Ally Bank 2014 Annual Report Download - page 25

Table of Contents
Ally Financial Inc. • Form 10-K
13
Our profitability and financial condition could be materially and adversely affected if the residual value of off-lease vehicles decreases
in the future.
Vehicle operating leases currently comprise a substantial portion of our consumer financing originations. In particular, our GM lease
originations were 23% of our consumer financing originations in 2014. Our expectation of the residual value of a vehicle subject to an
automotive lease contract is a critical element used to determine the amount of the lease payments under the contract at the time the customer
enters into it. As a result, to the extent the actual residual value of the vehicle, as reflected in the sales proceeds received upon remarketing at
lease termination, is less than the expected residual value for the vehicle at lease inception, we incur additional depreciation expense and/or a
loss on the lease transaction. General economic conditions, the supply of off-lease and other vehicles to be sold, new vehicle market prices,
perceived vehicle quality, overall price, the vehicle disposition channel, and volatility of gasoline or diesel fuel, among other factors, heavily
influence used vehicle prices and thus the actual residual value of off-lease vehicles. Further, it is unclear how GM's decision to provide lease
subvention programs for Buick, GMC, Cadillac, and Chevrolet exclusively through GMF could impact residual values for GM vehicles.
Consumer confidence levels and the strength of automotive manufacturers and dealers can also influence the used vehicle market. For
example, during 2008, sharp declines in demand and used vehicle sale prices adversely affected our remarketing proceeds and financial
results.
Vehicle brand images, consumer preference, and vehicle manufacturer marketing programs that influence new and used vehicle markets
also influence lease residual values. In addition, our ability to efficiently process and effectively market off-lease vehicles affects the disposal
costs and proceeds realized from the vehicle sales. Differences between the actual residual values realized on leased vehicles and our
expectations of such values at contract inception could have a material negative impact on our profitability and financial condition.
A failure of or interruption in, as well as, security risks of the communications and information systems on which we rely to conduct our
business could adversely affect our revenues and profitability.
We rely heavily upon communications and information systems to conduct our business. Any failure or interruption of our information
systems or the third-party information systems on which we rely as a result of inadequate or failed processes or systems, human errors,
employee misconduct, catastrophic events, external or internal security breaches, acts of vandalism, computer viruses, malware, misplaced or
lost data, or other external events could cause underwriting or other delays and could result in fewer applications being received, slower
processing of applications, and reduced efficiency in servicing.
In addition, our communication and information systems may present security risks, and could be susceptible to hacking or identity theft.
The access by unauthorized persons to personal, confidential or proprietary information in our possession or our proprietary information,
software, methodologies, and business secrets could result in a significant legal and financial exposure, supervisory liability, damage to our
reputation or a loss of confidence in the security of our systems, products, and services. For example, similar to other large financial
institutions, in the past we have been subject to cyber-attacks that briefly resulted in slow performance and unavailability of our website for
some customers. Information security risks for large financial institutions like us have increased recently in part because of new technologies,
the use of the internet and telecommunications technologies (including mobile devices) to conduct financial and other business transactions,
and the increased sophistication and activities of organized crime, perpetrators of fraud, hackers, terrorists, and others. We may not be able to
anticipate or implement effective preventive measures against all security breaches of these types, especially because the techniques used
change frequently and because attacks can originate from a wide variety of sources. The occurrence of any of these events could have a
material adverse effect on our business.
Our business requires substantial capital and liquidity, and disruption in our funding sources and access to the capital markets would
have a material adverse effect on our liquidity, capital positions, and financial condition.
Our liquidity and the long-term viability of Ally depend on many factors, including our ability to successfully raise capital and secure
appropriate bank financing.
We have significant maturities of unsecured debt each year. While we have reduced our reliance on unsecured funding in recent years, it
continues to remain an important component of our capital structure and financing plans. At December 31, 2014, approximately $4.9 billion
in principal amount of total outstanding consolidated unsecured debt is scheduled to mature in 2015, and approximately $1.9 billion and $4.4
billion in principal amount of consolidated unsecured debt is scheduled to mature in 2016 and 2017, respectively. We also obtain short-term
funding from the sale of floating rate demand notes, all of which the holders may elect to have redeemed at any time without restriction. At
December 31, 2014, a total of $3.3 billion in principal amount of Demand Notes were outstanding. We also rely substantially on secured
funding. At December 31, 2014, approximately $12.6 billion of outstanding consolidated secured debt is scheduled to mature in 2015,
approximately $11.6 billion is scheduled to mature in 2016, and approximately $11.2 billion is scheduled to mature in 2017. Furthermore, at
December 31, 2014, approximately $17.1 billion in certificates of deposit at Ally Bank are scheduled to mature in 2015, which is not included
in the 2015 unsecured maturities provided above. Additional financing will be required to fund a material portion of the debt maturities over
these periods. The capital markets can be volatile, and Ally’s access to the debt markets may be significantly reduced during periods of market
stress.
As a result of volatility in the markets, our current unsecured debt ratings, and various other factors, we have increased our reliance on
various secured debt markets. Although market conditions have improved, there can be no assurances that this will continue. In addition, we
continue to rely on our ability to borrow from other financial institutions, and many of our primary bank facilities are up for renewal on a
yearly basis. Any weakness in market conditions and a tightening of credit availability could have a negative effect on our ability to refinance