowance is recognized if it is more likely than not that some portion or the entire deferred tax asset will not be realized.
We record uncertain tax positions on the basis of a two-step process whereby: (i) we determine whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position; and (ii) for those tax positions that meet the more likely than not recognition, we recognize the largest amount of tax benefit that is greater than 50% likely to be realized upon ultimate settlement with the related tax authority. We record interest and penalties on uncertain tax positions in income tax provision.
Revenue Recognition Finance charge income related to retail finance receivables is recognized using the effective interest method. Fees and commissions received and direct costs of originating loans are generally deferred and amortized over the term of the related finance receivables using the effective interest method and are removed from the consolidated balance sheets when the related finance receivables are sold, charged off or paid in full. Accrual of finance charge income is suspended on accounts that are more than 60 days delinquent, accounts in bankruptcy and accounts in repossession. Interest accrual resumes once an account has received payments bringing the delinquency status to less than 60 days past due or, for TDRs, when repayment is reasonably assured based on the modified terms of the loan.
Finance charge income related to commercial finance receivables is recognized using the effective interest method. Accrual of finance charge income is generally suspended on accounts that are more than 90 days delinquent, upon receipt of a bankruptcy notice from a borrower, or where reasonable doubt about the full collectability of contractually agreed upon principal and interest exists. Payments received on non-accrual loans are first applied to principal. Interest accrual resumes once an account has received payments bringing the account status fully current and collection of contractual principal and interest is reasonably assured (including amounts previously charged off).
Operating lease rental income for leased vehicles is recognized on a straight-line basis over the lease term. Net deferred origination fees or costs are amortized on a straight-line basis over the term of the lease agreement.
Parent Company Stock-Based Compensation We measure and record compensation expense for parent company stock-based compensation awards based on the award's estimated fair value. We record compensation expense over the applicable vesting period of an award. Refer to Note 13 for further information.
Recently Issued Accounting Standards Not Yet Adopted In May 2014 the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” (ASU 2014-09), which requires us to recognize revenue when a customer obtains control rather than when we have transferred substantially all risks and rewards of a good or service and requires expanded disclosures. ASU 2014-09, as amended, became effective for us on January 1, 2018. The adoption of ASU 2014-09 on January 1, 2018 was not material to our consolidated financial statements.

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GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

In February 2016 the FASB issued ASU 2016-02, “Leases” (ASU 2016-02), which requires the lessee to recognize most leases on the balance sheet thereby resulting in the recognition of lease assets and liabilities for those leases currently classified as operating leases. The accounting for lessors is largely unchanged. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018 with early adoption permitted. While we are currently assessing the impact ASU 2016-02 will have on our consolidated financial statements, we expect the primary impact to our consolidated financial position upon adoption will be the recognition, on a discounted basis, of our minimum commitments under noncancelable operating leases on our consolidated balance sheets resulting in the recording of right of use assets and lease obligations. Our current minimum commitments under noncancelable operating leases are disclosed in Note 11.
In June 2016 the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" (ASU 2016-13), which requires entities to use a new impairment model based on expected losses. Under this new model an entity would recognize an impairment allowance equal to its current estimate of credit losses on financial assets measured at amortized cost. ASU 2016-13 is effective for us beginning January 1, 2020 with early adoption permitted January 1, 2019. Credit losses under the new model will consider relevant information about past events, current conditions and reasonable and supportable forecasts, resulting in recognition of lifetime expected credit losses upon loan origination as compared to our current accounting that recognizes credit losses as incurred. We are currently evaluating new processes to calculate credit losses in accordance with ASU 2016-13 that, once completed, will determine the impact on our consolidated financial statements, which at the date of adoption will increase the allowance for credit losses with a resulting negative adjustment to retained earnings.
In August 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities" (ASU 2017-12), which simplifies the application of hedge accounting and more closely aligns hedge accounting with companies' risk management strategies thereby making more hedging strategies eligible for hedge accounting. ASU 2017-12 became effective for us on January 1, 2018. ASU 2017-12 expanded disclosure requirements and required a cumulative-effect adjustment for certain items upon adoption. The adoption of ASU 2017-12 was not material to our consolidated financial statements.
Note 2. Discontinued Operations
On March 5, 2017, General Motors Holdings LLC, a wholly-owned subsidiary of GM and our parent, entered into an agreement with Peugeot S.A. On July 31, 2017, GM closed the sale of the Opel and Vauxhall businesses and certain other assets in Europe to Peugeot S.A., and on October 31, 2017, we closed the sale of certain of our European Operations to Banque PSA Finance S.A. and BNP Paribas Personal Finance S.A.
The net consideration paid at closing for our European Operations was $1.1 billion, and we recognized a disposal loss of $525 million, which includes $197 million related to the recognition of foreign currency translation losses.
The following table summarizes the assets and liabilities of the European Operations at December 31, 2016:
 
December 31, 2016
ASSETS
 
Cash and cash equivalents
$
386

Finance receivables, net
9,715

Related party receivables
163

Other assets
687

Total assets held for sale
$
10,951

LIABILITIES
 
Secured debt
$
4,183

Unsecured debt
5,130

Related party payables
80

Other liabilities
300

Total liabilities held for sale
$
9,693


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GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following table summarizes the results of operations of the European Operations:
 
Years Ended December 31,
 
2017</