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EX-32 - EXHIBIT 32 - SECTION 1350 CERTIFICATION - General Motors Financial Company, Inc.gmfexhibit32certifications.htm
EX-31.2 - EXHIBIT 31.2 - SECTION 302 CERTIFICATION OF CFO - General Motors Financial Company, Inc.gmfexhibit312certification.htm
EX-31.1 - EXHIBIT 31.1 - SECTION 302 CERTIFICATION OF CEO - General Motors Financial Company, Inc.gmfexhibit311certification.htm
EX-23.2 - EXHIBIT 23.2 - CONSENT - DELOITTE & TOUCHE LLP - General Motors Financial Company, Inc.gmfexhibit232consentofinde.htm
EX-23.1 - EXHIBIT 23.1 - CONSENT - ERNST & YOUNG LLP - General Motors Financial Company, Inc.gmfexhibit231consentofinde.htm
EX-4.6 - EXHIBIT 4.6 - DESCRIPTION OF SECURITIES - General Motors Financial Company, Inc.gmfexhibit46descriptionofs.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, 2019
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
 
Trading Symbol
 
Name of each exchange on which registered
5.250% Senior Notes due 2026
 
GM/26
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 every Interactive Data File required to be submitted 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 such files).  Yes    ý    No    ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth 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
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 4, 2020, 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
 
PART I
 
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
 
PART II
 
Item 5.
Market for Registrant's Common Equity, 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. Related Party Transactions
 
Note 3. Finance Receivables
 
Note 4. Leased Vehicles
 
Note 5. Goodwill
 
Note 6. Equity in Net Assets of Non-consolidated Affiliates
 
Note 7. Debt
 
Note 8. Variable Interest Entities
 
Note 9. Derivative Financial Instruments and Hedging Activities
 
Note 10. Commitments and Contingencies
 
Note 11. Shareholders' Equity
 
Note 12. Parent Company Stock-Based Compensation
 
Note 13. Employee Benefit Plans
 
Note 14. Income Taxes
 
Note 15. Discontinued Operations
 
Note 16. Supplemental Information for the Consolidated Statements of Cash Flows
 
Note 17. Segment Reporting and Geographic Information
 
Note 18. Regulatory Capital and Other Regulatory Matters
 
Note 19. Supplementary Quarterly Financial Information (Unaudited)
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
 
PART III
 
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
 
PART IV
 
Item 15.
Exhibits, Financial Statement Schedules
Item 16.
Form 10-K Summary
 
Index to Exhibits
 
Signatures


GENERAL MOTORS FINANCIAL COMPANY, INC.


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. 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 the year ended December 31, 2017. Refer to Note 15 to our consolidated financial statements for additional details regarding our disposal of these operations. Unless otherwise indicated, information contained herein relates to our continuing 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). Our global footprint covers approximately 90% of GM’s worldwide market. Except as otherwise specified, amounts presented within the tables are stated in millions.
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 full credit spectrum lending and 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 commercial lending programs are offered 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 investments in joint ventures in Asia/Pacific. 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 purchase lease agreements for new GM vehicles.
Marketing As an indirect auto finance provider, we focus our marketing activities on automobile dealers. We primarily pursue franchised dealerships; 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.
Operating Leases 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 agreement, 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 a 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 agreement, 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 wholesale auction partners.
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 loan and lease agreements originated through GM's dealership network, making credit more affordable to customers financing or leasing vehicles manufactured by GM. GM also supports our loan origination volume by offering other incentives to borrowers who finance their vehicles with us.

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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. Total retail loan and lease origination levels were as follows:
 
Years ended December 31,
 
2019
 
2018
 
2017
New GM vehicles
$
42,316

 
$
44,124

 
$
40,326

Other vehicles
5,200

 
4,650

 
5,015

Total
$
47,516

 
$
48,774

 
$
45,341

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.
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 deficiency balances when appropriate.
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 finance dealership real estate. Other commercial products include financing for parts and accessories, dealer fleets and storage centers.
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.
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 vehicle 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.

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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 in specific International Segment markets, 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.
As part of our floorplan lending agreement, we offer a cash management program. Under the program, subject to certain conditions, a dealer may choose to reduce the amount of interest on their floorplan line by making principal payments to us in advance. This program allows for the dealer to manage their liquidity position and reduce their interest cost while maintaining the repayment terms on the advances made associated with new vehicles.
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.
Servicing Commercial lending servicing activities include dealership customer service, account maintenance, credit line monitoring and adjustment, exception processing and insurance monitoring. Our commercial lending servicing operations are centralized in each country.
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 and through the issuance of unsecured debt in the capital 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 diversify funding sources, especially to support U.S. financing needs. 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 these secured credit facilities bear interest at benchmark 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. GM also provides us with financial resources through a $1.0 billion unsecured intercompany revolving credit facility (the Junior Subordinated Revolving Credit Facility) and exclusive access to no less than a $2.0 billion facility (GM Revolving 364-Day Credit Facility).
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, pay down borrowings under our credit facilities, and support 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

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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.
Unsecured Debt We also access the capital markets through the issuance of unsecured notes and commercial paper.
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 we and GM 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, have resulted in increasingly competitive conditions. While

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GENERAL MOTORS FINANCIAL COMPANY, INC.

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 longstanding relationships with automobile dealerships and may offer the dealerships or their customers other products and services, which we may not currently provide.
Employees At December 31, 2019, we employed approximately 10,000 people, excluding our joint venture 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. 
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.
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 other incentive programs available through us. Under these programs, GM makes interest supplements or other support payments to us and may offer various incentives to borrowers who finance their vehicles with 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.
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 dealers' effectiveness in marketing 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 operate 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, 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

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GENERAL MOTORS FINANCIAL COMPANY, INC.

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. We have also 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, industry and capital markets 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.
If we cannot comply with the requirements in our credit facilities, then the lenders may increase our borrowing costs, remove us as servicer of our securitized assets 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 unsecured debt 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 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 obligations. 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 financings, thus impairing our ability to finance our business.

6

GENERAL MOTORS FINANCIAL COMPANY, INC.

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 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 10 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 values 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.

7

GENERAL MOTORS FINANCIAL COMPANY, INC.

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 financings.
Demand for automobiles may also be impacted by the entrants of non-traditional participants in the automotive industry, who are disrupting the industry's historic business model through the introduction of new products, services, and methods of travel and vehicle ownership.
Wholesale Auction Values We sell automobiles returned to us at the end of lease terms either through our exclusive online channel or our wholesale auction partners. 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 industry 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 would 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.
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 instruments 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 instruments. Additionally, we may be unable to find creditworthy counterparties willing to enter derivative instruments on acceptable terms, and counterparties may be unable to meet their financial obligations under our derivative instruments.
We do not control the operations of our investments in joint ventures, and we are subject to the risks of operating in China.
We do not control the operations of our joint ventures, and we do not have a majority interest in the joint ventures. In the joint ventures, 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 ventures. Joint ventures are intended to be operated for the 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 ventures, and if a co-owner changes or relationships deteriorate, our success in the joint ventures 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 ventures, we may be unable to prevent misconduct or other violations of applicable laws. Moreover, the joint ventures may not follow the same requirements regarding internal controls and internal control over financial reporting that we follow. To

8

GENERAL MOTORS FINANCIAL COMPANY, INC.

the extent another party makes decisions that negatively impact the joint ventures or internal control issues arise within the joint ventures, 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, increased U.S.-China trade restrictions and weakening economic conditions in China, among other things, may result in price reductions, reduced sales, profitability and margins, and challenges 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 our joint ventures are unable to maintain their position in the Chinese market or if vehicle sales in China decrease, our business and financial results could be materially adversely affected.
We may incur additional tax expense or become subject to additional tax exposure.
We are subject to the tax laws and regulations of the U.S. and numerous other jurisdictions in which we do business. Many judgments are required in determining our worldwide provision for income taxes and other tax liabilities, and we are regularly under audit by the U.S. Internal Revenue Service and other tax authorities, which may not agree with our tax positions. In addition, our tax liabilities are subject to other significant risks and uncertainties, including those arising from potential changes in laws and/or regulations in the countries in which we do business, the possibility of adverse determinations with respect to the application of existing laws, changes in our business or structure and changes in the valuation of our deferred tax assets and liabilities. Any unfavorable resolution of these and other uncertainties may have a significant adverse impact on our tax rate and results of operations. If our tax expense were to increase, or if the ultimate determination of our taxes owed is for an amount in excess of amounts previously accrued, our operating results, cash flows and financial condition could be adversely affected.
Changes in the method pursuant to which the LIBOR and other benchmark rates are determined could adversely impact our business and results of operations.
We have certain floating-rate obligations, hedging transactions, and floating-rate dealer loans that determine their applicable interest rate or payment amount by reference to LIBOR.
The U.K. Financial Conduct Authority, which regulates LIBOR, has announced that it will no longer persuade or compel banks to submit rates for the calculations of LIBOR after 2021. It is unknown whether any banks will continue to voluntarily submit rates for the calculation of LIBOR, or whether LIBOR will continue to be published by its administrator based on these submissions, or on any other basis, after 2021.
Regulators, industry groups and certain committees (e.g., the Alternative Reference Rates Committee) have, among other things, published recommended fallback language for LIBOR-linked financial instruments, identified recommended alternatives for certain LIBOR rates (e.g., the Secured Overnight Financing Rate as the recommended alternative to U.S. Dollar LIBOR), and proposed implementations of the recommended alternatives in floating rate instruments. It is currently unknown whether these recommendations and proposals will be broadly accepted, whether they will continue to evolve, and what the effect of their implementation may be on the markets for floating-rate financial instruments.
At this time, it is not possible to predict the effect that these developments or any discontinuance, modification or other reforms may have on LIBOR, other benchmarks or floating-rate debt instruments, including our floating-rate debt. Any such discontinuance, modification, alternative reference rates or other reforms may materially adversely affect interest rates on our current or future indebtedness. Further, there is a risk that discontinuation of LIBOR, without an adequate replacement, will impact our ability to manage interest rate risk effectively.
Security breaches and other disruptions to information technology 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 (including networks that may be controlled or maintained by third parties). 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. Further, customers using our systems rely on the security of our infrastructure, including hardware and other elements provided by third parties, to ensure the protection of their data. Despite security measures and business continuity plans, these systems and networks may be vulnerable to damage, disruptions or shutdowns caused by attacks by hackers, computer viruses, malware (including

9

GENERAL MOTORS FINANCIAL COMPANY, INC.

“ransomware”), phishing attacks 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 confidentiality, operational integrity and accessibility of these systems and networks and the data that resides therein. 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 cause us to be non-compliant with applicable laws or regulations, subject us to legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information; disrupt operations; or reduce 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.
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 enterprise data practices, including the collection, use, sharing, and security of the Personal Identifiable Information of our customers or employees are subject to increasingly complex, restrictive, and punitive regulations in all key market regions.
Under these regulations, the failure to maintain compliant data practices could result in consumer complaints and regulatory inquiry, resulting in civil or criminal penalties, as well as brand impact or other harm to our business. In addition, increased consumer sensitivity to real or perceived failures in maintaining acceptable data practices could damage our reputation and deter current and potential users or customers from using our products and services. Because many of these laws are new, there is little clarity as to their interpretation, as well as a lack of precedent for the scope of enforcement. In addition, increased attention to data practices may result in the adoption of new regulations in the markets we serve. New data protection regimes are coming into effect in Brazil and China, and in the U.S., California has adopted laws and regulations imposing obligations regarding personal data. The cost of compliance with these laws and regulations will be high and is likely to increase in the future. In some cases, these laws provide a private right of action that would allow customers to bring suit directly against us for mishandling their data.
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 our joint ventures, 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, social unrest, natural disasters, public health crises, including the occurrence of a contagious disease or illness, such as the novel coronavirus, war, and terrorism; and
compliance with laws and regulations applicable to international operations, including anti-corruption laws such as the U.S. 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 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our executive offices are located in Fort Worth, Texas. We operate credit centers, collections and customer service centers and administrative offices, primarily in North America and Latin America.


10

GENERAL MOTORS FINANCIAL COMPANY, INC.

Item 3. Legal Proceedings
Refer to Note 10 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. Future dividends are payable at the sole discretion of our Board of Directors and will depend on a number of factors including, but not limited to, business and economic conditions, our financial condition, earnings, liquidity requirements and leverage ratio.
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, as well as our equity investments in joint ventures in Asia/Pacific.
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 that 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 that considers various data points and assumptions, including, but not limited to, recent auction values, the expected future volume of returning leased vehicles, used vehicle prices, manufacturer incentive programs and fuel prices. Realization of the residual values is dependent on our future ability to market the vehicles under prevailing market conditions.
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 prior to or 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.

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GENERAL MOTORS FINANCIAL COMPANY, INC.

At December 31, 2019, 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 following table illustrates the effect of a 1% change in the estimated residual values at December 31, 2019, which would increase or decrease depreciation expense over the remaining term of our operating lease portfolio, holding all other assumptions constant:
 
Impact to
Depreciation Expense
Crossovers
$
159

Trucks
73

SUVs
39

Cars
33

Total
$
304

Used vehicle prices decreased 3% in 2019 compared to 2018. We expect a decrease of 3% to 4% in 2020 compared to 2019, primarily due to continued elevated levels in the industry supply of used vehicles. Used vehicle prices are an input to estimated residual values, and to the extent that used vehicle prices decrease more than anticipated by the estimated residual values, we will record increased depreciation expense or evaluate for impairment.
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. We believe no impairment indicators existed during 2019, 2018 or 2017.
Retail Finance Receivables and the Allowance for Loan Losses Our retail finance receivables portfolio consists of smaller-balance, homogeneous loans that are carried at amortized cost, net of allowance for loan losses. 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 over the loss confirmation period (LCP) will not exceed such estimates or that our credit loss assumptions will not increase. A 10% and 20% increase in estimated cumulative charge-offs after recoveries on the portfolio over the LCP would increase the allowance for loan losses at December 31, 2019 by $87 million and $173 million. 
Income Taxes 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. Refer to Note 14 to our consolidated financial statements for more information relating to our tax sharing agreement with GM for our U.S. operations.
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.
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.

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GENERAL MOTORS FINANCIAL COMPANY, INC.

The U.S. Tax Cuts and Jobs Act of 2017 (the Tax Act) changed many aspects of U.S. corporate income taxation, including the 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. During 2018, we filed our 2017 U.S. federal income tax return and updated our 2017 estimated tax benefit from $240 million to $286 million, primarily related to the remeasurement of transition tax as a result of proposed regulations issued in August 2018 and associated impacts to our deferred tax asset carryforwards.
Results of Operations
This section discusses our results of operations for the year ended December 31, 2019 as compared to the year ended December 31, 2018. For a discussion and analysis of the year ended December 31, 2018, compared to the same period in 2017 please refer to Management's Discussion and Analysis of Financial Condition and Results of Operations included in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 6, 2019.
Income before income taxes for the year ended December 31, 2019 increased to $2.1 billion from $1.9 billion for the year ended December 31, 2018 primarily due to the following:
Retail finance charge income increased $314 million primarily due to an increase in the average balance of the consumer finance receivables portfolio, partially offset by a decrease in effective yield as the credit mix of the U.S. portfolio has shifted to lower yielding prime loan assets.
Commercial finance charge income increased $128 million due to an increase in the average balance of the commercial finance receivables portfolio as well as increased interest rates on the portfolio.
Leased vehicle income net of leased vehicle expenses increased $301 million primarily due to increased lease terminations resulting in an overall increase in lease termination gains.
Interest expense increased $416 million, of which $233 million was due to a higher average balance of debt outstanding and $183 million was due to an increase in the effective rate of interest on debt.
Return on average common equity is widely used to measure earnings in relation to invested capital. Our return on average common equity decreased to 13.7% in 2019 from 15.2% in 2018 primarily due to a higher effective tax rate.
We use return on average tangible common equity (a non-GAAP measure) to measure our contribution to GM's enterprise profitability and cash flow. Our return on average tangible common equity decreased to 15.4% in 2019 from 17.2% in 2018 primarily due to a higher effective tax rate.
The following table presents our reconciliation of return on average tangible common equity to return on average common equity, the most directly comparable GAAP measure:
 
Years ended December 31,
 
2019
 
2018
Net income attributable to common shareholder
$
1,477

 
$
1,504

 
 
 
 
Average equity
$
12,270

 
$
11,049

Less: average preferred equity
(1,477
)
 
(1,136
)
Average common equity
10,793

 
9,913

Less: average goodwill
(1,186
)
 
(1,192
)
Average tangible common equity
$
9,607

 
$
8,721

 
 
 
 
Return on average common equity
13.7
%
 
15.2
%
Return on average tangible common equity
15.4
%
 
17.2
%

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GENERAL MOTORS FINANCIAL COMPANY, INC.

Our calculation of this non-GAAP measure may not be comparable to similarly titled measures of other companies due to potential differences between companies in the method of calculation. As a result, the use of this non-GAAP measure has limitations and should not be considered superior to, in isolation from, or as a substitute for, related U.S. GAAP measures. This non-GAAP measure allows investors the opportunity to measure and monitor our performance against our externally communicated targets and evaluate the investment decisions being made by management to improve our return on average tangible common equity. Management uses this measure in its financial, investment and operational decision-making processes, for internal reporting and as part of its forecasting and budgeting processes. For these reasons, we believe this non-GAAP measure is useful for our investors.
Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
Average Earning Assets
Years Ended December 31,
 
2019 vs. 2018
 
2019
 
2018
 
Amount
 
Percentage
Average retail finance receivables
$
42,112

 
$
36,167

 
$
5,945

 
16.4
 %
Average commercial finance receivables
12,429

 
10,689

 
1,740

 
16.3
 %
Average finance receivables
54,541

 
46,856

 
7,685

 
16.4
 %
Average leased vehicles, net
42,881

 
43,710

 
(829
)
 
(1.9
)%
Average earning assets
$
97,422

 
$
90,566

 
$
6,856

 
7.6
 %
 
 
 
 
 
 
 
 
Retail finance receivables purchased
$
25,150

 
$
26,181

 
$
(1,031
)
 
(3.9
)%
Leased vehicles purchased
$
22,366

 
$
22,593

 
$
(227
)
 
(1.0
)%
Average retail finance receivables increased due to a higher volume of new loan originations in excess of principal collections and payoffs. Our penetration of GM's retail sales in the U.S. decreased to 43.1% in 2019 from 49.1% in 2018. Penetration levels vary depending on incentive financing programs available and competing third-party financing products in the market. Average commercial finance receivables increased primarily due to growth in our GM-franchised dealer commercial lending relationships.
Revenue
Years Ended December 31,
 
2019 vs. 2018
 
2019
 
2018
 
Amount
 
Percentage
Finance charge income
 
 
 
 
 
 
 
Retail finance receivables
$
3,384

 
$
3,070

 
$
314

 
10.2
 %
Commercial finance receivables
$
687

 
$
559

 
$
128

 
22.9
 %
Leased vehicle income
$
10,032

 
$
9,963

 
$
69

 
0.7
 %
Other income
$
451

 
$
424

 
$
27

 
6.4
 %
Equity income
$
166

 
$
183

 
$
(17
)
 
(9.3
)%
Effective yield - retail finance receivables
8.0
%
 
8.5
%
 
 
 
 
Effective yield - commercial finance receivables
5.5
%
 
5.2
%
 
 
 
 
Finance charge income on retail finance receivables increased due to growth in the portfolio, partially offset by a decrease in effective yield. The effective yield on our retail finance receivables decreased primarily due to increased lending to borrowers with prime credit. The effective yield represents finance charges, rate subvention and fees recorded in earnings during the period as a percentage of average retail finance receivables.
Finance charge income on commercial finance receivables increased due to growth in the portfolio, including an increase in the number of dealers in our floorplan program, and an increase in the effective yield resulting from higher average benchmark interest rates.
Costs and Expenses
Years Ended December 31,
 
2019 vs. 2018
 
2019
 
2018
 
Amount
 
Percentage
Operating expenses
$
1,564

 
$
1,522

 
$
42

 
2.8
 %
Leased vehicle expenses
$
6,685

 
$
6,917

 
$
(232
)
 
(3.4
)%
Provision for loan losses
$
726

 
$
642

 
$
84

 
13.1
 %
Interest expense
$
3,641

 
$
3,225

 
$
416

 
12.9
 %
Average debt outstanding
$
91,189

 
$
85,050

 
$
6,139

 
7.2
 %
Effective rate of interest on debt
4.0
%
 
3.8
%
 
 
 
 

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GENERAL MOTORS FINANCIAL COMPANY, INC.

Operating Expenses Operating expenses as a percentage of average earning assets decreased to 1.6% for 2019 from 1.7% for 2018, primarily due to efficiency gains achieved through higher average earning asset levels.
Provision for Loan Losses As a percentage of average retail finance receivables, the provision for retail loan losses decreased to 1.6% for 2019 from 1.7% for 2018, as the credit mix of the U.S. portfolio has shifted to a larger percentage of prime loans.
Interest Expense Interest expense increased due to an increase in the average debt outstanding resulting from growth in average earning assets as well as a higher effective rate of interest on our debt.
Taxes Our consolidated effective income tax rate was 27.7% and 18.9% of income before income taxes and equity income for 2019 and 2018. The increase in the effective income tax rate is primarily due to a reduction in our electric vehicle tax credit in 2019 and a favorable impact from U.S. tax law changes in 2018.
Other Comprehensive (Loss) Income
Foreign Currency Translation Adjustment Foreign currency translation adjustments included in other comprehensive (loss) income were $5 million and $(291) million for 2019 and 2018. Translation adjustments resulted from changes in the values of our foreign currency-denominated assets and liabilities as the value of the U.S. Dollar changed in relation to foreign currencies. The foreign currency translation gain for 2019 was primarily due to depreciating values of the Canadian Dollar and the Mexican Peso, partially offset by appreciating values of the Brazilian Real and the Chinese Yuan Renminbi in relation to the U.S. Dollar. The foreign currency translation loss for 2018 was primarily due to changes in the values of the Brazilian Real, the Canadian Dollar, and the Chinese Yuan Renminbi in relation to the U.S. Dollar.

15

GENERAL MOTORS FINANCIAL COMPANY, INC.

Earning Assets Quality
Retail Finance Receivables Our retail finance receivables portfolio includes loans made to consumers and businesses to finance the purchase of vehicles for personal and commercial use. A summary of the credit risk profile by FICO score or its equivalent, determined at origination, of the retail finance receivables is as follows:
 
December 31, 2019
 
December 31, 2018
 
Amount
 
Percent
 
Amount
 
Percent
Prime - FICO Score 680 and greater
$
25,439

 
60.2
%
 
$
24,434

 
60.0
%
Near-prime - FICO Score 620 to 679
6,862

 
16.2

 
6,144

 
15.1

Sub-prime - FICO Score less than 620
9,967

 
23.6

 
10,124

 
24.9

Retail finance receivables, net of fees
42,268

 
100.0
%
 
40,702

 
100.0
%
Less: allowance for loan losses
(866
)
 
 
 
(844
)
 
 
Retail finance receivables, net
$
41,402

 
 
 
$
39,858

 
 
Number of outstanding contracts
2,656,525

 
 
 
2,607,703

 
 
Average amount of outstanding contracts (in dollars)(a)
$
15,911

 
 
 
$
15,608

 
 
Allowance for loan losses as a percentage of retail finance receivables, net of fees
2.0
%
 
 
 
2.1
%
 
 
_________________ 
(a)
Average amount of outstanding contracts consists of retail finance receivables, net of fees, divided by the number of outstanding contracts.
Delinquency The following is a consolidated summary of the contractual amounts of delinquent retail finance receivables:
 
December 31, 2019
 
December 31, 2018
 
Amount
 
Percent of Contractual Amount Due
 
Amount
 
Percent of Contractual Amount Due
31 - 60 days
$
1,354

 
3.2
%
 
$
1,349

 
3.3
%
Greater than 60 days
542

 
1.3

 
547

 
1.4

Total finance receivables more than 30 days delinquent
1,896

 
4.5

 
1,896

 
4.7

In repossession
44

 
0.1

 
44

 
0.1

Total finance receivables more than 30 days delinquent or in repossession
$
1,940

 
4.6
%
 
$
1,940

 
4.8
%
Delinquency improved as the credit mix of the U.S. portfolio has shifted to a larger percentage of prime loans.
Troubled Debt Restructurings (TDRs) Refer to Note 1 and Note 3 to our consolidated financial statements for further information on TDRs.
Net Charge-offs The following table presents charge-off data with respect to our retail finance receivables portfolio:  
 
Years Ended December 31,
 
2019
 
2018
 
2017
Charge-offs
$
1,218

 
$
1,196

 
$
1,171

Less: recoveries
(548
)
 
(536
)
 
(552
)
Net charge-offs
$
670

 
$
660

 
$
619

Net charge-offs as a percentage of average retail finance receivables
1.6
%
 
1.8
%
 
2.0
%
 
Net charge-offs as a percentage of average retail finance receivables decreased during 2019 from the prior years, as the credit mix of the U.S. portfolio has shifted to a larger percentage of prime loans.

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GENERAL MOTORS FINANCIAL COMPANY, INC.

Commercial Finance Receivables
December 31, 2019
 
December 31, 2018
Commercial finance receivables, net of fees
$
12,149

 
$
12,721

Less: allowance for loan losses
(78
)
 
(67
)
Commercial finance receivables, net
$
12,071

 
$
12,654

Number of dealers
1,872

 
1,750

Average carrying amount per dealer
$
6

 
$
7

Allowance for loan losses as a percentage of commercial finance receivables, net of fees
0.6
%
 
0.5
%
At December 31, 2019, commercial finance receivables classified as TDRs were insignificant. At December 31, 2018, no commercial finance receivables were classified as TDRs. Activity in the allowance for commercial loan losses was insignificant for 2019, 2018 and 2017, and substantially all of our commercial finance receivables were current with respect to payment status at December 31, 2019 and 2018.
Leased Vehicles At December 31, 2019 and 2018, 99.1% 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, 2019
 
December 31, 2018
 
Residual Value
 
Units
 
Percentage
of Units
 
Residual Value
 
Units
 
Percentage
of Units
Crossovers
$
15,950

 
972

 
60.5
%
 
$
15,057

 
917

 
53.8
%
Trucks
7,256

 
288

 
18.0

 
7,299

 
296

 
17.4

SUVs
3,917

 
108

 
6.7

 
4,160

 
111

 
6.5

Cars
3,276

 
238

 
14.8

 
4,884

 
379

 
22.3

Total
$
30,399

 
1,606

 
100.0
%
 
$
31,400

 
1,703

 
100.0
%
Used vehicle prices decreased 3% in 2019 compared to 2018. We expect a decrease of 3% to 4% in 2020 compared to 2019, primarily due to continued elevated levels in the industry supply of used vehicles.
The following table summarizes additional information for operating leases (in thousands):
 
Years ended December 31,
 
2019
 
2018
 
2017
Operating leases originated
566

 
587

 
678

Operating leases terminated
664

 
536

 
349

Operating lease vehicles returned(a)
498

 
369

 
238

Percentage of lease vehicles returned(b)
75
%
 
69
%
 
68
%
________________ 
(a)
Represents the number of vehicles returned to us for remarketing.
(b)
Calculated as the number of operating lease vehicles returned divided by the number of operating leases terminated.
Operating leases terminated and operating lease vehicles returned increased due to the maturity of the leased asset portfolio. The return rate can fluctuate based upon the level of used vehicle pricing compared to residual values at lease inception and/or growth and age of the lease portfolio.
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, 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, interest costs and operating expenses.

17

GENERAL MOTORS FINANCIAL COMPANY, INC.

Typically, our purchase and funding of retail and commercial finance receivables and leased vehicles are financed initially by 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.
Cash Flow During 2019, net cash provided by operating activities increased primarily due to a decrease in net collateral posted for derivative positions of $0.8 billion as a result of favorable changes in interest rates on our collateralized derivative portfolio.
During 2019, net cash used in investing activities decreased primarily due to increased collections and recoveries on retail finance receivables of $5.5 billion, a decrease in net funding of commercial finance receivables of $3.2 billion, an increase in proceeds received on terminated leases of $2.4 billion, a decrease in purchases of retail finance receivables of $1.0 billion, and a decrease in purchases of leased vehicles of $0.3 billion.
During 2019, net cash used in financing activities increased primarily due to an increase in debt repayments of $9.2 billion, a decrease in borrowings of $4.8 billion, and a decrease in the issuance of preferred stock of $0.5 billion.
Liquidity
December 31, 2019
 
December 31, 2018
Cash and cash equivalents(a)
$
3,311

 
$
4,883

Borrowing capacity on unpledged eligible assets
17,537

 
18,048

Borrowing capacity on committed unsecured lines of credit
298

 
290

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

 
1,000

Borrowing capacity on the GM Revolving 364-Day Credit Facility
2,000

 
2,000

Available liquidity
$
24,146

 
$
26,221

_________________
(a)
Includes $390 million and $503 million in unrestricted cash outside of the U.S. at December 31, 2019 and 2018. This cash is considered to be indefinitely invested based on specific plans for reinvestment of these earnings.
During 2019, available liquidity decreased primarily due to a decrease in cash and cash equivalents and increased credit facilities utilization, resulting from a decrease in issuances of securitizations and unsecured debt. At December 31, 2019, available liquidity was in line with our liquidity targets.
Our support agreement with GM (the Support Agreement) provides that GM will use commercially reasonable efforts to ensure that we will continue to be designated as a subsidiary borrower under GM's unsecured revolving credit facilities. We have access, subject to available capacity, to $14.5 billion of GM's unsecured revolving credit facilities consisting of a three-year, $4.0 billion facility and a five-year, $10.5 billion facility. We also have exclusive access to GM's 364-day $2.0 billion facility (the GM Revolving 364-Day Credit Facility). In April 2019, GM renewed the GM Revolving 364-Day Credit Facility for an additional 364-day term. This facility has been allocated for exclusive access by us since April 2018. At December 31, 2019, we had no borrowings outstanding under any of these 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 February 4, 2020:
 
 
Company Rating
 
Bond Rating
 
Short Term Rating
 
Outlook
DBRS Limited
 
BBB
 
BBB
 
R-2
 
Stable
Fitch
 
BBB
 
BBB
 
F-2
 
Stable
Moody’s
 
Baa3
 
Baa3
 
P-3
 
Stable
S&P
 
BBB
 
BBB
 
A-2
 
Stable
Credit Facilities In the normal course of business, in addition to using our available cash, we fund our operations by borrowing under our credit facilities, which may be secured and/or structured as securitizations, or may be unsecured. We repay these borrowings as appropriate under our liquidity management strategy.

18

GENERAL MOTORS FINANCIAL COMPANY, INC.

At December 31, 2019, credit facilities consist of the following:
Facility Type
 
Facility Amount
 
Advances Outstanding
Revolving retail asset-secured facilities(a)
 
$
22,654

 
$
6,152

Revolving commercial asset-secured facilities(b)
 
4,063

 

Total secured
 
26,717

 
6,152

Unsecured committed facilities
 
401

 
103

Unsecured uncommitted facilities(c)
 
1,833

 
1,833

Total unsecured
 
2,234

 
1,936

Junior Subordinated Revolving Credit Facility
 
1,000

 

GM Revolving 364-Day Credit Facility
 
2,000

 

Total
 
$
31,951

 
$
8,088

_________________
(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 $127 million in advances outstanding and $656 million in unused borrowing capacity on these facilities at December 31, 2019.
(b)
Includes revolving credit facilities backed by loans to dealers for floorplan financing.
(c)
The financial institutions providing the uncommitted facilities are not contractually obligated to advance funds under them. We had $1.6 billion in unused borrowing capacity on these facilities at December 31, 2019.
Refer to Note 7 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, 2019
2015
 
August 2021
-
December 2023
 
$
3,151

 
$
318

2016
 
February 2022
-
September 2024
 
$
6,660

 
1,321

2017
 
January 2020
-
May 2025
 
$
19,234

 
6,669

2018
 
June 2020
-
September 2026
 
$
22,781

 
12,375

2019
 
April 2022
-
July 2027
 
$
16,404

 
13,179

Total active securitizations
 
 
 
 
 
 
 
33,862

Debt issuance costs
 
 
 
 
 
 
 
(55
)
     Total
 
 
 
 
 
 
 
$
33,807

_________________ 
(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 8 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. At December 31, 2019, the aggregate principal amount of our outstanding unsecured senior notes was $43.7 billion.
We issue other unsecured debt through commercial paper offerings and other bank and non-bank funding sources. At December 31, 2019, we had $3.4 billion of this type of unsecured debt outstanding.
Support Agreement Our earning assets leverage ratio calculated in accordance with the terms of the Support Agreement was 8.30x and 9.05x at December 31, 2019 and 2018, and the applicable leverage ratio threshold was 11.50x. The earning assets leverage ratio decreased during 2019 due to growth in earnings and stable earning assets.

19

GENERAL MOTORS FINANCIAL COMPANY, INC.

Dividends on Common Stock In October 2019 and 2018, our Board of Directors declared and paid dividends of $400 million and $375 million on our common stock to General Motors Holdings LLC. Future dividends are payable at the sole discretion of our Board of Directors and will depend on a number of factors including, but not limited to, business and economic conditions, our financial condition, earnings, liquidity requirements and leverage ratio.
Off-Balance Sheet Arrangements We do not currently utilize off-balance sheet securitization arrangements. All finance receivables and related obligations subject to securitization programs were recorded on our consolidated balance sheets at December 31, 2019 and 2018.
Contractual Obligations The following table presents the expected scheduled principal and interest payments under our contractual debt obligations:
 
Years Ending December 31,
 
2020
 
2021
 
2022
 
2023
 
2024
 
Thereafter
 
Total
Secured debt
$
24,089

 
$
10,233

 
$
3,781

 
$
1,182

 
$
731

 
$

 
$
40,016

Unsecured debt
11,498

 
10,457

 
7,982

 
5,856

 
5,064

 
8,160

 
49,017

Interest payments(a)
2,485

 
1,573

 
982

 
707

 
431

 
477

 
6,655

 
$
38,072

 
$
22,263

 
$
12,745

 
$
7,745

 
$
6,226

 
$
8,637

 
$
95,688

_________________ 
(a)
Interest payments were determined using the interest rate in effect at December 31, 2019 for floating rate debt and the contractual rates for fixed-rate debt.
At December 31, 2019, we had liabilities associated with uncertain tax positions of $135 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. At December 31, 2019, we had related party taxes payable of $4 million for state tax liabilities. Refer to Note 14 to our consolidated financial statements for more information.
Forward-Looking Statements
This report 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, 2019. 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;
dealers' effectiveness in marketing our financial products to consumers;
the viability of GM-franchised dealers that are commercial loan customers;
the sufficiency, availability and cost of sources of financing, including credit facilities, securitization programs and secured and unsecured debt issuances;
the adequacy of our underwriting criteria for loans and leases and the level of net charge-offs, delinquencies and prepayments on the loans and leases we purchase or originate;
our ability to effectively manage capital or liquidity consistent with evolving business or operational needs, risk management standards and regulatory or supervisory requirements;
the adequacy of our allowance for loan losses on our finance receivables;
our ability to maintain and expand our market share due to competition in the automotive finance industry from a large number of banks, credit unions, independent finance companies and other captive automotive finance subsidiaries;
changes in the automotive industry that result in a change in demand for vehicles and related vehicle financing;

20

GENERAL MOTORS FINANCIAL COMPANY, INC.

the effect, interpretation or application of new or existing laws, regulations, court decisions and accounting pronouncements;
adverse determinations with respect to the application of existing laws, or the results of any audits from tax authorities, as well as changes in tax laws and regulations, supervision, enforcement and licensing across various jurisdictions;
the prices at which used vehicles are sold in the wholesale auction markets;
vehicle return rates, our ability to estimate residual value at the inception of a lease and the residual value performance on vehicles we lease;
interest rate fluctuations and certain related derivatives exposure;
our joint ventures in China, which we cannot operate solely for our benefit and over which we have limited control;
changes in the determination of LIBOR and other benchmark rates;
our ability to secure private customer and employee data or our proprietary information, manage risks related to security breaches and other disruptions to our networks and systems and comply with enterprise data regulations in all key market regions;
foreign currency exchange rate fluctuations, public health crises, including the occurrence of a contagious disease or illness, such as the novel coronavirus and other risks applicable to our operations outside of the U.S.; and
changes in local, regional, national or international economic, social or political conditions.
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.
Item 7A. Quantitative and Qualitative Disclosures 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 instrument 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 rate and foreign currency exchange 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 agreements 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.
Our debt includes long-term unsecured debt and securitization notes payable. Our senior unsecured debt issuances have tenors of up to ten years. Approximately 84% of these debt instruments are fixed-rate and pay equal interest payments over the life of

21

GENERAL MOTORS FINANCIAL COMPANY, INC.

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 12-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 instruments 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 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 100 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 100 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, 2019
 
December 31, 2018
100 basis points instantaneous increase in interest rates
$
(4.6
)
 
$
10.7

100 basis points instantaneous decrease in interest rates(a)
$
4.6

 
$
(10.7
)
________________
(a)
Net interest income sensitivity given a 100 basis points decrease in interest rates requires an assumption of negative interest rates in markets where existing interest rates are below one percent.
At December 31, 2019, we were liability-sensitive, meaning that we expect more liabilities than assets to re-price within the next 12 months. During a period of rising interest rates, the interest paid on our liabilities would increase more than the interest earned on our assets, which would initially decrease our net interest income. During a period of falling interest rates, we would expect our net interest income to initially increase. At December 31, 2018, we were asset-sensitive, meaning that we expected more assets than liabilities to re-price within the next 12 months. During a period of rising interest rates, the interest earned on our assets would 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.
Our net interest income sensitivity continued to decrease in 2019 from 2018 primarily due to 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 derivative instruments (in billions):
 
December 31, 2019
 
December 31, 2018
Interest rate contracts
 
 
 
Pay-fixed, receive-floating interest rate swaps
$
37

 
$
42

Pay-floating, receive-fixed interest rate swaps
32

 
29

Long interest rate caps and floors
17

 
19

Short interest rate caps and floors
17

 
20

     Total interest rate contracts
103

 
110

Foreign currency swaps
6

 
4

     Total notional value
$
109

 
$
114

Derivative Fair Values The net fair value of our derivative financial instruments at December 31, 2019 was an asset of $117 million, compared to a liability of $367 million at December 31, 2018. The fair value of our cross-currency swaps decreased due to the strengthening 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 9 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,
 
2019
 
2018
 
2017
Foreign currency translation (gains) losses recorded in accumulated other comprehensive loss
$
(5
)
 
$
291

 
$
(450
)
 
 
 
 
 
 
(Gains) losses resulting from foreign currency transactions and remeasurement recorded in earnings
$
(33
)
 
$
(226
)
 
$
251

Losses (gains) resulting from foreign currency exchange swaps recorded in earnings
25

 
238

 
(242
)
Net (gains) losses resulting from foreign currency exchange recorded in earnings
$
(8
)
 
$
12

 
$
9

Most of the international operations use functional currencies other than the U.S. Dollar. Translation adjustments result from changes in the values of our foreign currency-denominated assets and liabilities as the value of the U.S. Dollar changes in relation to foreign currencies. The foreign currency translation gain for 2019 was primarily due to depreciating values of the Canadian Dollar and the Mexican Peso, partially offset by appreciating values of the Brazilian Real and the Chinese Yuan Renminbi in relation to the U.S. Dollar. The foreign currency translation loss in 2018 was primarily due to decreases in the values of the Brazilian Real, the Canadian Dollar, and the Chinese Yuan Renminbi 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 instruments. Investments are typically securities representing high quality monetary instruments that are easily accessible and derivative instruments 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 business.

24

GENERAL MOTORS FINANCIAL COMPANY, INC.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors 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. (the Company) as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for the two years in the period ended December 31, 2019, 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 at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
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/Ernst & Young LLP
We have served as the Company’s auditor since 2017.
Fort Worth, Texas
February 5, 2020



25

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 statements of income and comprehensive income, shareholders’ equity, and cash flows of General Motors Financial Company, Inc. and subsidiaries (the "Company") for the year 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 results of its operations and its cash flows for the year 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 audit. 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 audit 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 audit, 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 audit 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 audit 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 audit provides a reasonable basis for our opinion.

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


We began serving as the Company's auditor in 2006. In 2018 we became the predecessor auditor.

26

GENERAL MOTORS FINANCIAL COMPANY, INC.

Item 8. Financial Statements and Supplementary Data

CONSOLIDATED BALANCE SHEETS
(in millions, except per share amounts) 
 
December 31, 2019
 
December 31, 2018
ASSETS
 
 
 
Cash and cash equivalents
$
3,311

 
$
4,883

Finance receivables, net (Note 3; Note 8 VIEs)
53,473

 
52,512

Leased vehicles, net (Note 4; Note 8 VIEs)
42,055

 
43,559

Goodwill (Note 5)
1,185

 
1,186

Equity in net assets of non-consolidated affiliates (Note 6)
1,455

 
1,355

Property and equipment, net of accumulated depreciation of $287 and $221
226

 
251

Deferred income taxes (Note 14)
213

 
214

Related party receivables (Note 2)
678

 
729

Other assets (Note 8 VIEs)
6,621

 
5,231

Total assets
$
109,217

 
$
109,920

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Liabilities
 
 
 
Secured debt (Note 7; Note 8 VIEs)
$
39,959

 
$
42,835

Unsecured debt (Note 7)
48,979

 
48,153

Accounts payable and accrued expenses
1,953

 
1,891

Deferred income
3,648

 
3,605

Deferred income taxes (Note 14)
946

 
522

Related party payables (Note 2)
82

 
63

Other liabilities
924

 
1,192

Total liabilities
96,491

 
98,261

Commitments and contingencies (Note 10)

 

Shareholders' equity (Note 11)
 
 
 
Common stock, $0.0001 par value per share

 

Preferred stock, $0.01 par value per share

 

Additional paid-in capital
8,101

 
8,058

Accumulated other comprehensive loss
(1,119
)
 
(1,066
)
Retained earnings
5,744

 
4,667

Total shareholders' equity
12,726

 
11,659

Total liabilities and shareholders' equity
$
109,217

 
$
109,920

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

27

GENERAL MOTORS FINANCIAL COMPANY, INC.


CONSOLIDATED STATEMENTS OF INCOME
(in millions) 
 
Years Ended December 31,
 
2019
 
2018
 
2017
Revenue
 
 
 
 
 
Finance charge income
$
4,071

 
$
3,629

 
$
3,256

Leased vehicle income
10,032

 
9,963

 
8,606

Other income
451

 
424

 
289

Total revenue
14,554

 
14,016

 
12,151

Costs and expenses
 
 
 
 
 
Operating expenses
1,564

 
1,522

 
1,390

Leased vehicle expenses
6,685

 
6,917

 
6,415

Provision for loan losses (Note 3)
726

 
642

 
757

Interest expense
3,641

 
3,225

 
2,566

Total costs and expenses
12,616

 
12,306

 
11,128

Equity income (Note 6)
166

 
183

 
173

Income from continuing operations before income taxes
2,104

 
1,893

 
1,196

Income tax provision (Note 14)
537

 
323

 
111

Income from continuing operations
1,567

 
1,570

 
1,085

Loss from discontinued operations, net of tax (Note 15)

 

 
(424
)
Net income
$
1,567

 
$
1,570

 
$
661

Less: cumulative dividends on preferred stock
90

 
66

 
16

Net income attributable to common shareholder
$
1,477

 
$
1,504

 
$
645


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
 
Years Ended December 31,
 
2019
 
2018
 
2017
Net income
$
1,567

 
$
1,570

 
$
661

Other comprehensive (loss) income, net of tax
 
 
 
 
 
Unrealized loss on hedges, net of income tax benefit of $19, $5 and $2
(58
)
 
(7
)
 
(1
)
Defined benefit plans after reclassification adjustment, net of income tax expense of $0, $0 and $9

 

 
21

Foreign currency translation adjustment before reclassification adjustment, net of income tax expense (benefit) of $0, $(1) and $33
5

 
(291
)
 
253

Reclassification adjustment(a)

 

 
197

Other comprehensive (loss) income, net of tax
(53
)
 
(298
)
 
470

Comprehensive income
$
1,514

 
$
1,272

 
$
1,131

_________________
(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.

28

GENERAL MOTORS FINANCIAL COMPANY, INC.


CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in millions) 
 
Common Stock
 
Preferred Stock
 
Additional Paid-in Capital
 
Accumulated Other Comprehensive Loss
 
Retained Earnings
 
Total Equity
Balance at January 1, 2017
$

 
$

 
$
6,505

 
$
(1,238
)
 
$
3,426

 
$
8,693

Net income

 

 

 

 
661

 
661

Other comprehensive income

 

 

 
470

 

 
470

Stock based compensation

 

 
35

 

 

 
35

Issuance of preferred stock (Note 11)

 

 
985

 

 

 
985

Dividends paid (Note 11)

 

 

 

 
(550
)
 
(550
)
Balance at December 31, 2017

 

 
7,525

 
(768
)
 
3,537

 
10,294

Adoption of accounting standards (Note 1)

 

 

 

 
40

 
40

Net income

 

 

 

 
1,570

 
1,570

Other comprehensive loss

 

 

 
(298
)
 

 
(298
)
Stock based compensation

 

 
41

 

 

 
41

Issuance of preferred stock (Note 11)

 

 
492

 

 

 
492

Dividends paid (Note 11)

 

 

 

 
(434
)
 
(434
)
Dividends declared on preferred stock (Note 11)

 

 

 

 
(46
)
 
(46
)
Balance at December 31, 2018

 

 
8,058

 
(1,066
)
 
4,667

 
11,659

Net income

 

 

 

 
1,567

 
1,567

Other comprehensive loss

 

 

 
(53
)
 

 
(53
)
Stock based compensation

 

 
43

 

 

 
43

Dividends paid (Note 11)

 

 

 

 
(445
)
 
(445
)
Dividends declared on preferred stock (Note 11)

 

 

 

 
(45
)
 
(45
)
Balance at December 31, 2019
$

 
$

 
$
8,101

 
$
(1,119
)
 
$
5,744

 
$
12,726

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




29

GENERAL MOTORS FINANCIAL COMPANY, INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
 
Years Ended December 31,
 
2019
 
2018
 
2017
Cash flows from operating activities
 
 
 
 
 
Income from continuing operations
$
1,567

 
$
1,570

 
$
1,085

Adjustments to reconcile income from continuing operations to net cash provided by operating activities
 
 
 
 
 
Depreciation and amortization
7,538

 
7,697

 
6,706

Accretion and amortization of loan and leasing fees
(1,953
)
 
(2,018
)
 
(1,711
)
Undistributed earnings of non-consolidated affiliates, net
(121
)
 
(183
)
 
(173
)
Provision for loan losses
726

 
642

 
757

Deferred income taxes
440

 
239

 
42

Stock-based compensation expense
50

 
29

 
48

Gain on termination of leased vehicles
(652
)
 
(641
)
 
(166
)
Other operating activities
53

 
166

 
(140
)
Changes in assets and liabilities:
 
 
 
 
 
Other assets
259

 
(401
)
 
(54
)
Accounts payable and accrued expenses
134

 
262

 
153

Other liabilities
28

 
10

 
(28
)
Net cash provided by operating activities - continuing operations
8,069

 
7,372

 
6,519

Net cash provided by operating activities - discontinued operations

 

 
233

Net cash provided by operating activities
8,069

 
7,372

 
6,752

Cash flows from investing activities
 
 
 
 
 
Purchases of retail finance receivables, net
(25,341
)
 
(26,315
)
 
(19,524
)
Principal collections and recoveries on retail finance receivables
22,889

 
17,357

 
12,854

Net collections (funding) of commercial finance receivables
650

 
(2,573
)
 
(2,584
)
Purchases of leased vehicles, net
(16,404
)
 
(16,736
)
 
(19,180
)
Proceeds from termination of leased vehicles
13,302

 
10,864

 
6,667

Purchases of property and equipment
(47
)
 
(60
)
 
(94
)
Acquisition of equity interest
(5
)
 
(54
)
 

Other investing activities
2

 
1

 
2

Net cash used in investing activities - continuing operations
(4,954
)
 
(17,516
)
 
(21,859
)
Net cash provided by investing activities - discontinued operations

 

 
3

Net cash used in investing activities
(4,954
)
 
(17,516
)
 
(21,856
)
Cash flows from financing activities
 
 
 
 
 
Net change in debt (original maturities less than three months)
(304
)
 
1,124

 
(105
)
Borrowings and issuances of secured debt
25,078

 
26,693

 
32,480

Payments on secured debt
(27,806
)
 
(23,626
)
 
(27,451
)
Borrowings and issuances of unsecured debt
10,457

 
12,200

 
15,883

Payments on unsecured debt
(10,276
)
 
(5,215
)
 
(5,018
)
Debt issuance costs
(116
)
 
(146
)
 
(155
)
Proceeds from issuance of preferred stock

 
492

 
985

Dividends paid
(491
)
 
(434
)
 
(550
)
Net cash (used in) provided by financing activities - continuing operations
(3,458
)
 
11,088

 
16,069

Net cash provided by financing activities - discontinued operations

 

 
219

Net cash (used in) provided by financing activities
(3,458
)
 
11,088

 
16,288

Net (decrease) increase in cash, cash equivalents and restricted cash
(343
)
 
944

 
1,184

Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash
2

 
(68
)
 
81

Cash, cash equivalents and restricted cash at beginning of period
7,443

 
6,567

 
5,302

Cash, cash equivalents and restricted cash at end of period
$
7,102

 
$
7,443

 
$
6,567

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheet:
 
December 31, 2019
 
December 31, 2018
Cash and cash equivalents
$
3,311

 
$
4,883

Restricted cash included in other assets
3,791

 
2,560

Total
$
7,102

 
$
7,443

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 have been operating in the automobile finance business in the U.S. since September 1992 and have been a wholly-owned subsidiary of GM since October 2010. 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 the year ended December 31, 2017. Refer to Note 15 for further information 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 collections (funding) of commercial finance receivables."
We have debt agreements to finance our commercial lending activities. 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. The 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 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 least likely to default to those that are most likely to default. 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. 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.

31

GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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, historical loss experience is evaluated, and 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 we 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 assumptions 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 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.
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 and any amounts received under a cash management program. 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 Retail finance receivables are generally charged off in the month in which the account becomes 120 days contractually delinquent if we have not yet recorded a repossession charge-off.
Commercial finance receivables are individually evaluated and, where collectibility 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.

32

GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Impaired Finance Receivables - TDRs In evaluating whether a loan modification constitutes a TDR, our policy for retail loans is that (i) the modification must constitute a concession and (ii) the debtor must be 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.
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.
Finance receivables that become classified as TDRs are separately assessed for impairment. A specific allowance is estimated based on the present value of the expected future cash flows of the receivable discounted at the loan's original effective interest rate. Accounts that become classified as TDRs because of a payment deferral accrue interest at the contractual rate and an additional fee is collected (where permitted) at each time of deferral and recorded as a reduction of accrued interest. No interest or fees are forgiven on a payment deferral to a customer; therefore, there are no additional financial effects of deferred loans becoming classified as TDRs. Accounts in the U.S. in Chapter 13 bankruptcy would have already been placed on nonaccrual; therefore, there are no additional financial effects from these loans becoming classified as TDRs. Finance charge income from loans classified as TDRs is accounted for in the same manner as other accruing loans. Cash collections on these loans are allocated according to the same payment hierarchy methodology applied to loans that are not classified as TDRs.
Leased Vehicles As lessor, we have investments in leased vehicles recorded as operating leases. Leased vehicles consist of automobiles leased to customers and are carried at amortized cost less unearned manufacturer subvention payments, which are received up front. Depreciation expense is recorded on a straight-line basis over the term of the lease agreement to the estimated residual value. Manufacturer subvention is earned on a straight-line basis as a reduction to depreciation expense.
Generally, the lessee may purchase the leased vehicle at the maturity of the lease by paying the purchase price stated in the lease agreement, 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 a 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 agreement, the lessee is responsible for additional monthly payments until the leased vehicle is returned or purchased. Since the lessee 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 prior to or 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.
We estimate the expected residual value based on third-party data that considers various data points and assumptions, including, but not limited to, recent auction values, the expected future volume of returning leased vehicles, used vehicle prices, manufacturer incentive programs and fuel prices. 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 carrying amount 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 carrying amount of the lease asset group, an immediate impairment write-down is recognized if the difference is deemed not recoverable.
Variable Interest Entities (VIEs) – Securitizations and Credit Facilities We finance a significant portion of our loan and lease origination volume through the use of our credit facilities and execution of securitization transactions, which both utilize Special Purpose Entities (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.

33

GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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 that 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 3, Note 7 and Note 8 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.
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 is 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 operating expenses. Maintenance, repairs and minor replacements are charged to operations as incurred; major replacements and improvements are capitalized.
Goodwill Goodwill is not amortized but rather tested for impairment annually on October 1 or when events occur or circumstances change that trigger a review. The impairment test entails an assessment of qualitative factors to determine whether it is more likely than not that an impairment exists. If it is more likely than not that an impairment exists, then a quantitative impairment test is performed. Impairment exists when the carrying amount of a reporting unit exceeds its fair value.
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.
Derivative financial instruments 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 instruments that have become favorable to us, to the extent that market values are not collateralized. We maintain a policy of requiring that all derivative instruments be governed by an International Swaps and Derivatives Association Master Agreement. We enter into derivative instruments 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 changes in the fair value of the hedge in accumulated other comprehensive income/loss.
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 hedge is also recorded in interest expense.

34

GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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 Swap Agreements 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.
We designate certain pay-fixed, receive-fixed 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 operating expenses or interest expense. Any ineffective portion of a cash flow hedge is recorded to interest expense immediately.
We designate certain pay-float, receive-float cross-currency swaps as fair value hedges of foreign currency-denominated debt. The risk being hedged is the foreign exchange risk associated with the remeasurement of the foreign currency-denominated debt. We assess effectiveness of these hedge relationships based on changes in fair value attributable only to changes in currency exchange rates. If the hedge relationship is deemed to be highly effective, we record changes in the fair value of the swap attributable to changes in currency exchange rates to operating expenses, changes in the fair value of the swap attributable to components excluded from the assessment of hedge effectiveness in accumulated other comprehensive income/loss, and reclassify interest accrual components to interest expense.
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 earned on finance receivables is recognized using the effective interest method. Fees and commissions received (including incentive payments) 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 fully charged off or paid in full.
Accrual of finance charge income on retail finance receivables is suspended on accounts that are more than 60 days delinquent, accounts in bankruptcy and accounts in repossession. Payments received on nonaccrual loans are first applied to any fees due,

35

GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

then to any interest due and then any remaining amounts are applied to principal. 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.
Accrual of finance charge income on commercial finance receivables 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 exists about the full collectibility of contractually agreed upon principal and interest. Payments received on nonaccrual 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).
Rental income earned on leased vehicles, including lease origination fees, net of lease origination costs, is recognized on a straight-line basis over the lease term.
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 12 for further information.
Recently Adopted Accounting Standards Effective January 1, 2019, we adopted ASU 2016-02, "Leases" (ASU 2016-02) using the optional transition method, resulting in the recognition of right-of-use assets of $129 million, included in other assets, and lease obligations of $144 million, included in other liabilities on our consolidated balance sheet related to our existing operating leases at January 1, 2019. We elected to apply the package of practical expedients permitted under the transition guidance in the new standard, which allowed us to carry forward our historical lease classification. The accounting for finance leases and leases where we are lessor remained substantially unchanged. The application of ASU 2016-02 had no impact on our consolidated statement of income or consolidated statement of cash flows.
The following table summarizes our minimum commitments under noncancelable operating leases having initial terms in excess of one year at December 31, 2018:
 
Years Ending December 31,
 
2019
 
2020
 
2021
 
2022
 
2023
 
Thereafter
 
Total
Minimum commitments
$
27

 
$
26

 
$
25

 
$
23

 
$
19

 
$
47

 
$
167

Refer to Note 10 for information on our operating leases at December 31, 2019.
Accounting Standards Not Yet Adopted In June 2016, the Financial Accounting Standards Board 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 current expected credit losses (CECL) rather than incurred losses. We adopted ASU 2016-13 on January 1, 2020 on a modified retrospective basis. Upon adoption, estimated credit losses under CECL consider relevant information about past events, current conditions and reasonable and supportable forecasts that affect the collectibility of the reported amount, resulting in recognition of lifetime expected credit losses upon loan origination. The adoption impact of ASU 2016-13 will increase our allowance for credit losses by approximately $800 million, with an after-tax reduction to retained earnings of approximately $600 million.
Note 2. Related Party Transactions
We offer loan and lease finance products through GM-franchised dealers to customers purchasing new vehicles manufactured by GM and certain used vehicles and make commercial loans directly to GM-franchised dealers and their affiliates. We also offer commercial loans to dealers that are consolidated by GM and those balances are included in our finance receivables, net.
Under subvention programs, GM makes cash payments to us for offering incentivized rates and structures on retail loan and lease finance products. In addition, GM makes cash payments to us to cover interest payments on certain commercial loans.
We purchase certain program vehicles from GM subsidiaries. We simultaneously lease these vehicles to those subsidiaries for use primarily in their vehicle-sharing arrangements. We account for these leases as direct-finance leases, sales-type leases or loans depending on the origin of the asset, all of which are included in our finance receivables, net.
We periodically purchase finance receivables from other GM subsidiaries for vehicles sold to rental car companies and for vehicles sold to certain dealerships. During 2019 and 2018, we purchased $851 million and $540 million of these receivables from GM, which are included in our finance receivables, net.

36

GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

We have related party payables due to GM, primarily for commercial finance receivables originated but not yet funded.
The following tables present related party transactions:
Balance Sheet Data
December 31, 2019
 
December 31, 2018
Commercial finance receivables, net due from dealers consolidated by GM(a)
$
478

 
$
445

Finance receivables from GM subsidiaries(a)
$
39

 
$
134

Subvention receivable(b)
$
676

 
$
727

Commercial loan funding payable(c)
$
74

 
$
61

 
Years Ended December 31,
Income Statement Data
2019
 
2018
 
2017
Interest subvention earned on retail finance receivables(d)
$
527

 
$
487

 
$
438

Interest subvention earned on commercial finance receivables(d)
$
61

 
$
67

 
$
54

Leased vehicle subvention earned(e)
$
3,273

 
$
3,274

 
$
3,046

_________________
(a)
Included in finance receivables, net.
(b)
Included in related party receivables. We received subvention payments from GM of $4.1 billion, $3.8 billion and $4.3 billion during 2019, 2018 and 2017.
(c)
Included in related party payables.
(d)
Included in finance charge income.
(e)
Included as a reduction to leased vehicle expenses.
Under the support agreement with GM (the Support Agreement), if our earning assets leverage ratio at the end of any calendar quarter exceeds the applicable threshold set in the Support Agreement, we may require GM to provide funding sufficient to bring our earning assets leverage ratio to within the applicable threshold. In determining our earning assets leverage ratio (net earning assets divided by adjusted equity) under the Support Agreement, net earning assets means our finance receivables, net, plus leased vehicles, net, and adjusted equity means our equity, net of goodwill and inclusive of outstanding junior subordinated debt, as each may be adjusted for derivative accounting from time to time.
Additionally, the Support Agreement provides that GM will own all of our outstanding voting shares as long as we have any unsecured debt securities outstanding. GM also agrees to certain provisions in the Support Agreement intended to ensure that we maintain adequate access to liquidity. Pursuant to these provisions, GM provides us with a $1.0 billion junior subordinated unsecured intercompany revolving credit facility (the Junior Subordinated Revolving Credit Facility), and GM agrees to use commercially reasonable efforts to ensure that we will continue to be designated as a subsidiary borrower under GM's corporate revolving credit facilities. We have access, subject to available capacity, to $14.5 billion of GM's unsecured revolving credit facilities consisting of a three-year, $4.0 billion facility, and a five-year, $10.5 billion facility. We also have exclusive access to GM's $2.0 billion GM Revolving 364-Day Credit Facility. In April 2019, GM renewed the GM Revolving 364-Day Credit Facility for an additional 364-day term. This facility has been allocated for exclusive access by us since April 2018. At December 31, 2019, we had no borrowings outstanding under any of these facilities.
We are included in GM's consolidated U.S. federal income tax returns and certain U.S. state returns, and we are obligated to pay GM for our share of tax liabilities. Amounts owed to GM for income taxes are accrued and recorded as a related party payable. At December 31, 2019, we had related party taxes payable of $4 million for state tax liabilities. At December 31, 2018, we had no related party taxes payable.

37

GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Note 3. Finance Receivables
 
December 31, 2019
 
December 31, 2018
Retail finance receivables
 
 
 
Retail finance receivables, collectively evaluated for impairment, net of fees
$
39,890

 
$
38,354

Retail finance receivables, individually evaluated for impairment, net of fees
2,378

 
2,348

Total retail finance receivables, net of fees(a)
42,268

 
40,702

Less: allowance for loan losses - collective
(536
)
 
(523
)
Less: allowance for loan losses - specific
(330
)
 
(321
)
Total retail finance receivables, net
41,402

 
39,858

Commercial finance receivables
 
 
 
Commercial finance receivables, collectively evaluated for impairment, net of fees
12,073

 
12,680

Commercial finance receivables, individually evaluated for impairment, net of fees
76

 
41

Total commercial finance receivables, net of fees(b)
12,149

 
12,721

Less: allowance for loan losses - collective
(60
)
 
(63
)
Less: allowance for loan losses - specific
(18
)
 
(4
)
Total commercial finance receivables, net
12,071

 
12,654

Total finance receivables, net
$
53,473

 
$
52,512

Fair value utilizing Level 2 inputs
$
12,071

 
$
12,654

Fair value utilizing Level 3 inputs
$
42,012

 
$
39,564

________________
(a)
Net of unearned income, unamortized premiums and discounts, and deferred fees and costs of $83 million and $53 million at December 31, 2019 and 2018.
(b)
Net of dealer cash management balances of $1.2 billion and $922 million at December 31, 2019 and 2018.

Rollforward of Allowance for Retail Loan Losses A summary of the activity in the allowance for retail loan losses is as follows:
 
Years ended December 31,
 
2019
 
2018
 
2017
Allowance for retail loan losses beginning balance
$
844

 
$
889

 
$
765

Provision for loan losses
690

 
624

 
742

Charge-offs
(1,218
)
 
(1,196
)
 
(1,171
)
Recoveries
548

 
536

 
552

Foreign currency translation
2

 
(9
)
 
1

Allowance for retail loan losses ending balance
$
866

 
$
844

 
$
889



38

GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Retail Credit Quality Our retail finance receivables portfolio includes loans made to consumers and businesses to finance the purchase of vehicles for personal and commercial use. We review the credit quality of our retail finance receivables based on customer payment activity. A retail account is considered delinquent if a substantial portion of a scheduled payment has not been received by the date such payment was contractually due. Retail finance receivables are collateralized by vehicle titles and, subject to local laws, we generally have the right to repossess the vehicle in the event the customer defaults on the payment terms of the contract. The following is a consolidated summary of the contractual amounts of delinquent retail finance receivables, which is not significantly different than the recorded investment for such receivables: 
 
December 31, 2019
 
December 31, 2018
 
Amount
 
Percent of Contractual Amount Due
 
Amount
 
Percent of Contractual Amount Due
31 - 60 days
$
1,354

 
3.2
%
 
$
1,349

 
3.3
%
Greater than 60 days
542

 
1.3

 
547

 
1.4

Total finance receivables more than 30 days delinquent
1,896

 
4.5

 
1,896

 
4.7

In repossession
44

 
0.1

 
44

 
0.1

Total finance receivables more than 30 days delinquent or in repossession
$
1,940

 
4.6
%
 
$
1,940

 
4.8
%
At December 31, 2019 and 2018, the accrual of finance charge income had been suspended on retail finance receivables with contractual amounts due of $875 million and $888 million.
Impaired Retail Finance Receivables - TDRs The outstanding recorded investment for retail finance receivables that are considered to be TDRs and the related allowance is presented below:
 
December 31, 2019
 
December 31, 2018
Outstanding recorded investment
$
2,378

 
$
2,348

Less: allowance for loan losses
(330
)
 
(321
)
Outstanding recorded investment, net of allowance
$
2,048

 
$
2,027

Unpaid principal balance(a)
$
2,404

 
$
2,379

________________
(a)
Includes $366 million in nonaccrual loans at both December 31, 2019 and 2018.
Additional information about loans classified as TDRs is presented below:
 
Years Ended December 31,
 
2019
 
2018
 
2017
Average outstanding recorded investment
$
2,363

 
$
2,288

 
$
2,074

Finance charge income recognized
$
245

 
$
239

 
$
228

Number of loans classified as TDRs during the period
69,863

 
69,298

 
74,784

Recorded investment of loans classified as TDRs during the period
$
1,269

 
$
1,267

 
$
1,309

The unpaid principal balance, net of recoveries, of loans that were charged off during the reporting period within 12 months of being modified as a TDR was $37 million, $38 million and $27 million for 2019, 2018 and 2017.

39

GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Commercial Credit Quality Our commercial finance receivables consist of dealer financings, primarily for dealer inventory purchases. Proprietary models are used to assign a risk rating to each dealer. We perform periodic credit reviews of each dealership and adjust the dealership's risk rating, if necessary. Dealers in Group VI are subject to additional restrictions on funding, including suspension of lines of credit and liquidation of assets. The following table summarizes the credit risk profile by dealer risk rating of commercial finance receivables: 
 
 
 
December 31, 2019
 
December 31, 2018
 
 
 
Amount
 
Percent
 
Amount
 
Percent
Group I
-
Dealers with superior financial metrics
$
1,953

 
16.1
%
 
$
2,192

 
17.2
%
Group II
-
Dealers with strong financial metrics
4,666

 
38.4

 
4,500

 
35.4

Group III
-
Dealers with fair financial metrics
3,989

 
32.8

 
4,292

 
33.7

Group IV
-
Dealers with weak financial metrics
1,043

 
8.6

 
1,205

 
9.5

Group V
-
Dealers warranting special mention due to elevated risks
370

 
3.0

 
449

 
3.5

Group VI
-
Dealers with loans classified as substandard, doubtful or impaired
128

 
1.1

 
83

 
0.7

Balance at end of period
$
12,149

 
100.0
%
 
$
12,721

 
100.0
%
At December 31, 2019 and 2018, substantially all of our commercial finance receivables were current with respect to payment status and amounts on nonaccrual status were insignificant. At December 31, 2019, commercial finance receivables classified as TDRs were insignificant and no commercial finance receivables were classified as TDRs at December 31, 2018. Activity in the allowance for commercial loan losses was insignificant for 2019, 2018 and 2017.
Note 4. Leased Vehicles
 
December 31, 2019
 
December 31, 2018
Leased vehicles
$
62,767

 
$
64,928

Manufacturer subvention
(9,731
)
 
(9,934
)
Net capitalized cost
53,036

 
54,994

Less: accumulated depreciation
(10,981
)
 
(11,435
)
Leased vehicles, net
$
42,055

 
$
43,559

The following table summarizes minimum rental payments due to us as lessor under operating leases at December 31, 2019:
 
Years Ending December 31,
 
2020
 
2021
 
2022
 
2023
 
2024
 
Total
Lease payments under operating leases
$
6,517

 
$
4,080

 
$
1,607

 
$
137

 
$
4

 
$
12,345

Note 5. Goodwill
The following table summarizes the changes in the carrying amounts of goodwill by segment:
 
Years ended December 31,
 
2019
 
2018
 
2017
 
North America
 
International
 
Total
 
North America
 
International
 
Total
 
North America
 
International
 
Total
Beginning balance
$
1,105

 
$
81

 
$
1,186

 
$
1,105

 
$
92

 
$
1,197

 
$
1,105

 
$
91

 
$
1,196

Foreign currency translation

 
(1
)
 
(1
)
 

 
(11
)
 
(11
)
 

 
1

 
1

Ending balance
$
1,105

 
$
80

 
$
1,185

 
$
1,105

 
$
81

 
$
1,186

 
$
1,105

 
$
92

 
$
1,197


40

GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Note 6. Equity in Net Assets of Non-consolidated Affiliates
We use the equity method to account for our equity interest in joint ventures. The income of these joint ventures is not consolidated into our financial statements; rather, our proportionate share of the earnings is reflected as equity income.
In August 2018, we made a $51 million capital investment representing a 35% equity interest in the newly-formed joint venture SAIC-GMF Leasing Co. Ltd., which was established to conduct auto leasing operations in China.
The following table presents certain aggregated financial data of our joint ventures:
Summarized Balance Sheet Data
December 31, 2019
 
December 31, 2018
Finance receivables, net
$
18,358

 
$
16,555

Total assets
$
19,594

 
$
19,368

Debt
$
14,321

 
$
13,618

Total liabilities
$
16,352

 
$
16,439

 
Years Ended December 31,
Summarized Operating Data
2019
 
2018
 
2017
Finance charge income
$
1,369

 
$
1,246

 
$
1,053

Income before income taxes
$
630

 
$
696

 
$
661

Net income
$
473

 
$
522

 
$
496

The following table summarizes our direct ownership interests in joint ventures:
Joint Ventures
December 31, 2019
 
December 31, 2018
SAIC-GMAC Automotive Finance Company Limited (SAIC–GMAC)
35
%
 
35
%
SAIC-GMF Leasing Co. Ltd.
35
%
 
35
%
In October 2019, SAIC-GMAC paid a $140 million cash dividend of which our share was $49 million. There were no dividends received from SAIC-GMAC in 2018. At December 31, 2019 and 2018, we had undistributed earnings of $615 million and $498 million related to our non-consolidated affiliates.
Note 7. Debt
 
December 31, 2019
 
December 31, 2018
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Secured debt

 
 
 
 
 
 
Revolving credit facilities
$
6,152

 
$
6,160

 
$
3,410

 
$
3,413

Securitization notes payable
33,807

 
34,000

 
39,425

 
39,422

Total secured debt
39,959

 
40,160

 
42,835

 
42,835

Unsecured debt
 
 
 
 
 
 
 
Senior notes
43,679

 
44,937

 
42,611

 
42,015

Credit facilities
1,936

 
1,936

 
2,157

 
2,151

Other unsecured debt
3,364

 
3,366

 
3,385

 
3,390

Total unsecured debt
48,979

 
50,239

 
48,153

 
47,556

Total secured and unsecured debt
$
88,938

 
$
90,399

 
$
90,988

 
$
90,391

Fair value utilizing Level 2 inputs
 
 
$
88,481

 
 
 
$
88,305

Fair value utilizing Level 3 inputs
 
 
$
1,918

 
 
 
$
2,086


Secured Debt Most of the secured debt was issued by VIEs and is repayable only from proceeds related to the underlying pledged assets. Refer to Note 8 for further information.

41

GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The weighted average interest rate on secured debt was 2.95% at December 31, 2019. Issuance costs on the secured debt of $75 million as of December 31, 2019 and $93 million as of December 31, 2018 are amortized to interest expense over the expected term of the secured debt.
The terms of our revolving credit facilities provide for a revolving period and subsequent amortization period, and are expected to be repaid over periods ranging up to six years. During 2019, we entered into new or renewed credit facilities with a total net additional borrowing capacity of $225 million.
Securitization notes payable at December 31, 2019 are due beginning in 2020 through 2027. During 2019, we issued $16.2 billion in aggregate principal amount of securitization notes payable with an initial weighted average interest rate of 2.75% and maturity dates ranging from 2022 to 2027.
Unsecured Debt
Senior Notes At December 31, 2019, we had $43.7 billion aggregate outstanding in senior notes that mature from 2020 through 2029 and have a weighted average interest rate of 3.42%. Issuance costs on senior notes of $111 million as of December 31, 2019 and $121 million as of December 31, 2018 are amortized to interest expense over the term of the notes.
During 2019, we issued $6.9 billion in aggregate principal amount of senior notes with an initial weighted average interest rate of 3.63% and maturity dates ranging from 2021 through 2029.
In January 2020, we issued $1.25 billion in senior notes with an interest rate of 2.90% due in 2025.
General Motors Financial Company, Inc. is the sole guarantor of its subsidiaries' unsecured debt obligations for which a guarantee is provided.
Credit Facilities and Other Unsecured Debt We use unsecured credit facilities with banks as well as non-bank instruments as funding sources. Our credit facilities and other unsecured debt have maturities of up to four years. The weighted average interest rate on these credit facilities and other unsecured debt was 4.73% at December 31, 2019.
Contractual Debt Obligations The following table presents the expected scheduled principal and interest payments under our contractual debt obligations:
 
Years Ending December 31,
 
2020
 
2021
 
2022
 
2023
 
2024
 
Thereafter
 
Total
Secured debt
$
24,089

 
$
10,233

 
$
3,781

 
$
1,182

 
$
731

 
$

 
$
40,016

Unsecured debt
11,498

 
10,457

 
7,982

 
5,856

 
5,064

 
8,160

 
49,017

Interest payments
2,485

 
1,573

 
982

 
707

 
431

 
477

 
6,655

 
$
38,072

 
$
22,263

 
$
12,745

 
$
7,745

 
$
6,226

 
$
8,637

 
$
95,688

Compliance with Debt Covenants Several of our revolving credit facilities require compliance with certain financial and operational covenants as well as regular reporting to lenders, including providing certain subsidiary financial statements. Certain of our secured debt agreements also contain various covenants, including maintaining portfolio performance ratios as well as limits on deferment levels. Our unsecured debt obligations contain covenants including limitations on our ability to incur certain liens. At December 31, 2019, we were in compliance with these debt covenants.
Note 8. Variable Interest Entities
Securitizations and Credit Facilities The following table summarizes the assets and liabilities related to our consolidated VIEs:
 
December 31, 2019
 
December 31, 2018
Restricted cash(a)
$
2,643

 
$
2,380

Finance receivables, net of fees
$
35,392

 
$
32,626

Lease related assets
$
14,464

 
$
21,781

Secured debt
$
39,771

 
$
42,504

_______________
(a) Included in other assets.

42

GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Note 9. Derivative Financial Instruments and Hedging Activities
We are exposed to certain risks arising from both our business operations and economic conditions. We manage economic risks, including interest rate risk, primarily by managing the amount, sources, and duration of our assets and liabilities and the use of derivative financial instruments. Specifically, we enter into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Our derivative financial instruments are used to manage differences in the amount, timing, and duration of our known or expected cash receipts and our known or expected cash payments principally related to our borrowings.
Certain of our foreign operations expose us to fluctuations of foreign interest rates and exchange rates. We primarily finance our earning assets with debt in the same currency to minimize the impact to earnings from our exposure to fluctuations in exchange rates. When we use a different currency, these fluctuations may impact the value of our cash receipts and payments in terms of our functional currency. We enter into derivative financial instruments to protect the value or fix the amount of certain assets and liabilities in terms of the relevant functional currency. The table below presents the gross amounts of fair value of our derivative instruments and the associated notional amounts:
 
 
December 31, 2019
 
December 31, 2018
 
 
Notional
 
Fair Value of Assets(a)
 
Fair Value of Liabilities(a)
 
Notional
 
Fair Value of Assets(a)
 
Fair Value of Liabilities(a)
Derivatives designated as hedges
 
 
 
 
 
 
 
 
 
 
 
 
Fair value hedges
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
$
9,458

 
$
234

 
$
23

 
$
9,533

 
$
42

 
$
231

Foreign currency swaps
 
1,796

 
22

 
71

 
1,829

 
37

 
60

Cash flow hedges
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
590

 

 
6

 
768

 
8

 

Foreign currency swaps
 
4,429

 
40

 
119

 
2,075

 
43

 
58

Derivatives not designated as hedges
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
 
92,400

 
340

 
300

 
99,666

 
372

 
520

Total(b)
 
$
108,673

 
$
636

 
$
519

 
$
113,871

 
$
502

 
$
869

 _________________
(a)
The gross amounts of the fair value of our assets and liabilities are included in other assets and other liabilities, respectively. Amounts accrued for interest payments in a net receivable position are included in other assets. Amounts accrued for interest payments in a net payable position are included in other liabilities. All our derivatives are categorized within Level 2 of the fair value hierarchy. The fair value for Level 2 instruments was derived using the market approach based on observable market inputs including quoted prices of similar instruments and foreign exchange and interest rate forward curves.
(b)
We primarily enter into derivative instruments through AmeriCredit Financial Services, Inc. (AFSI); however, our SPEs may also be parties to derivative instruments. Agreements between AFSI and its derivative counterparties include rights of setoff for positions with offsetting values or for collateral held or posted. At December 31, 2019 and December 31, 2018, the fair value of assets and liabilities available for offset was $302 million and $320 million. At December 31, 2019 and December 31, 2018, we held $210 million and $30 million of collateral from counterparties that is available for netting against our asset positions. At December 31, 2019 and December 31, 2018, we posted $89 million and $451 million of collateral to counterparties that is available for netting against our liability positions.
The following amounts were recorded in the consolidated balance sheet related to items designated and qualifying as hedged items in fair value hedging relationships:
 
Carrying Amount of
Hedged Items
 
Cumulative Amount of Fair Value
Hedging Adjustments
(a)
 
December 31, 2019
 
December 31, 2018
 
December 31, 2019
 
December 31, 2018
Unsecured debt
$
20,397

 
$
17,923

 
$
(77
)
 
$
459

 _________________
(a)
Includes $69 million and $247 million at December 31, 2019 and December 31, 2018 of amortization remaining on hedged items for which hedge accounting has been discontinued.


43

GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The tables below present the effect of our derivative financial instruments in the consolidated statements of income:
 
Years Ended December 31,
 
2019
 
2018
 
Interest Expense(a)
 
Operating Expenses(b)
 
Interest Expense(a)
 
Operating Expenses(b)
Fair value hedges
 
 
 
 
 
 
 
Hedged items - interest rate swaps
$
(569
)
 
$

 
$
83

 
$

Interest rate swaps
355

 

 
(102
)
 

Hedged items - foreign currency swaps

 
33

 

 
(17
)
Foreign currency swaps
(59
)
 
(28
)
 
(5
)
 
18

Cash flow hedges
 
 
 
 
 
 
 
Interest rate swaps
5

 

 
14

 

Foreign currency swaps
(87
)
 
3

 
(49
)
 
(114
)
Derivatives not designated as hedges
 
 
 
 
 
 
 
Interest rate contracts
142

 

 
26

 

Foreign currency swaps

 

 
(44
)
 
(142
)
Total (losses) income recognized
$
(213
)
 
$
8

 
$
(77
)
 
$
(255
)
_________________
(a)
Total interest expense was $3.6 billion and $3.2 billion for 2019 and 2018.
(b)
Activity is offset by translation activity also recorded in operating expenses related to foreign currency-denominated loans. Total operating expenses were $1.6 billion and $1.5 billion for 2019 and 2018.
 
Year Ended December 31, 2017
Fair value hedges
 
Interest rate swaps(a)(b)
$
42

Cash flow hedges
 
Interest rate swaps(a)
3

Foreign currency swaps(c)
121

Derivatives not designated as hedges
 
Interest rate contracts(a)
40

Foreign currency swaps(c)(d)
86

Total income recognized
$
292

_________________
(a)
Recognized in earnings as interest expense.
(b)
Includes hedge ineffectiveness which reflects the net change in the fair value of interest rate swaps offset by the change in fair value of hedged debt attributable to the hedged risk.
(c)
Recognized in earnings as operating expenses and interest expense.
(d)
Activity is partially offset by translation activity (included in operating expenses) related to foreign currency-denominated loans.








44

GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The tables below present the effect of our derivative financial instruments in the consolidated statements of comprehensive income:
 
Gains (Losses) Recognized In
Accumulated Other Comprehensive Loss
 
Years Ended December 31,
 
2019
 
2018
 
2017
Fair value hedges
 
 
 
 
 
Foreign currency swaps
$
(41
)
 
$
(3
)
 
$

Cash flow hedges
 
 
 
 
 
Interest rate swaps
(6
)
 
3

 
5

Foreign currency swaps
(113
)
 
(89
)
 
81

Total
$
(160
)
 
$
(89
)
 
$
86

 
(Gains) Losses Reclassified From
Accumulated Other Comprehensive Loss Into Income(a)(b)
 
Years Ended December 31,
 
2019
 
2018
 
2017
Fair value hedges
 
 
 
 
 
Foreign currency swaps
$
41

 
$
3

 
$

Cash flow hedges
 
 
 
 
 
Interest rate swaps
(3
)
 
(7
)
 
(1
)
Foreign currency swaps
64

 
86

 
(86
)
Total
$
102

 
$
82

 
$
(87
)
_________________
(a)
All amounts reclassified from accumulated other comprehensive loss were recorded to interest expense.
(b)
During the next twelve months, we estimate $26 million in gains will be reclassified into pretax earnings from derivatives designated for hedge accounting.
Note 10. Commitments and Contingencies
Operating Leases Our lease obligations consist primarily of real estate office space with terms up to 11 years. Certain leases contain escalation clauses and renewal options, and generally our leases have no residual value guarantees or material covenants. We exclude from our balance sheet leases with a term equal to one year or less and do not separate non-lease components from our real estate leases. Rent expense under operating leases was $38 million and variable lease costs were insignificant for the year ended December 31, 2019. At December 31, 2019, operating lease right-of-use assets, included in other assets, were $137 million and operating lease liabilities, included in other liabilities, were $158 million. Operating lease right-of-use assets obtained in exchange for lease obligations were $36 million for the year ended December 31, 2019. At December 31, 2019, our undiscounted future lease obligations related to operating leases having initial terms in excess of one year were $27 million, $27 million, $25 million, $21 million, $20 million, and $67 million for the years 2020, 2021, 2022, 2023, 2024 and thereafter, with imputed interest of $29 million at December 31, 2019. The weighted average discount rate was 4.4% and the weighted average remaining lease term was 7.9 years at December 31, 2019. Lease agreements that have not yet commenced were insignificant at December 31, 2019.
Concentrations of Credit Risk Financial instruments which potentially subject us to concentrations of credit risk are primarily cash equivalents, restricted cash, derivative financial instruments and retail finance receivables. Our cash equivalents and restricted cash represent investments in highly rated securities placed through various major financial institutions. The counterparties to our derivative financial instruments are various major financial institutions.
Borrowers located in Texas accounted for 12.5% of the retail finance receivable portfolio at December 31, 2019. No other state or country accounted for more than 10% of the retail finance receivable portfolio.
At December 31, 2019, substantially all of our commercial finance receivables represent loans to GM-franchised dealers and their affiliates.

45

GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Guarantees of Indebtedness At December 31, 2019 and 2018, we guaranteed approximately $561 million and $1.1 billion in aggregate principal amount of Euro Medium Term Notes issued by General Motors Financial International B.V., our former subsidiary, pursuant to our Euro Medium Term Note Programme. Subject to the terms and conditions of a letter agreement with BNP Paribas in connection with the sale of our European Operations, BNP Paribas will reimburse us for any amount that we may pay under any such guarantees.
Legal Proceedings We are subject to various pending and potential legal and regulatory proceedings in the ordinary course of business, including litigation, arbitration, claims, investigations, examinations, subpoenas and enforcement proceedings. Some litigation against us could take the form of class actions. The outcome of these proceedings are inherently uncertain, and thus we cannot confidently predict how or when proceedings will be resolved. An adverse outcome in one or more of these proceedings could result in substantial damages, settlements, fines, penalties, diminished income or reputational harm. We identify below the material proceedings in connection with which we believe a material loss is reasonably possible or probable.
In accordance with the current accounting standards for loss contingencies, we establish reserves for legal matters when it is probable that a loss associated with the matter has been incurred and the amount of the loss can be reasonably estimated. The actual costs of resolving legal matters may be higher or lower than any amounts reserved for these matters. At December 31, 2019, we estimated our reasonably possible legal exposure for unfavorable outcomes is up to $53 million, and have accrued $19 million.
In 2014 and 2015, we were served with investigative subpoenas from various state attorneys general and other governmental offices to produce documents and data relating to our automobile loan and lease business and securitization of loans and leases. We believe that we have cooperated fully with all reasonable requests for information. We are currently unable to estimate any reasonably possible loss or range of loss that may result from these investigations.
Other Administrative Tax Matters We accrue non-income tax liabilities for contingencies when management believes that a loss is probable and the amounts can be reasonably estimated, while contingent gains are recognized only when realized. In the event any losses are sustained in excess of accruals, they will be charged against income at that time.
In evaluating indirect tax matters, we take into consideration factors such as our historical experience with matters of similar nature, specific facts and circumstances, and the likelihood of prevailing. We reevaluate and update our accruals as matters progress over time. Where there is a reasonable possibility that losses exceeding amounts already recognized may be incurred, our estimate of the additional range of loss is up to $13 million as of December 31, 2019.
Note 11. Shareholders' Equity
 
December 31, 2019
 
December 31, 2018
Common Stock
 
 
 
Number of shares authorized
10,000,000

 
10,000,000

Number of shares issued and outstanding
5,050,000

 
5,050,000

In October 2019 and 2018, our Board of Directors declared and paid dividends of $400 million and $375 million on our common stock to General Motors Holdings LLC.
 
December 31, 2019
 
December 31, 2018
Preferred Stock
 
 
 
Number of shares authorized
250,000,000

 
250,000,000

Number of shares issued and outstanding
 
 
 
Series A
1,000,000

 
1,000,000

Series B
500,000

 
500,000

During 2019, we paid dividends of $58 million to holders of record of our Series A Preferred Stock, and $33 million to holders of record of our Series B Preferred Stock. During 2018, we paid dividends of $59 million to holders of record of our Series A Preferred Stock.
In October 2019, prior to the declaration of our common stock dividend, our Board of Directors declared a dividend of $28.75 per share, $29 million in the aggregate, on our Series A Preferred Stock, payable on March 30, 2020 to holders of record at March 15, 2020 and declared a dividend of $32.50 per share, $16 million in the aggregate, on our Series B Preferred Stock payable on

46

GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

March 30, 2020 to holders of record at March 15, 2020. Accordingly, $45 million has been set aside for the payment of these dividends.
In September 2018, we issued 500,000 shares, par value $0.01 per share, of Fixed-to-Floating Rate Cumulative Perpetual Preferred Stock, Series B (Series B Preferred Stock), at a liquidation preference of $1,000 per share, for net proceeds of approximately $492 million.
Holders of Series B Preferred Stock are entitled to receive cash dividend payments when, as and if declared by our Board of Directors (or a duly authorized committee of our Board of Directors). Dividends on the Series B Preferred Stock accrue and are payable from September 24, 2018 to, but excluding, September 30, 2028 at a rate of 6.500% per annum, payable semi-annually in arrears on March 30 and September 30 of each year, beginning on March 30, 2019. From and including September 30, 2028, holders of the Series B Preferred Stock will be entitled to receive cash dividend payments at a floating rate equal to the then-applicable three-month U.S. Dollar LIBOR plus a spread of 3.436% per annum, payable quarterly in arrears, on March 30, June 30, September 30 and December 30 of each year. Dividends on the Series B Preferred Stock are cumulative whether or not we have earnings, there are funds legally available for the payment of the dividends or the dividends are authorized or declared.
The Series B Preferred Stock does not have a maturity date. We may, at our option, redeem the shares of Series B Preferred Stock, in whole or in part, at any time on or after September 30, 2028, at a price of $1,000 per share of Series B Preferred Stock plus all accumulated and unpaid dividends to, but excluding, the date of redemption.
In September 2017, we issued 1,000,000 shares, par value $0.01 per share, of Fixed-to-Floating Rate Cumulative Perpetual Preferred Stock, Series A (Series A Preferred Stock), at a liquidation preference of $1,000 per share, for net proceeds of $985 million.
For the first 10 years after issuance, holders of the Series A Preferred Stock will be entitled to receive cash dividend payments at an annual rate of 5.750%, payable semi-annually in arrears on March 30 and September 30 of each year beginning on March 30, 2018. After 10 years, holders of the Series A Preferred Stock will be entitled to receive cash dividend payments at a floating rate equal to the then applicable three-month U.S. Dollar LIBOR plus a spread of 3.598% per annum, payable quarterly in arrears, on March 30, June 30, September 30 and December 30 of each year. Dividends on the Series A Preferred Stock are cumulative whether or not we have earnings, there are funds legally available for the payment of the dividends or the dividends are authorized or declared.
The Series A Preferred Stock does not have a maturity date. We may, at our option, redeem the shares of Series A Preferred Stock, in whole or in part, at any time on or after September 30, 2027, at a price of $1,000 per share of Series A Preferred Stock plus all accumulated and unpaid dividends to, but excluding, the date of redemption.


47

GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following table summarizes the significant components of accumulated other comprehensive loss:
 
Years Ended December 31,
 
2019
 
2018
 
2017
Unrealized (loss) gain on hedges
 
 
 
 
 
Beginning balance
$
9

 
$
16

 
$
17

Change in value of hedges, net of tax
(58
)
 
(7
)
 
(1
)
Ending balance
(49
)
 
9

 
16

Defined benefit plans
 
 
 
 
 
Beginning balance
1

 
1

 
(20
)
Reclassification adjustment, net of tax(a)

 

 
21

Ending balance
1

 
1

 
1

Foreign currency translation adjustment
 
 
 
 
 
Beginning balance
(1,076
)
 
(785
)
 
(1,235
)
Translation gain (loss), net of tax
5

 
(291
)
 
253

Reclassification adjustment(a)

 

 
197

Ending balance
(1,071
)
 
(1,076
)
 
(785
)
Total accumulated other comprehensive loss
$
(1,119
)
 
$
(1,066
)
 
$
(768
)
_________________
(a)
The reclassification adjustment in 2017 is related to the sale of the European Operations.
Note 12. Parent Company Stock-Based Compensation
GM grants to certain employees and key executive officers Restricted Stock Units (RSUs), Performance-based Share Units (PSUs) and stock options. Shares awarded under the plans are subject to forfeiture if the participant leaves the company for reasons other than those permitted under the plans, such as retirement, death or disability.
RSU awards granted either cliff vest or ratably vest generally over a three-year service period, as defined in the terms for each award. PSU awards vest at the end of a three-year performance period based on performance criteria determined by the Executive Compensation Committee of the GM Board of Directors at the time of award. The number of shares earned may equal, exceed or be less than the targeted number of shares depending on whether the performance criteria are met, surpassed or not met. Stock options expire 10 years from the grant date. GM's performance-based stock options vest ratably over 55 months based on the performance of its common stock relative to that of a specified peer group. GM's service-based stock options vest ratably over 19 months to three years.
The following table summarizes information about RSUs, PSUs and stock options granted to our employees and key executive officers under GM's stock-based compensation programs (units in thousands):
 
Year Ended December 31, 2019
 
Shares
 
Weighted-Average Grant Date Fair Value
 
Weighted-Average Remaining Contractual Term (years)
Units outstanding at January 1, 2019
2,862

 
$
27.54

 
1.2
Granted
863

 
$
37.97

 
 
Settled
(917
)
 
$
30.44

 
 
Forfeited or expired
(31
)
 
$
41.88

 
 
Units outstanding at December 31, 2019(a)
2,777

 
$
30.26

 
1.3
Units unvested and expected to vest at December 31, 2019
1,491

 
$
40.62

 
1.7
Units vested and payable at December 31, 2019
1,196

 
$
15.84

 
 
________________
(a)
Includes the target amount of PSUs.

48

GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Total compensation expense related to the above awards was $50 million, $29 million and $48 million in 2019, 2018 and 2017.
The assumptions used to estimate the fair value of the stock options issued during 2019, 2018 and 2017 are a dividend yield of 3.90%, 3.69% and 4.43%, expected volatility of 28%, 28% and 25%, a risk-free interest rate of 2.63%, 2.73% and 1.97%, and an expected option life of 6.00 years, 5.98 years and 5.84 years.
At December 31, 2019, total unrecognized compensation expense for nonvested equity awards granted was $30 million. This expense is expected to be recorded over a weighted-average period of one year. The total fair value of RSUs and PSUs vested was $19 million, $21 million and $16 million in 2019, 2018 and 2017.
In 2019, 2018, and 2017, total payments for 22,000, 165,000 and 300,000 RSUs settled in cash under stock incentive plans were $1 million, $7 million and $11 million.
Note 13. Employee Benefit Plans
We have defined contribution retirement plans covering the majority of our employees. We recognized $25 million, $22 million and $20 million in compensation expense for 2019, 2018 and 2017 related to these plans. Contributions to the plans were made in cash.
Note 14. Income Taxes
The following table summarizes income before income taxes and equity income:
 
Years Ended December 31,
 
2019
 
2018
 
2017
U.S. income
$
1,599

 
$
1,421

 
$
710

Non-U.S. income
339

 
289

 
313

Income before income taxes and equity income
$
1,938

 
$
1,710

 
$
1,023

Income Tax Expense
Years Ended December 31,
 
2019
 
2018
 
2017
Current income tax expense
 
 
 
 
 
U.S. state and local
$
16

 
$
1

 
$
(4
)
Non-U.S.
81

 
83

 
73

Total current
97

 
84

 
69

Deferred income tax expense
 
 
 
 
 
U.S. federal
330

 
133

 
(16
)
U.S. state and local
71

 
75

 
31

Non-U.S.
39

 
31

 
27

Total deferred
440

 
239

 
42

Total income tax provision
$
537

 
$
323

 
$
111

Provisions are made for estimated U.S. and non-U.S. income taxes, which may be incurred on the reversal of our basis differences in investments in foreign subsidiaries not deemed to be indefinitely reinvested. At December 31, 2019 and 2018, taxes on $409 million and $138 million have not been provided on basis differences in investments as a result of earnings in foreign subsidiaries which are deemed indefinitely reinvested. Deferred tax liability associated with indefinitely reinvested basis differences was insignificant.

49

GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

A reconciliation between the U.S. federal statutory tax rate and the effective tax rate is as follows:
 
Years Ended December 31,
 
2019
 
2018
 
2017
U.S. federal statutory tax rate
21.0
 %
 
21.0
 %
 
35.0
 %
Non-U.S. income taxed at other than the U.S. federal statutory rate
2.1

 
2.8

 
(0.1
)
State and local income taxes
4.0

 
4.2

 
3.5

U.S. tax on non-U.S. earnings
1.1

 
0.2

 
7.3

Valuation allowance
0.5

 
0.4

 
1.1

Tax credits and incentives
(0.7
)
 
(6.2
)
 
(11.2
)
U.S. federal tax reform impact

 
(2.6
)
 
(23.4
)
Other
(0.3
)
 
(0.9
)
 
(1.3
)
Effective tax rate
27.7
 %
 
18.9
 %
 
10.9
 %
Deferred Income Tax Assets and Liabilities Deferred income tax assets and liabilities at December 31, 2019 and 2018 reflect the effect of temporary differences between amounts of assets, liabilities and equity for financial reporting purposes and the basis of such assets, liabilities and equity as measured by tax laws, as well as tax loss and tax credit carryforwards. The following table summarizes the components of temporary differences and carryforwards that give rise to deferred tax assets and liabilities:
 
December 31, 2019
 
December 31, 2018
Deferred tax assets
 
 
 
Net operating loss carryforward - U.S.(a)
$
371

 
$
968

Net operating loss carryforward - non-U.S.(b)
178

 
167

Market value difference of loan portfolio
310

 
23

Accruals
115

 
104

Tax credits(c)
839

 
806

Other
185

 
151

Total deferred tax assets before valuation allowance
1,998

 
2,219

Less: valuation allowance
(279
)
 
(270
)
Total deferred tax assets
1,719

 
1,949

Deferred tax liabilities
 
 
 
Depreciable assets
2,177

 
2,020

Deferred acquisition costs
123

 
134

Other
152

 
103

Total deferred tax liabilities
2,452

 
2,257

Net deferred tax liability
$
(733
)
 
$
(308
)
_________________
(a)
Includes tax-effected operating losses of $339 million expiring through 2039 and $32 million that may be carried forward indefinitely at December 31, 2019.
(b)
Includes tax-effected operating losses of $142 million expiring through 2039 and $36 million that may be carried forward indefinitely at December 31, 2019.
(c)
Includes tax credits of $839 million expiring through 2039 at December 31, 2019.
We are included in GM’s consolidated U.S. federal income tax return and certain states’ income tax returns. Net operating losses and certain tax credits generated by us have been utilized by GM; however, income tax expense and deferred tax balances are presented in these financial statements as if we filed our own tax returns in each jurisdiction. As of December 31, 2019, we have $279 million in valuation allowances against deferred tax assets in U.S. jurisdictions. The increase in valuation allowance of $9 million is a result of an increase in foreign tax credits.

50

GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Uncertain Tax Positions 
Years Ended December 31,
 
2019
 
2018
 
2017
Beginning balance
$
50

 
$
54

 
$
56

Additions to prior years' tax positions
1

 

 

Reductions to prior years' tax positions

 

 
(1
)
Additions to current year tax positions
7

 
3

 
4

Reductions in tax positions due to lapse of statutory limitations
(1
)
 
(5
)
 
(5
)
Foreign currency translation

 
(2
)
 

Ending balance
$
57

 
$
50

 
$
54

At December 31, 2019, 2018 and 2017, there were $41 million, $37 million and $33 million of net unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate.
We recognize accrued interest and penalties associated with uncertain tax positions as a component of the income tax provision. Accrued interest and penalties are included within other liabilities on the consolidated balance sheets.
During 2019, 2018 and 2017, income tax related interest and penalties recorded were insignificant. At December 31, 2019 and 2018 we had liabilities of $78 million and $74 million for income tax-related interest and penalties.
At December 31, 2019, it is not possible to reasonably estimate the expected change to the total amount of unrecognized tax benefits in the next twelve months.
Periodically, we make deposits to taxing jurisdictions which reduce our unrecognized tax benefit balance, but are not reflected in the reconciliation above. At December 31, 2019 and 2018 the amount of deposits that reduce our unrecognized tax benefit liability in the consolidated balance sheets was $13 million and $14 million.
Other Matters We are included in GM's consolidated U.S. federal income tax returns and certain U.S. state returns, and we are obligated to pay GM for our share of these tax liabilities. Amounts owed to GM for income taxes are accrued and recorded as a related party payable. At December 31, 2019, we had related party taxes payable of $4 million for state tax liabilities. At December 31, 2018, there were no related party taxes payable due to GM.
Income tax returns are filed in multiple jurisdictions and are subject to examination by taxing authorities throughout the world. We have open tax years from 2011 to 2019 with various tax jurisdictions. These open years contain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, character, timing or inclusion of revenue and/or recognition of expenses, or the sustainability of income tax credits. Certain of our state and foreign tax returns are currently under examination in various jurisdictions.
On December 22, 2017, the Tax Act was signed into law. The Tax Act changed many aspects of U.S. corporate income taxation, including the 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. During 2018, we filed our 2017 U.S. federal income tax return and updated our 2017 estimated tax benefit from $240 million to $286 million, primarily related to the remeasurement of transition tax as a result of proposed regulations issued in August 2018 and associated impacts to our deferred tax asset carryforwards.
Note 15. Discontinued Operations
On October 31, 2017, we completed the sale 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. Following the sale of our European Operations, we paid a $550 million special dividend to GM.

51

GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following table summarizes the results of operations of the European Operations:
 
Year Ended December 31, 2017
Total revenue
$
474

Interest expense
79

Other expenses
263

Total costs and expenses
342

Income from discontinued operations before income taxes
132

Loss on sale of discontinued operations before income taxes
525

Loss from discontinued operations before income taxes
(393
)
Income tax provision
31

Loss from discontinued operations, net of tax
$
(424
)
Note 16. Supplemental Information for the Consolidated Statements of Cash Flows
Cash payments for interest costs and income taxes consist of the following:
 
Years Ended December 31,
 
2019
 
2018
 
2017
Interest costs (none capitalized)
$
3,475

 
$
2,941

 
$
2,571

Income taxes
$
60

 
$
68

 
$
99

Non-cash investing items consist of the following:
 
Years Ended December 31,
 
2019
 
2018
 
2017
Subvention receivable from GM(a)
$
676

 
$
727

 
$
306

Commercial loan funding payable to GM(a)
$
74

 
$
61

 
$
90

_________________
(a)
Refer to Note 2 for further information.
Note 17. Segment Reporting and Geographic Information

Our chief operating decision maker evaluates the operating results and performance of our business based on our North America and International segments. The management of each segment is responsible for executing our strategies. As discussed in Note 1, our European Operations are presented as discontinued operations and are excluded from our segment results for 2017. These operations were previously included in our International Segment. Key operating data for our operating segments were as follows:
 
Year Ended December 31, 2019
 
North America
 
International
 
Total
Total revenue
$
13,318

 
$
1,236

 
$
14,554

Operating expenses
1,172

 
392

 
1,564

Leased vehicle expenses
6,634

 
51

 
6,685

Provision for loan losses
569

 
157

 
726

Interest expense
3,171

 
470

 
3,641

Equity income

 
166

 
166

Income from continuing operations before income taxes
$
1,772

 
$
332

 
$
2,104


52

GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 
Year Ended December 31, 2018
 
North America
 
International
 
Total
Total revenue
$
12,771

 
$
1,245

 
$
14,016

Operating expenses
1,125

 
397

 
1,522

Leased vehicle expenses
6,879

 
38

 
6,917

Provision for loan losses
490

 
152

 
642

Interest expense
2,735

 
490

 
3,225

Equity income

 
183

 
183

Income from continuing operations before income taxes
$
1,542

 
$
351

 
$
1,893

 
Year Ended December 31, 2017
 
North America
 
International
 
Total
Total revenue
$
10,999

 
$
1,152

 
$
12,151

Operating expenses
1,050

 
340

 
1,390

Leased vehicle expenses
6,391

 
24

 
6,415

Provision for loan losses
623

 
134

 
757

Interest expense
2,032

 
534

 
2,566

Equity income

 
173

 
173

Income from continuing operations before income taxes
$
903

 
$
293

 
$
1,196

 
December 31, 2019
 
December 31, 2018
 
North
America
 
International
 
Total
 
North
America
 
International
 
Total
Finance receivables, net
$
46,679

 
$
6,794

 
$
53,473

 
$
45,711

 
$
6,801

 
$
52,512

Leased vehicles, net
$
41,881

 
$
174

 
$
42,055

 
$
43,396

 
$
163

 
$
43,559

Total assets
$
99,453

 
$
9,764

 
$
109,217

 
$
100,176

 
$
9,744

 
$
109,920

The following table summarizes information concerning principal geographic areas:
 
At and For the Years Ended December 31,
 
2019
 
2018
 
2017
 
Revenue
 
Long-Lived Assets(a)
 
Revenue
 
Long-Lived Assets(a)
 
Revenue
 
Long-Lived Assets(a)
U.S.
$
12,672

 
$
39,509

 
$
12,158

 
$
41,320

 
$
10,424

 
$
40,674

Non-U.S.(b)
1,882

 
2,772

 
1,858

 
2,490

 
1,727

 
2,467

Total consolidated
$
14,554

 
$
42,281

 
$
14,016

 
$
43,810

 
$
12,151

 
$
43,141

_________________
(a)
Long-lived assets includes $42.1 billion, $43.6 billion and $42.9 billion of vehicles on operating leases at December 31, 2019, 2018 and 2017.
(b)
No individual country represents more than 10% of our total revenue or long-lived assets.
Note 18. Regulatory Capital and Other Regulatory Matters
We are required to comply with a wide variety of laws and regulations. Certain of our entities operate in international markets as either banks or regulated finance companies that are subject to regulatory restrictions. These regulatory restrictions, among other things, require that certain of these entities meet minimum capital requirements and may restrict dividend distributions and ownership of certain assets. We were in compliance with all regulatory capital requirements as most recently reported. Our most significant regulated international bank, located in Brazil, had a most recently reported capital ratio of 24.9% and the minimum capital requirement was 10.5%. Total assets of our regulated international banks and finance companies were approximately $7.8 billion and $7.9 billion at December 31, 2019 and 2018.

53

GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Note 19. Supplementary Quarterly Financial Information (Unaudited)
The following tables summarize supplementary quarterly financial information:
 
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
2019
 
 
 
 
 
 
 
Total revenue
$
3,620

 
$
3,639

 
$
3,659

 
$
3,636

Income from continuing operations before income taxes
$
359

 
$
536

 
$
711

 
$
498

Net income
$
271

 
$
403

 
$
516

 
$
377

Net income attributable to common shareholder
$
248

 
$
381

 
$
493

 
$
355

 
 
 
 
 
 
 
 
2018
 
 
 
 
 
 
 
Total revenue
$
3,411

 
$
3,488

 
$
3,518

 
$
3,599

Income from continuing operations before income taxes
$
443

 
$
536

 
$
498

 
$
416

Net income
$
369

 
$
442

 
$
441

 
$
318

Net income attributable to common shareholder
$
355

 
$
427

 
$
426

 
$
296

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized and reported within the specified time periods and accumulated and communicated to our management, including our principal executive officer (CEO) and principal financial officer (CFO), as appropriate to allow timely decisions regarding required disclosure.
Our management, with the participation of our CEO and CFO, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) promulgated under the Exchange Act) at December 31, 2019. Based on this evaluation, required by paragraph (b) of Rule 13a-15 and or 15d-15, our CEO and CFO concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2019.
Management's Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. This system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with U.S. GAAP. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, misstatements due to error or fraud may not be prevented or detected on a timely basis.
Our management performed an assessment of the effectiveness of our internal control over financial reporting at December 31, 2019, utilizing the criteria discussed in the “Internal Control - Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. The objective of this assessment was to determine whether our internal control over financial reporting was effective at December 31, 2019. Based on management's assessment, we have concluded that our internal control over financial reporting was effective at December 31, 2019.
Changes in Internal Control over Financial Reporting There were no changes made to our internal control over financial reporting during the quarter ended December 31, 2019, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

54

GENERAL MOTORS FINANCIAL COMPANY, INC.

Item 9B. Other Information
None
PART III
Items 10, 11, 12 and 13
Omitted in accordance with General Instruction I to Form 10-K.
Item 14. Principal Accounting Fees and Services
 
Years Ended December 31,
 
2019
 
2018
Audit fees(a)
$
5

 
$
5

Audit-related fees(b)
2

 
3

Tax services fees(c)
1

 
1

Total fees
$
8

 
$
9

 _________________ 
(a)
Audit fees include the annual financial statement audit (including quarterly reviews, subsidiary audits and other procedures required to be performed by the independent registered public accounting firm to be able to form an opinion on our consolidated financial statements).
(b)
Audit-related fees are assurance and related services that are reasonably related to the performance of the audit or review of our financial statements or that are traditionally performed by the independent registered public accounting firm. Audit-related fees include, among other things, agreed-upon procedures and other services pertaining to our securitization program and other warehouse credit facility reviews; the attestations required by the requirements of Regulation AB; and accounting consultations related to accounting, financial reporting or disclosure matters not classified as "Audit fees."
(c)
Tax services fees include tax compliance and related advice.
As a wholly-owned subsidiary of General Motors Company, audit and non-audit services provided by our independent auditor are subject to General Motors Company's Audit Committee pre-approval policies and procedures. The Audit Committee pre-approved all services provided by, and all fees of, our independent auditor.
PART IV
Item 15. Exhibits, Financial Statement Schedules
(1)The following Consolidated Financial Statements as set forth in Item 8 of this report are filed herein.
Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 2019 and 2018.
Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2019, 2018 and 2017.
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2019, 2018 and 2017.
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017.
Notes to Consolidated Financial Statements
(2)
All other schedules for which provision is made in the applicable accounting regulation of the SEC are either not required under the related instructions, are inapplicable, or the required information is included elsewhere in the Consolidated Financial Statements or notes thereto and incorporated herein by reference.
(3)The exhibits filed in response to Item 601 of Regulation S-K are listed in the Index to Exhibits.
Item 16. Form 10-K Summary
None

55

GENERAL MOTORS FINANCIAL COMPANY, INC.

INDEX TO EXHIBITS
The following documents are filed as a part of this report. Those exhibits previously filed and incorporated herein by reference are identified by the exhibit numbers used in the report with which they were filed.
Exhibit No.
  
Description
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference

56

GENERAL MOTORS FINANCIAL COMPANY, INC.

Exhibit No.
  
Description
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference

57

GENERAL MOTORS FINANCIAL COMPANY, INC.

Exhibit No.
  
Description
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference

58

GENERAL MOTORS FINANCIAL COMPANY, INC.

Exhibit No.
  
Description
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference

59

GENERAL MOTORS FINANCIAL COMPANY, INC.

Exhibit No.
  
Description
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Filed Herewith
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference

60

GENERAL MOTORS FINANCIAL COMPANY, INC.

Exhibit No.
  
Description
 
 
 
Second Omnibus Amendment to the Credit and Security Agreement, the 2011-A Exchange Note Supplement, the Indenture, the Note Purchase Agreement, the Amended and Restated Servicing Agreement and the 2011-A Servicing Supplement, dated January 30, 2012, by and among GMF Leasing Warehouse Trust, as Issuer, AmeriCredit Financial Services, Inc., ACAR Leasing Ltd., as Titling Trust, GMF Leasing LLC, as Seller, APGO Trust, as Settlor, Deutsche Bank AG, New York Branch, as an Administrative Agent (under the Note Purchase Agreement) and as Agent for the DB Purchaser Group, JPMorgan Chase Bank, N.A., as an Administrative Agent (under the Note Purchase Agreement) and as Agent for the JPM Purchaser Group, and Wells Fargo Bank, National Association, as Administrative Agent (under the 2011-A Exchange Note Supplement and the Credit and Security Agreement), Collateral Agent, Indenture Trustee and 2011-A Exchange Noteholder, incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed on February 2, 2012.
 
Incorporated by Reference
 
 
 
 
 
 
Third Omnibus Amendment to the Credit and Security Agreement, the 2011-A Exchange Note Supplement, the Indenture, the Note Purchase Agreement and the 2011-A Servicing Supplement, dated January 25, 2013, by and among GMF Leasing Warehouse Trust, as Issuer, AmeriCredit Financial Services, Inc., ACAR Leasing Ltd., as Titling Trust, GMF Leasing LLC, as Seller, APGO Trust, as Settlor, Deutsche Bank AG, New York Branch, as an Administrative Agent (under the Note Purchase Agreement) and as Agent for the DB Purchaser Group, JPMorgan Chase Bank, N.A., as an Administrative Agent (under the Note Purchase Agreement) and as Agent for the JPM Purchaser Group, and Wells Fargo Bank, National Association, as Administrative Agent (under the 2011-A Exchange Note Supplement), Collateral Agent, Indenture Trustee and 2011-A Exchange Noteholder, incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed on January 31, 2013.
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
First Omnibus Amendment to the 2011-A Borrower Note Supplement, the Note Purchase Agreement, the Servicing Agreement and the 2011-A Servicing Supplement, dated as of July 13, 2012, by and among Computershare Trust Company of Canada in its capacity as trustee of GMF Canada Leasing Trust, as Issuer, GM Financial Canada Leasing Ltd., as Borrower, FinanciaLinx Corporation, individually and in its capacity as Servicer, Deutsche Bank AG, Canada Branch, as an Administrative Agent, BMO Nesbitt Burns Inc., as an Administrative Agent, BNY Trust Company of Canada, as Indenture Trustee, the Purchasers identified on the signature pages thereto, AmeriCredit Financial Services, Inc., as Performance Guarantor, and the Agents identified on the signature pages thereto, incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed on July 19, 2012.
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference

61

GENERAL MOTORS FINANCIAL COMPANY, INC.

Exhibit No.
  
Description
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Incorporated by Reference
 
 
 
 
 
 
 
Filed Herewith
 
 
 
 
 
 
 
Filed Herewith
 
 
 
 
 
 
 
Filed Herewith
 
 
 
 
 
 
 
Filed Herewith
 
 
 
 
 
 
 
Furnished Herewith
 
 
 
 
 
101.INS*
 
XBRL Instance Document
 
Filed Herewith
 
 
 
 
 
101.SCH*
 
XBRL Taxonomy Extension Schema Document
 
Filed Herewith
 
 
 
 
 
101.CAL*
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
Filed Herewith
 
 
 
 
 
101.DEF*
 
XBRL Taxonomy Extension Definition Linkbase Document
 
Filed Herewith
 
 
 
 
 
101.LAB*
 
XBRL Taxonomy Extension Label Linkbase Document
 
Filed Herewith
 
 
 
 
 
101.PRE*
 
XBRL Taxonomy Presentation Linkbase Document
 
Filed Herewith
________________
*
Submitted electronically with this Report in accordance with the provisions of Regulation S-T.

62

GENERAL MOTORS FINANCIAL COMPANY, INC.

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 5, 2020.
 
GENERAL MOTORS FINANCIAL COMPANY, INC.
 
 
 
 
 
BY:
 
/s/    DANIEL E. BERCE        
 
 
 
Daniel E. Berce
 
 
 
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
  
Title
 
Date
 
 
 
 
 
/s/    DANIEL E. BERCE        
  
Director, President and Chief Executive Officer (Principal Executive Officer)
 
February 5, 2020
Daniel E. Berce
 
 
 
 
 
 
 
 
 
/s/    SUSAN B. SHEFFIELD        
  
Executive Vice President and Chief Financial Officer
 
February 5, 2020
Susan B. Sheffield
 
 
 
 
 
 
 
 
 
/s/    CONNIE COFFEY
  
Executive Vice President and Chief Accounting Officer (Principal Accounting Officer)
 
February 5, 2020
Connie Coffey
 
 
 
 
 
 
 
 
 
/s/    MARY T. BARRA
  
Director
 
February 5, 2020
Mary T. Barra
 
 
 
 
 
 
 
 
 
/s/    DHIVYA SURYADEVARA
  
Director
 
February 5, 2020
Dhivya Suryadevara
 
 
 
 


63