Ally Bank 2012 Annual Report Download - page 43

41
mitigating the loss. As an indication of the effectiveness of our consumer credit practices, of the total amount outstanding in the U. S.
traditional retail portfolio at December 31, 2009, only 7.5% of the extended or rewritten balances were subsequently charged off through
December 31, 2012. A three-year period was utilized for this analysis as this approximates the weighted average remaining term of the
portfolio. At December 31, 2012, 7.6% of the total amount outstanding in the servicing portfolio had been granted an extension or was
rewritten.
Subject to legal considerations, in the United States we normally begin repossession activity once an account becomes greater than 60-
days past due. Repossession may occur earlier if management determines the customer is unwilling to pay, the vehicle is in danger of being
damaged or hidden, or the customer voluntarily surrenders the vehicle. Approved third-party repossession firms handle repossessions.
Normally the customer is given a period of time to redeem the vehicle by paying off the account or bringing the account current. If the vehicle
is not redeemed, it is sold at auction. If the proceeds do not cover the unpaid balance, including unpaid earned finance charges and allowable
expenses, the resulting deficiency is charged off. Asset recovery centers pursue collections on accounts that have been charged off, including
those accounts where the vehicle was repossessed, and skip accounts where the vehicle cannot be located.
At December 31, 2012 and 2011, our total consumer automotive serviced portfolio was $75.3 billion and $85.5 billion, respectively,
compared to our consumer automotive on-balance sheet portfolio of $67.3 billion and $73.2 billion at December 31, 2012 and 2011,
respectively. Refer to Note 11 to the Consolidated Financial Statements for further information regarding servicing activities.
Remarketing and Sales of Leased Vehicles
When we acquire a consumer lease, we assume ownership of the vehicle from the dealer. Neither the consumer nor the dealer is
responsible for the value of the vehicle at the time of lease termination. When vehicles are not purchased by customers or the receiving dealer
at scheduled lease termination, the vehicle is returned to us for remarketing through an auction. We generally bear the risk of loss to the extent
the value of a leased vehicle upon remarketing is below the contract residual value determined at the time the lease contract is signed.
Automotive manufacturers may share this risk with us for certain leased vehicles, as described previously under Manufacturer Marketing
Incentives. Our methods of vehicle sales in the United States at lease termination primarily include the following:
• Sale to dealer — After the lessee declines an option to purchase the off-lease vehicle, the dealer who accepts the returned off-lease
vehicle has the opportunity to purchase the vehicle directly from us at a price we define.
• Internet auctions — Once the lessee and dealer decline their options to purchase, we offer off-lease vehicles to dealers and certain
other third parties in the United States through our proprietary internet site (SmartAuction). This internet sales program maximizes
the net sales proceeds from off-lease vehicles by reducing the time between vehicle return and ultimate disposition, reducing
holding costs, and broadening the number of prospective buyers. We maintain the internet auction site, set the pricing floors on
vehicles, and administer the auction process. We earn a service fee for every vehicle sold through SmartAuction, which, in 2012,
was 221,000 vehicles.
• Physical auctions — We dispose of our off-lease vehicles not purchased at termination by the lease consumer or dealer or sold on
an internet auction through traditional official manufacturer-sponsored auctions. We are responsible for handling decisions at the
auction including arranging for inspections, authorizing repairs and reconditioning, and determining whether bids received at
auction should be accepted.
Commercial Automotive Financing
Automotive Wholesale Dealer Financing
One of the most important aspects of our dealer relationships is supporting the sale of vehicles through wholesale or floorplan financing.
We primarily support automotive finance purchases by dealers of new and used vehicles manufactured or distributed before sale or lease to
the retail customer. Wholesale automotive financing represents the largest portion of our commercial financing business and is the primary
source of funding for dealers' purchases of new and used vehicles. During 2012, we financed an average commercial wholesale floorplan
receivables balance of $15.3 billion of new GM vehicles, representing a 71% share of GM's U.S. dealer inventory. We also financed an
average of $6.7 billion of new Chrysler vehicles representing a 58% share of Chrysler's U.S. dealer inventory. In addition, we financed an
average of $2.2 billion of new non-GM/Chrysler vehicles and $3.0 billion of used vehicles.
Wholesale credit is arranged through lines of credit extended to individual dealers. In general, each wholesale credit line is secured by all
vehicles and typically by other assets owned by the dealer or the operator's or owner's personal guarantee. As part of our floorplan financing
arrangement, we typically require repurchase agreements with the automotive manufacturer to repurchase new vehicle inventory under certain
circumstances. The amount we advance to dealers is equal to 100% of the wholesale invoice price of new vehicles, which includes destination
and other miscellaneous charges, and a price rebate, known as a holdback, from the manufacturer to the dealer in varying amounts stated as a
percentage of the invoice price. Interest on wholesale automotive financing is generally payable monthly. Most wholesale automotive
financing is structured to yield interest at a floating rate indexed to the Prime Rate. The rate for a particular dealer is based on, among other
things, competitive factors, the amount and status of the dealer's creditworthiness, and various incentive programs.
Under the terms of the credit agreement with the dealer, we may demand payment of interest and principal on wholesale credit lines at
any time; however, unless we terminate the credit line or the dealer defaults or the risk and exposure warrant, we generally require payment of
the principal amount financed for a vehicle upon its sale or lease by the dealer to the customer.
Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K