Note 19. Fair Value Measurements

Fair Value Measurements

A three-level valuation hierarchy is used for fair value measurements. The three-level valuation hierarchy is based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions based on the best evidence available. These two types of inputs create the following fair value hierarchy:

•

Level 1 — Quoted prices for identical instruments in active markets;

•

Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose significant inputs are observable; and

•

Level 3 — Instruments whose significant inputs are unobservable.

Financial instruments are transferred in and/or out of Level 3 at the beginning of the accounting period based upon the significance of the unobservable inputs to the overall fair value measurement. Level 3 financial instruments typically include, in addition to the unobservable inputs, observable components that are validated to external sources.

Securities are classified in Level 1 when quoted prices in an active market for identical securities are available. If quoted market prices are not available, fair values of securities are determined using prices from a pricing vendor, pricing models, quoted prices of securities with similar characteristics or discounted cash flow models and are generally classified in Level 2. These prices represent non-binding quotes. U.S. government and agency securities, certificates of deposit, commercial paper and corporate debt securities are classified in Level 2. Our pricing vendor utilizes industry-standard pricing models that consider various inputs, including benchmark yields, reported trades, broker/dealer quotes, issuer spreads and benchmark securities as well as other relevant economic measures. Securities are classified in Level 3 in certain cases where there are significant unobservable inputs to the valuation in the marketplace.

We conduct an annual review of our pricing vendor. This review includes discussion and analysis of the inputs used by the pricing vendor to provide prices for the types of securities we hold. These inputs include interest rate yields, bid/ask quotes, prepayment speeds and prices for comparable securities. Based on our review we believe the prices received from our pricing vendor are a reliable representation of exit prices.

All derivatives are recorded at fair value. Internal models are used to value a majority of derivatives. The models use as their basis readily observable market inputs, such as time value, forward interest rates, volatility factors and current and forward market prices for commodities and foreign currency exchange rates. Level 2 includes certain foreign currency derivatives, commodity derivatives, interest rate caps, and warrants. Derivative contracts and other liabilities that are valued based upon models with significant unobservable market inputs are classified in Level 3. Level 3 derivative contracts include certain currency derivatives, embedded derivatives and interest rate swaps.

Automotive

Fair Value Measurements on a Recurring Basis

The following tables summarize the financial instruments measured at fair value on a recurring basis (dollars in millions):


	Fair Value Measurements on a Recurring Basis at June 30, 2011
	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents (a)
United States government and agency	$	—	$	84	$	—	$	84
Sovereign debt		—		262		—		262
Certificates of deposit		—		3,274		—		3,274
Money market funds		5,830		—		—		5,830
Commercial paper		—		4,142		—		4,142
Marketable securities
Trading securities
Equity		40		—		—		40
Debt		—		105		—		105
Available–for–sale securities
United States government and agency		—		6,695		—		6,695
Sovereign debt		—		371		—		371
Certificates of deposit		—		1,083		—		1,083
Corporate debt		—		4,004		—		4,004
Other assets (a)(b)
Debt		—		1,144		—		1,144
Money market funds		358		—		—		358
Other		4		100		10		114
Derivatives
Commodity		—		32		—		32
Foreign currency		—		94		—		94
Embedded derivatives		—		4		145		149

Total assets	$	6,232	$	21,394	$	155	$	27,781

Liabilities
Other liabilities (c)
Options	$	—	$	—	$	76	$	76
Derivatives
Commodity		—		8		—		8
Foreign currency		—		19		—		19

Total liabilities	$	—	$	27	$	76	$	103

(a)	Cash and time deposits, including those classified as restricted cash, have been excluded from this table.

(b)	Other assets are recorded in Other current assets and deferred income taxes and Other assets and deferred income taxes.

(c)	Other liabilities are recorded in Accrued liabilities and Other liabilities and deferred income taxes.


	Fair Value Measurements on a Recurring Basis at December 31, 2010
	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents (a)
United States government and agency	$	—	$	1,085	$	—	$	1,085
Sovereign debt		—		523		—		523
Certificates of deposit		—		2,705		—		2,705
Money market funds		4,844		—		—		4,844
Commercial paper		—		3,807		—		3,807
Marketable securities
Trading securities
Equity		21		17		—		38
Debt		—		98		—		98
Available–for–sale securities
United States government and agency		—		2,023		—		2,023
Sovereign debt		—		773		—		773
Certificates of deposit		—		954		—		954
Corporate debt		—		1,669		—		1,669
Other assets (a)(b)
Debt		—		1,129		—		1,129
Money market funds		345		—		—		345
Other		5		—		10		15
Derivatives
Commodity		—		93		—		93
Foreign currency		—		80		—		80
Other		—		44		—		44

Total assets	$	5,215	$	15,000	$	10	$	20,225

Liabilities
Other liabilities (c)
Options	$	—	$	—	$	24	$	24
Derivatives
Commodity		—		9		—		9
Foreign currency		—		113		—		113

Total liabilities	$	—	$	122	$	24	$	146

(a)	Cash and time deposits, including those classified as restricted cash, have been excluded from this table.

(b)	Other assets are recorded in Other current assets and deferred income taxes and Other assets and deferred income taxes.

(c)	Other liabilities are recorded in Accrued liabilities and Other liabilities and deferred income taxes.

Fair Value Measurements on a Recurring Basis using Level 3 Inputs

The following tables summarize the activity for financial instruments classified in Level 3 (dollars in millions):


	Level 3 Net Assets and (Liabilities) (a)
	Embedded Derivatives		Options			Other Securities		Total Net Assets (Liabilities)
Balance at April 1, 2011	$	57	$	(77	)	$	10	$	(10	)
Transfer in and/or out of Level 3		—		—			—		—
Total realized/unrealized gains (losses)
Included in earnings		87		1			—		88
Included in Other comprehensive income		1		—			—		1
Purchases		—		—			—		—
Sales		—		—			—		—
Issuances		—		—			—		—
Settlements		—		—			—		—

Balance at June 30, 2011	$	145	$	(76	)	$	10	$	79

Amount of total gains and (losses) in the period included in earnings attributable to the change in unrealized gains or (losses) relating to assets/liabilities still held at the reporting date	$	87	$	1		$	—	$	88


	Level 3 Net Assets and (Liabilities) (a)
	Embedded Derivatives		Options			Other Securities		Total Net Assets (Liabilities)
Balance at January 1, 2011	$	—	$	(24	)	$	10	$	(14	)
Transfer in and/or out of Level 3		—		—			—		—
Total realized/unrealized gains (losses)
Included in earnings		140		(52	)		—		88
Included in Other comprehensive income		5		—			—		5
Purchases		—		—			—		—
Sales		—		—			—		—
Issuances		—		—			—		—
Settlements		—		—			—		—

Balance at June 30, 2011	$	145	$	(76	)	$	10	$	79

Amount of total gains and (losses) in the period included in earnings attributable to the change in unrealized gains or (losses) relating to assets/liabilities still held at the reporting date	$	140	$	(52	)	$	—	$	88


	Level 3 Net Assets and (Liabilities) (a)
	Foreign Currency Derivatives			Options			Total Net Assets (Liabilities)
Balance at April 1, 2010	$	(355	)	$	(21	)	$	(376	)
Transfer in and/or out of Level 3		—			—			—
Total realized/unrealized gains (losses)
Included in earnings		(82	)		(3	)		(85	)
Included in Other comprehensive income		20			—			20
Purchases, issuances, and settlements		79			—			79

Balance at June 30, 2010	$	(338	)	$	(24	)	$	(362	)

Amount of total gains and (losses) in the period included in earnings attributable to the change in unrealized gains or (losses) relating to assets still held at the reporting date	$	(82	)	$	(3	)	$	(85	)


	Level 3 Net Assets and (Liabilities) (a)
	Foreign Currency Derivatives			Options			Total Net Assets (Liabilities)
Balance at January 1, 2010	$	(672	)	$	—		$	(672	)
Transfer in and/or out of Level 3		—			—			—
Total realized/unrealized gains (losses)
Included in earnings		73			(3	)		70
Included in Other comprehensive income		3			—			3
Purchases, issuances, and settlements		258			(21	)		237

Balance at June 30, 2010	$	(338	)	$	(24	)	$	(362	)

Amount of total gains and (losses) in the period included in earnings attributable to the change in unrealized gains or (losses) relating to assets still held at the reporting date	$	59		$	(3	)	$	56

(a)	Realized and unrealized gains (losses) are recorded in Interest income and other non-operating income (expense), net and foreign currency translation gains (losses) are recorded in Accumulated other comprehensive income.

Short-Term and Long-Term Debt

We determined the fair value of debt based on a discounted cash flow model which used benchmark yield curves plus a spread that represented the yields on traded bonds of companies with comparable credit ratings.

The following table summarizes the carrying amount and estimated fair values of short-term and long-term debt (dollars in millions):


	June 30, 2011		December 31, 2010
Carrying amount (a)	$	4,717	$	4,630
Fair value (a)	$	4,916	$	4,840

(a)	Accounts and notes receivable, net and Accounts payable (principally trade) are not included because the carrying amount approximates fair value due to their short-term nature.

Ally Financial Common and Preferred Stock

We estimated the fair value of Ally Financial common stock using a market approach that applies the average price to tangible book value multiples of comparable companies to the consolidated Ally Financial tangible book value. The significant inputs used in our fair value analysis were Ally Financial's June 30, 2011 and December 31, 2010 financial statements, as well as the financial statements and price to tangible book value multiples of comparable companies in the banking and finance industry.

We calculated the fair value of our investment in Ally Financial preferred stock as of December 31, 2010 using a discounted cash flow approach. The present value of the cash flows was determined using assumptions regarding the expected receipt of dividends on Ally Financial preferred stock and the expected call date.

In March 2011 our investment in Ally Financial preferred stock was sold through a public offering for net proceeds of $1.0 billion. The gain of $0.3 billion related to the sale was recorded in Interest income and other non-operating income (expense), net.

The following table summarizes the carrying amount and estimated fair value of Ally Financial common and preferred stock (dollars in millions):


	June 30, 2011		December 31, 2010
Common stock
Carrying amount (a)	$	959	$	964
Fair value	$	1,014	$	1,031
Preferred stock
Carrying amount			$	665
Fair value			$	1,055

(a)	Investment in Ally Financial common stock at December 31, 2010 includes a 4.0% direct ownership and a 5.9% ownership held indirectly through an independent trust. In May 2011 we transferred all directly held shares to the independent trust.

Automotive Financing - GM Financial

Fair Value Measurements on a Recurring Basis

The following tables summarize the financial instruments measured at fair value on a recurring basis (dollars in millions):


	Fair Value Measurements on a Recurring Basis at June 30, 2011
	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents (a)
Money market funds	$	482	$	—	$	—	$	482
Restricted cash (a)
Money market funds		970		—		—		970
Derivatives
Interest rate swaps (b)		—		—		13		13
Interest rate caps (b)		—		9		—		9

Total assets	$	1,452	$	9	$	13	$	1,474

Liabilities
Derivatives
Interest rate swaps (b)	$	—	$	—	$	24	$	24
Interest rate caps (b)		—		9		—		9
Foreign currency contracts		—		2		—		2

Total liabilities	$	—	$	11	$	24	$	35


	Fair Value Measurements on a Recurring Basis at December 31, 2010
	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents (a)
Money market funds	$	167	$	—	$	—	$	167
Restricted cash (a)
Money market funds		952		—		—		952
Derivatives
Interest rate swaps (b)		—		—		23		23
Interest rate caps (b)		—		8		—		8

Total assets	$	1,119	$	8	$	23	$	1,150

Liabilities
Derivatives
Interest rate swaps (b)	$	—	$	—	$	47	$	47
Interest rate caps (b)		—		8		—		8
Foreign currency contracts		—		2		—		2

Total liabilities	$	—	$	10	$	47	$	57

(a)	Cash deposits and cash held in Guaranteed Investment Contracts have been excluded.

(b)	The fair value of interest rate swap and cap derivatives are based upon quoted market prices when available. If quoted prices are not available, the fair value is estimated by discounting future net cash flows expected to be settled using a current risk adjusted rate.

Fair Value Measurements on a Recurring Basis using Level 3 Inputs

The following tables summarize the activity for financial instruments classified in Level 3 (dollars in millions):


	Assets			Liabilities
	Interest Rate Swap Derivatives			Interest Rate Swap Derivatives
Balance at April 1, 2011	$	18		$	(34	)
Transfers in and/or out of Level 3		—			—
Total realized/unrealized gains (losses)
Included in earnings		—			1
Included in other comprehensive income (loss)		—			(2	)
Purchases		—			—
Sales		—			—
Issuances		—			—
Settlements		(5	)		11

Balance at June 30, 2011	$	13		$	(24	)


	Assets			Liabilities
	Interest Rate Swap Derivatives			Interest Rate Swap Derivatives
Balance at January 1, 2011	$	23		$	(47	)
Transfers in and/or out of Level 3		—			—
Total realized/unrealized gains (losses)
Included in earnings		—			—
Included in other comprehensive income (loss)		—			(1	)
Purchases		—			—
Sales		—			—
Issuances		—			—
Settlements		(10	)		24

Balance at June 30, 2011	$	13		$	(24	)

The following table summarizes estimated fair values, carrying amounts and various methods and assumptions used in valuing GM Financial's financial instruments (dollars in millions):


	June 30, 2011				December 31, 2010
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial assets
Finance receivables, net (a)	$	8,587	$	8,768	$	8,197	$	8,186

Financial liabilities
Syndicated and lease warehouse facilities (b)	$	—	$	—	$	278	$	278
Medium term note facility and bank funding facilities (c)	$	423	$	423	$	554	$	554
Securitization notes payable (c)	$	6,881	$	6,915	$	6,128	$	6,107
Senior notes and convertible senior notes (c)	$	571	$	578	$	72	$	72

(a)	The fair value of the finance receivables is estimated based upon forecasted cash flows discounted using a pre-tax weighted-average cost of capital. The forecast includes factors such as prepayment, defaults, recoveries and fee income assumptions.

(b)	The syndicated and lease warehouse facilities have variable rates of interest and maturities of approximately one year. The carrying amount is considered to be a reasonable estimate of fair value.

(c)

The fair values of the medium term note and bank funding facilities, securitization notes payable and senior notes and convertible senior notes are based on quoted market prices, when available. If quoted market prices are not available, the fair value is estimated by discounting future net cash flows expected to be settled using a current risk-adjusted rate.