Ally Bank 2012 Annual Report Download - page 73

71
projections of expected values in the future (typically between two and four years) based on current assumptions for the respective
make and model. Actual realized values often differ.
• Remarketing abilities — Our ability to efficiently process and effectively market off-lease vehicles affects the disposal costs and
the proceeds realized from vehicle sales.
• Manufacturer vehicle and marketing programs — Automotive manufacturers influence lease residual results in the following
ways:
The brand image of automotive manufacturers and consumer demand for their products affect residual risk.
Automotive manufacturer marketing programs may influence the used vehicle market for those vehicles through programs
such as incentives on new vehicles, programs designed to encourage lessees to terminate their leases early in conjunction with
the acquisition of a new vehicle (referred to as pull-ahead programs), and special rate used vehicle programs.
Automotive manufacturers may provide support to us for certain residual deficiencies.
The following table summarizes the volume of our serviced lease terminations in the United States over recent periods. It also
summarizes the average sales proceeds on 24-, 36-, and 48-month scheduled lease terminations for those same periods. The mix of terminated
vehicles in 2012 was used to normalize results over previous periods to more clearly demonstrate market pricing trends.
Year ended December 31, 2012 2011 2010
Off-lease vehicles remarketed (in units)63,315 248,624 376,203
Average sales proceeds on scheduled lease terminations ($ per unit)
24-month (a) $ 22,586 n/m $ 22,400
36-month (b) n/m n/m n/m
48-month 18,124 16,134 14,289
n/m = not meaningful
(a) During 2011, 24-month lease terminations were not materially sufficient to create a historical comparison due to our temporary curtailment of leasing in
2009.
(b) The 36-month lease terminations were not materially sufficient to create a historical multi-year comparison from that term due to our temporary
curtailment of leasing in 2009.
The number of off-lease vehicles remarketed in 2012 reached a historic low, declining 75% from 2011. The significant decrease was due
to our temporary curtailment of leasing in late 2008 through 2009. Sales proceeds have strengthened since 2009 due primarily to the lower
supply of attractive used vehicles, which can be largely attributed to the significant drop in new vehicle sales and leasing activity during the
last economic downturn. For information on our Investment in Operating Leases, refer to Note 9 to the Consolidated Financial Statements.
Market Risk
Our automotive financing, mortgage, and insurance activities give rise to market risk representing the potential loss in the fair value of
assets or liabilities and earnings caused by movements in market variables, such as interest rates, foreign-exchange rates, equity prices,
market perceptions of credit risk, and other market fluctuations that affect the value of securities, assets held-for-sale, and operating leases.
We are exposed to interest rate risk arising from changes in interest rates related to financing, investing, and cash management activities.
More specifically, we have entered into contracts to provide financing, to retain mortgage servicing rights, and to retain various assets related
to securitization activities all of which are exposed in varying degrees to changes in value due to movements in interest rates. Interest rate risk
arises from the mismatch between assets and the related liabilities used for funding. We enter into various financial instruments, including
derivatives, to maintain the desired level of exposure to the risk of interest rate and other fluctuations. Refer to Note 22 to the Consolidated
Financial Statements for further information.
We are also exposed to foreign-currency risk arising from the possibility that fluctuations in foreign-exchange rates will affect future
earnings or asset and liability values related to our global operations. We enter into hedges to mitigate foreign exchange risk.
We also have exposure to equity price risk, primarily in our Insurance operations, which invests in equity securities that are subject to
price risk influenced by capital market movements. We enter into equity options to economically hedge our exposure to the equity markets.
Although the diversity of our activities from our complementary lines of business may partially mitigate market risk, we also actively
manage this risk. We maintain risk management control systems to monitor interest rates, foreign-currency exchange rates, equity price risks,
and any of their related hedge positions. Positions are monitored using a variety of analytical techniques including market value, sensitivity
analysis, and value at risk models.
Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K