Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with the accompanying audited consolidated financial statements and notes. Forward-looking statements in this MD&A are not guarantees of future performance and may involve risks and uncertainties that could cause actual results to differ materially from those projected. Refer to the "Forward-Looking Statements" section of this MD&A and Item 1A. "Risk Factors" for a discussion of these risks and uncertainties.

GENERAL MOTORS COMPANY AND SUBSIDIARIES

Non-GAAP Measures Our non-GAAP measures include earnings before interest and taxes (EBIT)-adjusted presented net of noncontrolling interests, EPS-diluted-adjusted, return on invested capital-adjusted (ROIC-adjusted) and adjusted automotive free cash flow. Our calculation of these non-GAAP measures 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 these non-GAAP measures has limitations and should not be considered superior to, in isolation from, or as a substitute for, related U.S. GAAP measures.

These non-GAAP measures allow management and investors to view operating trends, perform analytical comparisons and benchmark performance between periods and among geographic regions to understand operating performance without regard to items we do not consider a component of our core operating performance. Furthermore, these non-GAAP measures allow 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 ROIC-adjusted. Management uses these measures in its financial, investment and operational decision-making processes, for internal reporting and as part of its forecasting and budgeting processes. Further, our Board of Directors uses these and other measures as key metrics to determine management performance under our performance-based compensation plans. For these reasons we believe these non-GAAP measures are useful for our investors.

EBIT-adjusted is used by management and can be used by investors to review our consolidated operating results because it excludes automotive interest income, automotive interest expense and income taxes as well as certain additional adjustments that are not considered part of our core operations. Examples of adjustments to EBIT include but are not limited to impairment charges related to goodwill; impairment charges on long-lived assets and other exit costs resulting from strategic shifts in our operations or discrete market and business conditions; costs arising from the ignition switch recall and related legal matters; and certain currency devaluations associated with hyperinflationary economies. For EBIT-adjusted and our other non-GAAP measures, once we have made an adjustment in the current period for an item, we will also adjust the related non-GAAP measure in any future periods in which there is an impact from the item.

EPS-diluted-adjusted is used by management and can be used by investors to review our consolidated diluted earnings per share results on a consistent basis. EPS-diluted-adjusted is calculated as net income attributable to common stockholders-diluted less certain adjustments noted above for EBIT-adjusted and gains or losses on the extinguishment of debt obligations on an after-tax basis as well as redemptions of preferred stock and certain income tax adjustments divided by weighted-average common shares outstanding-diluted. Examples of income tax adjustments include the establishment or reversal of significant deferred tax asset valuation allowances.

ROIC-adjusted is used by management and can be used by investors to review our investment and capital allocation decisions. We define ROIC-adjusted as EBIT-adjusted for the trailing four quarters divided by average net assets, which is considered to be the average equity balances adjusted for average automotive debt and interest liabilities, exclusive of capital leases; average automotive net pension and other postretirement benefits (OPEB) liabilities; and average automotive net income tax assets during the same period.

Adjusted automotive free cash flow is used by management and can be used by investors to review the liquidity of our automotive operations and to measure and monitor our performance against our capital allocation program and evaluate our automotive liquidity against the substantial cash requirements of our automotive operations. We measure adjusted automotive free cash flow as automotive cash flow from operations less capital expenditures adjusted for management actions, primarily related to strengthening our balance sheet, such as prepayments of debt and discretionary contributions to employee benefit plans. Refer to the “Liquidity and Capital Resources” section of this MD&A for our reconciliation of Net Automotive cash provided by (used in) operating activities under U.S. GAAP to this non-GAAP measure.

The following table reconciles Net income attributable to stockholders under U.S. GAAP to EBIT-adjusted used in the calculation of ROIC-adjusted:

GENERAL MOTORS COMPANY AND SUBSIDIARIES

Years Ended December 31,
201620152014
Net income attributable to stockholders$9,427$9,687$3,949
Income tax expense (benefit)2,416(1,897)228
Gain on extinguishment of debt—(449)(202)
Automotive interest expense572443403
Automotive interest income(185)(169)(211)
Adjustments
Ignition switch recall and related legal matters(a)3001,785400
Recall campaign catch-up adjustment(b)——874
Thailand asset impairments(c)—297158
Venezuela currency devaluation and asset impairment(d)—720419
Russia exit costs and asset impairment(e)—438245
Goodwill impairment——120
Other—(41)111
Total adjustments3003,1992,327
EBIT-adjusted$12,530$10,814$6,494
(a)These adjustments were excluded because of the unique events associated with the ignition switch recall. These events included the creation of the ignition switch recall compensation program, as well as various investigations, inquiries, and complaints from various constituents.
(b)This adjustment was excluded because it resulted from our decision to change the method we use to estimate costs associated with recall campaigns in GMNA.
(c)These adjustments were excluded because of the significant restructuring of our Thailand operations and the strategic actions taken to focus on the production of pick-up trucks and SUVs.
(d)This adjustment was excluded because of the devaluation of the Venezuela Bolivar Fuerte (BsF), our inability to transact at the Complementary System of Foreign Currency Administration (SICAD) rate to obtain U.S. Dollars and the market restrictions imposed by the Venezuelan government.
(e)These adjustments were excluded because they were driven by deteriorating market conditions in Russia, which led to asset impairments in 2014 and our decision to exit the Russia market in 2015. The Russia exit costs primarily consisted of sales incentives, dealer restructuring and other contract cancellation costs, and asset impairments.

The following table reconciles diluted earnings per common share under U.S. GAAP to EPS-diluted-adjusted:

Years Ended December 31,
201620152014
AmountPer ShareAmountPer ShareAmountPer Share
Diluted earnings per common share$9,427$6.00$9,686$5.91$2,786$1.65
Adjustments
Gain on extinguishment of debt——(449)(0.27)(202)(0.12)
Redemption and purchase of Series A preferred stock————7940.47
All other adjustments(a)3000.193,1991.952,3271.38
Total adjustments3000.192,7501.682,9191.73
Tax effect on adjustments(b)(114)(0.07)(201)(0.13)(561)(0.33)
Tax adjustments(c)——(4,001)(2.44)——
EPS-diluted-adjusted$9,613$6.12$8,234$5.02$5,144$3.05
(a)Refer to the reconciliation of Net income attributable to stockholders under U.S. GAAP to EBIT-adjusted within this section of MD&A for the details of each individual adjustment.
(b)The tax effect of each adjustment is determined based on the tax laws and valuation allowance status of the jurisdiction in which the adjustment relates.

GENERAL MOTORS COMPANY AND SUBSIDIARIES

(c)These adjustments primarily consist of the tax benefit related to the valuation allowance reversal in Europe. The adjustment was excluded because valuation allowance reversals are not considered part of our core operations.

We define return on equity (ROE) as Net income attributable to stockholders for the trailing four quarters divided by average equity for the same period. Management uses average equity to provide comparable amounts in the calculation of ROE. The following table summarizes the calculation of ROE (dollars in billions):

Years Ended December 31,
201620152014
Net income attributable to stockholders$9.4$9.7$3.9
Average equity$43.6$37.0$41.3
ROE21.6%26.2%9.6%

The following table summarizes the calculation of ROIC-adjusted (dollars in billions):

Years Ended December 31,
201620152014
EBIT-adjusted(a)$12.5$10.8$6.5
Average equity$43.6$37.0$41.3
Add: Average automotive debt and interest liabilities (excluding capital leases)10.08.16.8
Add: Average automotive net pension & OPEB liability24.528.326.5
Less: Average automotive net income tax asset(34.8)(33.6)(32.4)
ROIC-adjusted average net assets$43.3$39.8$42.2
ROIC-adjusted28.9%27.2%15.4%
(a)Refer to the reconciliation of Net income attributable to stockholders under U.S. GAAP to EBIT-adjusted within this section of MD&A.

Overview Our strategic plan includes several major initiatives that we anticipate will help us achieve our goal of 9% to 10% margins on an EBIT-adjusted basis (EBIT-adjusted margins, calculated as EBIT-adjusted divided by Net sales and revenue) by early next decade: earn customers for life by delivering great products to our customers, leading the industry in quality and safety and improving the customer ownership experience; lead in technology and innovation, including OnStar 4G LTE and connected car, alternative propulsion, urban mobility including ride- and car-sharing through Maven and our investment in Lyft, active safety features and autonomous vehicles; grow our brands, particularly the Cadillac brand in the U.S. and China and the Chevrolet brand globally; continue our growth in China; continue the growth of GM Financial into our full captive automotive financing company; and deliver core operating efficiencies.

In addition to our EBIT-adjusted margin improvement goal, our overall financial targets include expected total annual operational and functional cost savings of $6.5 billion through 2018 compared to 2014 costs, of which approximately $4 billion has been realized as of December 31, 2016, and which we expect will more than offset our incremental investments in brand building, engineering and technology as we launch new products in 2017 and beyond; and execution of our capital allocation program as described in the "Liquidity and Capital Resources" section of this MD&A.

For the year ending December 31, 2017 we expect to continue to generate strong consolidated financial results including improved total net sales and revenue, EBIT-adjusted and EBIT-adjusted margins that equal or exceed the corresponding amounts in 2016, ROIC-adjusted of greater than 25%, Automotive operating cash flow of approximately $15 billion, adjusted automotive free cash flow of approximately $6 billion and EPS-diluted and EPS-diluted-adjusted of between $6.00 and $6.50. We do not consider the potential future impact of adjustments on our expected financial results. We expect these financial results in part to be driven by favorable shifts in mix for our new or refreshed product launches, including crossovers.

The following table reconciles expected automotive net cash provided by operating activities under U.S. GAAP to expected adjusted automotive free cash flow (dollars in billions):

GENERAL MOTORS COMPANY AND SUBSIDIARIES

Year Ending December 31, 2017
Automotive net cash provided by operating activities$15
Less: expected capital expenditures(9)
Adjusted automotive free cash flow$6

We face continuing challenges from a market, operating and regulatory standpoint in a number of countries across the globe due to, among other factors, weak economic conditions, competitive pressures, our product portfolio offerings, emissions standards, foreign exchange volatility and political uncertainty. As a result of these conditions, we continue to strategically assess our performance and ability to achieve acceptable returns on our invested capital. As we continue to assess our performance, additional restructuring and rationalization actions may be required or a determination may be made that the carrying amount of our long-lived assets may not be recoverable in certain of these countries. Such a determination may give rise to future asset impairments or other charges which may have a material impact on our results of operations.

GMNA In the year ended December 31, 2016 industry sales to retail and fleet customers were 21.9 million units representing a 1.7% increase compared to the corresponding period in 2015 due to strong consumer demand driven by credit availability, low interest rates and low fuel prices.

In the year ended December 31, 2016 our vehicle sales in the U.S., our largest market in North America, totaled 3.0 million units for market share of 17.0%, representing a decrease of 0.3 percentage points compared to the corresponding period in 2015. The decrease in our U.S. market share was driven primarily by lower fleet market share due to a planned reduction in rental deliveries, partially offset by higher retail market share. U.S. retail sales, generally more profitable than fleet sales, generated an increase of 0.5 percentage points in market share, primarily driven by Chevrolet.

We achieved EBIT-adjusted margins of 10.1% during 2016 on continued strength of U.S. industry light vehicle sales, new product launches and material and other cost savings, which partially offset launch related costs. Based on our current cost structure, we continue to estimate GMNA’s breakeven point at the U.S. industry level to be in the range of 10.0 - 11.0 million units. We expect to sustain an EBIT-adjusted margin of 10% in 2017 on continued strength of U.S. industry light vehicle sales, key product launches and continued focus on overall cost savings.

GME As a result of moderate economic growth across Europe (excluding Russia) automotive industry sales to retail and fleet customers continued improving in the year ended December 31, 2016 with industry sales to retail and fleet customers of 18.8 million units representing a 6.1% increase compared to the corresponding period in 2015.

Our European operations are benefiting from this trend and vehicle sales continue to show signs of improvement underscored by further improvement in our Opel and Vauxhall retail vehicle sales of 1.2 million units for market share of 5.7% in the year ended December 31, 2016 consistent with the corresponding period in 2015. We continue to implement various strategic actions to strengthen our operations and increase our competitiveness.

Despite the improvements we experienced through most of 2016 we were unable to overcome the impacts of the U.K. referendum vote to leave the European Union (Brexit) resulting in a $0.3 billion unfavorable impact due primarily to adverse movement in the British Pound against the U.S. Dollar.

We anticipate the impacts of Brexit to continue through 2017. We also anticipate headwinds associated with industry pricing pressures and increased costs associated with depreciation, amortization, marketing and costs associated with our new product launches. We intend to mitigate these headwinds with the full benefit of our recently launched Astra and Mokka X along with the 2017 launches of the Insignia, Ampera E, and two new crossovers that we believe will substantially increase our competitiveness in this growing market.

The German Ministry of Transportation and the Kraftfahrt-Bundesamt have requested the participation of a number of automotive manufacturers, including our German subsidiary, in continuing discussions on emissions control issues and have also requested, from time to time, written responses from our subsidiary on the subject. Our German subsidiary has participated in these discussions and has provided the requested responses to inquiries concerning nitrogen oxide emission control systems of its diesel engines. In addition, the German and the EU Parliaments have instigated Inquiry Commissions into government agencies' oversight of emissions enforcement, requesting our German subsidiary's participation. At the same time, the German government has instigated further industry-wide inquiries about CO2 emissions. This scrutiny, regulatory changes and increased enforcement has led to

GENERAL MOTORS COMPANY AND SUBSIDIARIES

increased testing and re-testing of our vehicles and analysis of their emissions control systems, which could lead to increased costs, penalties, negative publicity or reputational impact, and recall activity if regulators determine that emission levels and required regulatory compliance should be based on either a wider spectrum of driving conditions for future testing parameters or stricter or novel interpretations and consequent enforcement of existing requirements. No assurance can be given that the ultimate outcome of any potential investigations or increased testing resulting from this scrutiny would not materially and adversely affect us.

GMIO In the year ended December 31, 2016 China industry sales were 28.3 million units, representing an increase of 12.9% compared to the corresponding period in 2015. In the year ended December 31, 2016 our China wholesale volumes increased by 4.9% compared to the corresponding period in 2015. Our market share decreased to 13.8%, down 1.1 percentage points as our volume growth was less than that of the industry. Strong growth in Cadillac, Buick and Baojun passenger vehicles, including SUVs, were partially offset by lower Chevrolet sales because of model changeover and lower Wuling sales because of a continued segment shift away from mini commercial vehicles. In the year ended December 31, 2016 our Automotive China JVs generated equity income of $2.0 billion. We expect moderate industry growth in 2017 and continuation of pricing pressures which will continue to pressure margins. We continue to expect an increase in vehicle sales driven by new launches and expect to sustain strong China equity income by focusing on vehicle mix improvements, cost improvements and efficiencies, and downstream performance optimization.

A weaker economy due partially to lower oil prices and foreign exchange volatility, among other factors, negatively impacted the overall automotive industry in the rest of Asia Pacific, Africa and the Middle East and led to industry sales to retail and fleet customers of 18.9 million units, representing a decrease of 3.2% in the year ended December 31, 2016 compared to the corresponding period in 2015. In the year ended December 31, 2016 our retail sales totaled 0.7 million units leading to a market share of 3.6%, representing a decrease of 0.5 percentage points compared to the corresponding period in 2015. The decrease in retail sales volumes was due primarily to overall industry volume declines, foreign currency availability and economic challenges in the Middle East, Egypt and South Africa.

In 2017 we expect the operating environment to remain challenging. As we strategically assess our performance and the manner in which we operate in certain countries, additional restructuring and rationalization actions may be required and may have a material impact on our results of operations.

GMSA The South American automotive industry continues to be challenged by weak economic conditions and lack of consumer confidence. Industry sales to retail and fleet customers were 3.7 million units in the year ended December 31, 2016 representing a 12.3% decrease compared to the corresponding period in 2015. In the year ended December 31, 2016, our vehicle sales in Brazil, our largest market in South America, totaled 0.3 million units for market share of 16.9%, representing an increase of 1.8 percentage points compared to the corresponding period in 2015 primarily driven by a refreshed portfolio.

In 2017 we expect conditions in South America to improve as the economy recovers driven by higher consumer confidence and lower interest rates. We will continue to monitor conditions in South America and take actions to address challenges in the region.

Corporate In connection with our capital allocation program, as detailed in the "Liquidity and Capital Resources" section of this MD&A, we previously announced that our Board of Directors had authorized programs to purchase up to $5 billion and $4 billion of our common stock before the end of 2016 and 2017. We completed the $5 billion program in the three months ended September 30, 2016 and $1 billion of the $4 billion program in the three months ended December 31, 2016. In January 2017 we announced that our Board of Directors had authorized the purchase of up to an additional $5 billion of our common stock with no expiration date, subsequent to completing the remaining portion of the previously announced programs. Through February 1, 2017 we had purchased 180 million shares of our outstanding common stock under our common stock repurchase program for $6.0 billion.

The Ignition Switch Recall has led to various inquiries, investigations, subpoenas, requests for information and complaints from agencies or other representatives of U.S., federal, state and Canadian governments. In addition these and other recalls have resulted in a number of claims and lawsuits. Such lawsuits and investigations could in the future result in the imposition of material damages, fines, civil consent orders, civil and criminal penalties or other remedies. Refer to Note 15 to our consolidated financial statements for additional information.

Takata Matters On May 4, 2016 NHTSA issued an amended consent order requiring Takata to file defect information reports (DIRs) for previously unrecalled front airbag inflators that contain an ammonium nitrate-based propellant without a moisture absorbing desiccant on a multi-year, risk-based schedule through 2019 impacting tens of millions of vehicles produced by numerous automotive manufacturers. NHTSA concluded that the likely root cause of the rupturing of the airbag inflators is a function of

GENERAL MOTORS COMPANY AND SUBSIDIARIES

time, temperature cycling and environmental moisture. On May 16, 2016 Takata issued its first DIR in connection with the amended consent order, and on January 3, 2017, Takata issued its second set of DIRs.

Although we do not believe there is a safety defect at this time in any GM vehicles within the scope of the Takata DIR, in cooperation with NHTSA we filed Preliminary DIRs on May 27, 2016, updated as of June 13, 2016, covering 2.5 million of certain of our GMT900 vehicles, which are full-size pick-up trucks and SUVs. On November 15, 2016, we filed a petition for inconsequentiality and request for deferral of determination regarding certain GMT900 vehicles equipped with Takata inflators. On November 28, 2016, NHTSA granted GM’s deferral request in connection with this petition. The deferral provides GM until August 31, 2017 to present evidence and analysis that our vehicles do not pose an unreasonable risk to motor vehicle safety. We believe that this timeline will permit us to complete our testing of the relevant non-desiccated Takata inflators in GMT900 vehicles and to prove to NHTSA that the inflators in these vehicles do not present an unreasonable risk to safety and that no repair will ultimately be required.

Takata filed a second set of equipment DIRs on January 3, 2017 and we filed a second set of Preliminary DIRs for certain GMT900 vehicles on January 10, 2017. These January 2017 DIRs are consistent with GM’s May 2016 DIRs. On the same day, we also filed a second petition for inconsequentiality and deferral of decision with respect to the vehicles subject to our January 2017 DIRs. On January 18, 2017, NHTSA consolidated our first and second petitions for inconsequentiality and will rule on both at the same time.

We believe these vehicles are currently performing as designed and ongoing testing continues to support the belief that the vehicles' unique design and integration mitigates against inflator degradation. For example, the airbag inflators used in the vehicles are a variant engineered specifically for our vehicles, and include features such as greater venting, unique propellant wafer configurations, and machined steel end caps. The inflators are packaged in the instrument panel in such a way as to minimize exposure to moisture from the climate control system. Also, these vehicles have features that minimize the maximum temperature to which the inflator will be exposed, such as larger interior volumes and standard solar absorbing windshields and side glass. We believe that the results of further testing and analysis will demonstrate that the vehicles do not present an unreasonable risk to safety and that no repair will ultimately be required. Accordingly, no warranty provision has been made for any repair associated with our vehicles subject to the Preliminary DIRs and amended consent order. However, in the event we are ultimately obligated to repair the inflators in these vehicles, we estimate a reasonably possible cost of up to $880 million for the 6.9 million vehicles subject to either the Preliminary DIRs or future Takata DIRs under the amended consent order.

Through January 27, 2017 we were aware of one putative class action pending against GM in federal court in the U.S., one putative class action in Mexico and seven putative class actions pending in various Provincial Courts in Canada arising out of allegations that airbag inflators manufactured by Takata are defective. In addition, the New Mexico Attorney General has initiated litigation against Takata and numerous automotive manufacturers, including GM. At this early stage of these proceedings, we are unable to provide an evaluation of the likelihood that a loss will be incurred or an estimate of the amounts or range of possible loss.

Automotive Financing - GM Financial Summary and Outlook GM Financial has expanded its leasing, near prime and prime lending programs in North America; therefore, leasing and prime lending have become a larger percentage of the originations and retail portfolio balance. GM Financial's retail penetration in North America grew to approximately 33% in the year ended December 31, 2016 from approximately 30% in the corresponding period in 2015 as a result of the expanded leasing and lending programs. In the year ended December 31, 2016 GM Financial's revenue consisted of leased vehicle income of 62%, retail finance charge income of 30%, commercial finance charge income of 5% and other income of 3%. We believe that offering a comprehensive suite of financing products will generate incremental sales of our vehicles, drive incremental GM Financial earnings and help support our sales throughout various economic cycles.

Consolidated Results We review changes in our results of operations under five categories: volume, mix, price, cost and other. Volume measures the impact of changes in wholesale vehicle volumes driven by industry volume, market share and changes in dealer stock levels. Mix measures the impact of changes to the regional portfolio due to product, model, trim, country and option penetration in current year wholesale vehicle volumes. Price measures the impact of changes related to Manufacturer’s Suggested Retail Price and various sales allowances. Cost includes primarily: (1) material and freight; (2) manufacturing, engineering, advertising, administrative and selling and warranty expense; and (3) non-vehicle related activity. Other includes primarily foreign exchange and non-vehicle related automotive revenues as well as equity income or loss from our nonconsolidated affiliates. Refer to the regional sections of this MD&A for additional information.

Total Net Sales and Revenue

GENERAL MOTORS COMPANY AND SUBSIDIARIES

Years Ended December 31,Favorable/ (Unfavorable)Variance Due To
20162015%VolumeMixPriceOther
(Dollars in billions)
GMNA$119,022$106,622$12,40011.6%$11.0$0.5$1.7$(0.8)
GME18,70718,7043—%$0.5$(0.3)$0.4$(0.7)
GMIO11,74912,626(877)(6.9)%$(0.5)$(0.1)$0.1$(0.4)
GMSA7,2237,820(597)(7.6)%$(0.5)$0.2$0.9$(1.2)
Corporate148150(2)(1.3)%$—
Automotive156,849145,92210,9277.5%$10.6$0.2$3.2$(3.0)
GM Financial9,5316,4343,09748.1%$3.1
Total net sales and revenue$166,380$152,356$14,0249.2%$10.6$0.2$3.2$0.1
Years Ended December 31,Favorable/ (Unfavorable)Variance Due To
20152014%VolumeMixPriceOther
(Dollars in billions)
GMNA$106,622$101,199$5,4235.4%$6.8$1.0$(1.1)$(1.2)
GME18,70422,235(3,531)(15.9)%$(0.7)$(0.1)$0.6$(3.3)
GMIO12,62614,392(1,766)(12.3)%$(1.2)$0.7$0.1$(1.4)
GMSA7,82013,115(5,295)(40.4)%$(3.9)$0.6$0.9$(2.9)
Corporate150151(1)(0.7)%$—
Automotive145,922151,092(5,170)(3.4)%$1.0$2.1$0.6$(8.8)
GM Financial6,4344,8371,59733.0%$1.6
Total net sales and revenue$152,356$155,929$(3,573)(2.3)%$1.0$2.1$0.6$(7.2)

Automotive Cost of Sales

Years Ended December 31,Favorable/ (Unfavorable)Variance Due To
20162015%VolumeMixCostOther
(Dollars in billions)
GMNA$100,028$89,173$(10,855)(12.2)%$(7.6)$(2.0)$(1.7)$0.5
GME17,55718,0625052.8%$(0.4)$0.1$0.7$0.1
GMIO11,59012,5069167.3%$0.4$(0.2)$0.4$0.3
GMSA6,9508,4161,46617.4%$0.4$(0.3)$0.2$1.2
Corporate and eliminations208164(44)(26.8)%$(0.2)$0.1
Total automotive cost of sales$136,333$128,321$(8,012)(6.2)%$(7.3)$(2.4)$(0.6)$2.2
Years Ended December 31,Favorable/ (Unfavorable)Variance Due To
20152014%VolumeMixCostOther
(Dollars in billions)
GMNA$89,173$89,371$1980.2%$(4.7)$(0.5)$3.7$1.6
GME18,06221,7123,65016.8%$0.6$—$0.3$2.7
GMIO12,50614,0091,50310.7%$1.0$(0.6)$0.6$0.5
GMSA8,41612,7364,32033.9%$3.2$(0.5)$(0.1)$1.7
Corporate and eliminations1642549035.4%$0.1
Total automotive cost of sales$128,321$138,082$9,7617.1%$—$(1.5)$4.6$6.7

The most significant element of our Automotive cost of sales is material cost which makes up approximately two-thirds of the total amount. The remaining portion includes labor costs, depreciation and amortization, engineering, and product warranty and recall campaigns.

GENERAL MOTORS COMPANY AND SUBSIDIARIES

Factors which most significantly influence a region's profitability are industry volume, market share, and the relative mix of vehicles (cars, trucks, crossovers) sold. Variable profit is a key indicator of product profitability. Variable profit is defined as revenue less material cost, freight, the variable component of manufacturing expense and warranty and recall-related costs. Vehicles with higher selling prices generally have higher variable profit.

Refer to the regional sections of this MD&A for additional information on volume and mix.

In the year ended December 31, 2016 unfavorable Cost was due primarily to: (1) increased other costs of $2.1 billion primarily manufacturing, engineering, depreciation and amortization and warranty which are inclusive of launch costs; partially offset by (2) decreased material and freight costs of $2.8 billion related to carryover vehicles, partially offset by increased material and freight costs of $1.7 billion related to vehicles launched within the last twelve months incorporating significant exterior and/or interior changes (Majors); and (3) impairments of $0.4 billion related to Thailand and Venezuela in 2015. In the year ended December 31, 2016 favorable Other was due primarily to the foreign currency effect of $2.1 billion due primarily to the BsF devaluation in 2015 and the weakening of the Argentine Peso, Canadian Dollar and other currencies against the U.S. Dollar; and costs related to our exit of Russia of $0.2 billion in 2015.

In the year ended December 31, 2015 favorable Cost was due primarily to (1) a decrease in recall campaign and courtesy transportation charges of $2.8 billion, including the $0.9 billion catch-up adjustment; (2) decreased material and freight costs of $2.9 billion related to carryover vehicles, partially offset by increased material and freight costs of $0.7 billion related to Majors; (3) a net decrease in separation charges of $0.4 billion primarily related to the Bochum plant closing in GME in 2014; (4) favorable intangible asset amortization of $0.3 billion; and (5) decreased costs of $0.3 billion related to parts and accessories sales; partially offset by (6) an increase in engineering expense of $0.4 billion; and (7) an increase in warranty costs of $0.3 billion. In the year ended December 31, 2015 favorable Other was due primarily to favorable net foreign currency effect of $6.9 billion due primarily to the weakening of the Euro, Brazilian Real, Canadian Dollar, British Pound and Mexican Peso against the U.S. Dollar, partially offset by further BsF devaluation.

Automotive Selling, General and Administrative Expense

Years Ended December 31,Year Ended 2016 vs. 2015 ChangeYear Ended 2015 vs. 2014 Change
201620152014Favorable/ (Unfavorable)%Favorable/ (Unfavorable)%
Automotive selling, general and administrative expense$11,710$13,405$12,158$1,69512.6%$(1,247)(10.3)%

In the year ended December 31, 2016 Automotive selling, general and administrative expense decreased due primarily to: (1) a net decrease in charges of $1.5 billion for matters related to the ignition switch recall; and (2) favorable net foreign currency effect of $0.2 billion due primarily to the weakening of various currencies against the U.S. Dollar.

In the year ended December 31, 2015 Automotive selling, general and administrative expense increased due primarily to: (1) charges related to the Ignition Switch Recall of $1.4 billion; (2) increased advertising expense of $0.2 billion; (3) an increase in employee related costs of $0.1 billion; and (4) costs related to the Russia exit of $0.1 billion; partially offset by (5) favorable net foreign currency effect of $0.7 billion due primarily to the weakening of the Euro and Brazilian Real against the U.S. Dollar.

Income Tax Expense (Benefit)

Years Ended December 31,Year Ended 2016 vs. 2015 ChangeYear Ended 2015 vs. 2014 Change
201620152014Favorable/ (Unfavorable)%Favorable/ (Unfavorable)%
Income tax expense (benefit)$2,416$(1,897)$228$(4,313)n.m.$2,125n.m.

n.m. = not meaningful

In the year ended December 31, 2016 Income tax expense increased due primarily to the absence of the 2015 income tax benefit from the release of GME's valuation allowance of $3.9 billion and an increase in income tax expense of $1.0 billion due primarily to an increase in pre-tax income; partially offset by $0.6 billion in tax benefits related to foreign currency losses.

GENERAL MOTORS COMPANY AND SUBSIDIARIES

In the year ended December 31, 2015 Income tax expense decreased due primarily to the income tax benefit from the release of GME's valuation allowances of $3.9 billion; partially offset by an increase in income tax expense of $1.8 billion due primarily to an increase in pre-tax income.

For the year ended December 31, 2016 our effective tax rate was 21%, and we expect the effective tax rate to be similar for the year ending December 31, 2017. Refer to Note 16 to our consolidated financial statements for additional information related to Income tax expense (benefit).

GM North America

Years Ended December 31,Favorable/ (Unfavorable)Variance Due To
20162015%VolumeMixPriceCostOther
(Dollars in billions)
Total net sales and revenue$119,022$106,622$12,40011.6%$11.0$0.5$1.7$(0.8)
EBIT-adjusted$12,047$11,026$1,0219.3%$3.4$(1.5)$1.7$(2.2)$(0.3)
EBIT-adjusted margin10.1%10.3%(0.2)%
(Vehicles in thousands)
Wholesale vehicle sales3,9583,55840011.2%
Years Ended December 31,Favorable/ (Unfavorable)Variance Due To
20152014%VolumeMixPriceCostOther
(Dollars in billions)
Total net sales and revenue$106,622$101,199$5,4235.4%$6.8$1.0$(1.1)$(1.2)
EBIT-adjusted$11,026$6,603$4,42367.0%$2.1$0.5$(1.1)$2.9$0.1
EBIT-adjusted margin10.3%6.5%3.8%
(Vehicles in thousands)
Wholesale vehicle sales3,5583,3202387.2%

GMNA Total Net Sales and Revenue In the year ended December 31, 2016 Total net sales and revenue increased due primarily to: (1) increased net wholesale volumes reflecting our strategic decision to reduce daily rental activity, strong retail demand for the Chevrolet Malibu and Spark, full-size trucks and SUVs and the Buick Envision; (2) favorable pricing for Majors of $1.8 billion; and (3) favorable mix associated with full-size trucks and SUVs and a reduction in rental car activities, partially offset by the Chevrolet Malibu and Spark; partially offset by (4) unfavorable Other due primarily to the foreign currency effect resulting from the weakening of the Mexican Peso and Canadian Dollar against the U.S. Dollar.

In the year ended December 31, 2015 Total net sales and revenue increased due primarily to: (1) increased net wholesale volumes associated with full-size SUVs, mid-size pick-ups and the Chevrolet Trax, Impala and Cruze, partially offset by decreases in the Chevrolet Malibu; and (2) favorable mix due to full-size SUVs and full-size pick-ups partially offset by an increase in rental cars sold at auction and the Chevrolet Trax; partially offset by (3) unfavorable pricing primarily related to carryovers including passenger cars and compact SUVs; and (4) unfavorable Other due primarily to unfavorable foreign currency effect related to the weakening of the Canadian Dollar and the Mexican Peso against the U.S. Dollar of $1.7 billion, partially offset by increased revenue related to OnStar of $0.2 billion.

GMNA EBIT-Adjusted The most significant factors which influence profitability are industry volume and market share. While not as significant as industry volume and market share, another factor affecting profitability is the relative mix of vehicles sold. Trucks, crossovers and cars sold currently have a variable profit of approximately 180%, 70% and 30% of our GMNA portfolio on a weighted-average basis.

In the year ended December 31, 2016 EBIT-adjusted increased due primarily to: (1) increased net wholesale volumes; and (2) favorable pricing; partially offset by (3) unfavorable Cost including increased material costs for Majors of $1.1 billion, restructuring charges of $0.2 billion related to the UAW cash severance incentive program and increased other costs of $2.8 billion primarily engineering, depreciation and amortization, manufacturing, warranty and marketing which are inclusive of launch costs, partially offset by favorable material and freight costs related to carryover vehicles of $2.0 billion; (4) unfavorable mix associated with the Chevrolet Malibu, Volt and Spark, partially offset by full-size trucks and SUVs and a reduction in rental car activities; and (5) unfavorable Other due primarily to the foreign currency effect resulting from the weakening of the Mexican Peso and Canadian Dollar against the U.S. Dollar.

GENERAL MOTORS COMPANY AND SUBSIDIARIES

In the year ended December 31, 2015 EBIT-adjusted increased due primarily to: (1) favorable Cost of $2.9 billion including decreased material and freight costs of $2.2 billion and a decrease in recall-related charges of $1.9 billion, partially offset by warranty of $0.3 billion, engineering of $0.3 billion, General Motors of Canada Company (GM Canada) pension curtailment and restructuring charges of $0.2 billion and advertising of $0.2 billion; (2) increased net wholesale volumes; and (3) favorable mix; partially offset by (4) unfavorable pricing.

GM Europe

Years Ended December 31,Favorable/ (Unfavorable)Variance Due To
20162015%VolumeMixPriceCostOther
(Dollars in billions)
Total net sales and revenue$18,707$18,704$3—%$0.5$(0.3)$0.4$(0.7)
EBIT (loss)-adjusted$(257)$(813)$55668.4%$0.1$(0.2)$0.3$0.8$(0.4)
EBIT (loss)-adjusted margin(1.4)%(4.3)%2.9%
(Vehicles in thousands)
Wholesale vehicle sales1,1621,127353.1%
Years Ended December 31,Favorable/ (Unfavorable)Variance Due To
20152014%VolumeMixPriceCostOther
(Dollars in billions)
Total net sales and revenue$18,704$22,235$(3,531)(15.9)%$(0.7)$(0.1)$0.6$(3.3)
EBIT (loss)-adjusted$(813)$(1,369)$55640.6%$(0.2)$(0.1)$0.8$0.3$(0.2)
EBIT (loss)-adjusted margin(4.3)%(6.2)%1.9%
(Vehicles in thousands)
Wholesale vehicle sales1,1271,172(45)(3.8)%

GME Total Net Sales and Revenue In the year ended December 31, 2016 Total net sales and revenue remained flat due primarily to: (1) increased net wholesale volumes associated with higher demand primarily for the Astra across the region, partially offset by decreases across the Russian portfolio and decreased sales of the Corsa and Insignia in the U.K.; and (2) favorable pricing for Majors primarily related to the Astra; offset by (3) unfavorable country and vehicle mix; and (4) unfavorable Other due primarily to the foreign currency effect resulting from the weakening of the British Pound against the U.S. Dollar.

In the year ended December 31, 2015 Total net sales and revenue decreased due primarily to: (1) decreased net wholesale volumes associated with decreases across the Russian portfolio and lower demand for the Zafira multipurpose vehicle across the region, partially offset by higher demand primarily for the Vivaro commercial van, the Mokka crossover and the Astra and the recently launched KARL passenger vehicles across the region; and (2) unfavorable Other due primarily to the foreign currency effect resulting from the weakening of the Euro, British Pound and Russian Ruble against the U.S. Dollar; partially offset by (3) favorable pricing primarily related to the next generation Corsa passenger vehicle and Vivaro and the recently launched next generation Astra.

GME EBIT (Loss)-Adjusted In the year ended December 31, 2016 EBIT (loss)-adjusted decreased due primarily to: (1) favorable Cost due primarily to favorable material and freight costs related to carryover vehicles of $0.5 billion and fixed cost improvements of $0.5 billion, partially offset by unfavorable material performance for Majors related to the Astra of $0.4 billion; (2) favorable pricing; and (3) increased net wholesale volumes; partially offset by (4) unfavorable country and vehicle mix; and (5) unfavorable Other due primarily to the foreign currency effect resulting from the weakening of the British Pound against the U.S. Dollar as a result of Brexit.

In the year ended December 31, 2015 EBIT (loss)-adjusted decreased due primarily to: (1) favorable pricing; and (2) favorable Cost due primarily to a net decrease in restructuring related charges of $0.7 billion, partially offset by unfavorable material costs of $0.2 billion primarily related to the next generation Corsa and Vivaro; partially offset by (3) decreased net wholesale volumes; and (4) unfavorable Other due to unfavorable foreign currency effect of $0.2 billion.

GM International Operations

GENERAL MOTORS COMPANY AND SUBSIDIARIES

Years Ended December 31,Favorable/ (Unfavorable)Variance Due To
20162015%VolumeMixPriceCostOther
(Dollars in billions)
Total net sales and revenue$11,749$12,626$(877)(6.9)%$(0.5)$(0.1)$0.1$(0.4)
EBIT-adjusted$1,135$1,397$(262)(18.8)%$(0.1)$(0.3)$0.1$0.2$(0.2)
EBIT-adjusted margin9.7%11.1%(1.4)%
Equity income — Automotive China JVs$1,973$2,057$(84)(4.1)%
EBIT (loss)-adjusted — excluding Equity income$(838)$(660)$(178)(27.0)%
(Vehicles in thousands)
Wholesale vehicle sales559588(29)(4.9)%
Years Ended December 31,Favorable/ (Unfavorable)Variance Due To
20152014%VolumeMixPriceCostOther
(Dollars in billions)
Total net sales and revenue$12,626$14,392$(1,766)(12.3)%$(1.2)$0.7$0.1$(1.4)
EBIT-adjusted$1,397$1,222$17514.3%$(0.2)$0.1$0.2$0.3$(0.2)
EBIT-adjusted margin11.1%8.5%2.6%
Equity income — Automotive China JVs$2,057$2,066$(9)(0.4)%
EBIT (loss)-adjusted —excluding Equity income$(660)$(844)$18421.8%
(Vehicles in thousands)
Wholesale vehicle sales588655(67)(10.2)%

The vehicle sales of our Automotive China JVs are not recorded in Total net sales and revenue. The results of our joint ventures are recorded in Equity income, which is included in EBIT-adjusted above.

GMIO Total Net Sales and Revenue In the year ended December 31, 2016 Total net sales and revenue decreased due primarily to: (1) decreased wholesale volumes of pick-up trucks and passenger cars in Egypt and South Africa and full-size trucks and SUVs in the Middle East due to low oil prices, partially offset by increased sales of the Chevrolet Spark and Malibu in Korea and the Middle East; and (2) unfavorable Other of $0.4 billion due primarily to the foreign currency effect resulting from the weakening of the Egyptian Pound and South African Rand against the U.S. Dollar.

In the year ended December 31, 2015 Total net sales and revenue decreased due primarily to: (1) decreased wholesale volumes associated with the withdrawal of the Chevrolet brand from Europe, decreased sales in Korea, India, Southeast Asia and South Africa, partially offset by increased wholesale volumes of new full-size trucks and SUVs in the Middle East; and (2) unfavorable Other due primarily to the foreign currency effect of $1.0 billion resulting from the weakening of the Australian Dollar, South Korean Won and South African Rand against the U.S. Dollar and decreased sales of components, parts and accessories of $0.4 billion; partially offset by (3) favorable mix and pricing primarily due to increased sales of full-size trucks and SUVs in the Middle East.

GMIO EBIT-Adjusted In the year ended December 31, 2016 EBIT-adjusted decreased due primarily to: (1) unfavorable mix due primarily to decreased sales of full size trucks and SUVs in the Middle East as a result of a weaker economy due to low oil prices; (2) unfavorable Other due primarily to the foreign currency effect resulting from the weakening of the Egyptian Pound and South African Rand against the U.S. Dollar; and (3) decreased wholesale volume; partially offset by (4) favorable Cost associated with material and freight performance related to carryover vehicles.

In the year ended December 31, 2015 EBIT-adjusted increased due primarily to: (1) favorable pricing and mix in the Middle East due primarily to sales of new full-size trucks and SUVs; and (2) favorable cost due primarily to favorable material and freight performance of $0.3 billion; partially offset by (3) decreased net wholesale volumes; and (4) unfavorable Other due to the foreign currency effect.

GENERAL MOTORS COMPANY AND SUBSIDIARIES

We view the Chinese market as important to our global growth strategy and are employing a multi-brand strategy led by our Buick and Chevrolet brands. In the coming years we plan to increasingly leverage our global architectures to increase the number of product offerings under the Buick, Chevrolet and Cadillac brands in China and continue to grow our business under the local Baojun and Wuling brands, with Baojun seizing the growth opportunities in less developed cities and markets. We operate in the Chinese market through a number of joint ventures and maintaining good relations with our joint venture partners, which are affiliated with the Chinese government, is an important part of our China growth strategy.

The following tables summarize certain key operational and financial data for the Automotive China JVs (vehicles in thousands):

Years Ended December 31,
201620152014
Wholesale vehicles including vehicles exported to markets outside of China4,0133,7943,613
Total net sales and revenue$47,150$44,959$43,853
Net income$4,117$4,290$4,312
December 31, 2016December 31, 2015
Cash and cash equivalents$8,197$5,939
Debt$246$184

GM South America

Years Ended December 31,Favorable/ (Unfavorable)Variance Due To
20162015%VolumeMixPriceCostOther
(Dollars in billions)
Total net sales and revenue$7,223$7,820$(597)(7.6)%$(0.5)$0.2$0.9$(1.2)
EBIT (loss)-adjusted$(374)$(622)$24839.9%$(0.1)$(0.2)$0.9$0.1$(0.5)
EBIT (loss)-adjusted margin(5.2)%(8.0)%2.8%
(Vehicles in thousands)
Wholesale vehicle sales568603(35)(5.8)%
Years Ended December 31,Favorable/ (Unfavorable)Variance Due To
20152014%VolumeMixPriceCostOther
(Dollars in billions)
Total net sales and revenue$7,820$13,115$(5,295)(40.4)%$(3.9)$0.6$0.9$(2.9)
EBIT (loss)-adjusted$(622)$(180)$(442)(245.6)%$(0.7)$0.1$0.9$(0.1)$(0.7)
EBIT (loss)-adjusted margin(8.0)%(1.4)%(6.6)%
(Vehicles in thousands)
Wholesale vehicle sales603886(283)(31.9)%

GMSA Total Net Sales and Revenue In the year ended December 31, 2016 Total net sales and revenue decreased due primarily to: (1) decreased wholesale volumes due to difficult economic conditions in Brazil and Venezuela that drove an industry reduction of 12.3% compared to the same period in 2015 offset by a gain in market share of 1.8% in Brazil; (2) unfavorable Other due primarily to the foreign currency effect resulting from the weakening of all currencies across the region against the U.S. Dollar; partially offset by (3) favorable pricing related to carryover vehicles due primarily to high inflation in Argentina; and (4) favorable mix due to the launch of Chevrolet Cruze in Brazil and increased sales of pick-up trucks in Argentina.

In the year ended December 31, 2015 Total net sales and revenue decreased due primarily to: (1) decreased wholesale volumes associated with lower demand for the Chevrolet Celta, Onix and Prisma small vehicles and Cobalt sedan in Brazil and decreases across the portfolio primarily in Chile and Colombia caused by difficult economic conditions; and (2) unfavorable Other due primarily to unfavorable foreign currency effect due to the weakening of all currencies across the region against the U.S. Dollar; partially offset by (3) favorable pricing due primarily to high inflation in Venezuela and Argentina; and (4) favorable vehicle mix due to decreased sales of lower priced vehicles in Brazil and increased sales of the Chevrolet Silverado and Cruze in Venezuela.

GMSA EBIT (Loss)-Adjusted In the year ended December 31, 2016 EBIT (loss)-adjusted decreased due primarily to: (1) favorable pricing; and (2) favorable Cost due primarily to lower engineering expenses; partially offset by (3) unfavorable mix due

GENERAL MOTORS COMPANY AND SUBSIDIARIES

primarily to the lack of vehicle sales in Venezuela; (4) unfavorable wholesale volumes; and (5) unfavorable Other due primarily to the foreign currency effect resulting from the weakening of all currencies across the region against the U.S. Dollar.

In the year ended December 31, 2015 EBIT (loss)-adjusted increased due primarily to: (1) decreased wholesale volumes; and (2) unfavorable Other due primarily to the foreign currency effect due to the weakening of all currencies across the region against the U.S. Dollar; and (3) unfavorable Cost due primarily to IT expenses; partially offset by (4) favorable pricing.

Venezuelan Operations Our operations in Venezuela, which remain consolidated, continue to be negatively impacted by economic recession and political instability in the country. During the years ended December 31, 2015 and 2014 we recorded devaluation and asset impairment charges of $0.7 billion and $0.4 billion in Automotive cost of sales related to our inability to transact at the SICAD rate to obtain U.S. Dollars and the market restrictions imposed by the Venezuelan government. We monitor the environment in Venezuela closely to assess whether changes evolve such that we no longer maintain a controlling financial interest. Absent ongoing vehicle production, our Venezuelan subsidiaries may require additional financial support. At this time no decision has been made whether we will provide further financial support if required. If a determination is made in the future that we no longer maintain control, we may incur a charge based on exchange rates at December 31, 2016 of up to $0.1 billion.

GM Financial

Years Ended December 31,2016 vs. 2015 Change2015 vs. 2014 Change
201620152014Amount%Amount%
Total revenue$9,558$6,454$4,854$3,10448.1%$1,60033.0%
Provision for loan losses$669$624$604$457.2%$203.3%
Earnings before income taxes-adjusted$913$837$803$769.1%$344.2%
(Dollars in billions)
Average debt outstanding$64.2$44.6$32.2$19.643.9%$12.438.5%
Effective rate of interest paid3.3%3.6%4.4%(0.3)%(0.8)%

GM Financial Revenue In the year ended December 31, 2016 Total revenue increased due primarily to increased leased vehicle income of $3.1 billion due to a larger lease portfolio.

In the year ended December 31, 2015 Total revenue increased due primarily to: (1) increased leased vehicle income of $1.7 billion due to a larger lease portfolio; partially offset by (2) net decrease in finance charge income and other income of $0.1 billion which consists of a decrease of $0.3 billion outside of North America, partially offset by an increase of $0.2 billion in North America.

GM Financial Earnings Before Income Taxes-Adjusted In the year ended December 31, 2016 Earnings before income taxes-adjusted increased due primarily to: (1) increased revenue of $3.1 billion; partially offset by (2) increased leased vehicle expenses of $2.3 billion due to a larger lease portfolio; (3) net increase in interest expense of $0.5 billion due to an increase in average debt outstanding; and (4) increased operating expenses of $0.2 billion.

In the year ended December 31, 2015 Earnings before income taxes-adjusted remained flat due primarily to: (1) increased revenue of $1.6 billion; and (2) increased equity income of $0.1 billion from SAIC-GMAC Automotive Finance Company Limited (SAIC-GMAC); offset by (3) increased leased vehicle expenses of $1.4 billion due to a larger lease portfolio; (4) net increase in interest expense of $0.2 billion which consists of an increase of $0.4 billion in North America due to an increase in average debt outstanding, partially offset by a decrease of $0.2 billion outside of North America; and (5) net increase in operating expenses of $0.1 billion which consists of an increase of $0.2 billion in North America, partially offset by a decrease of $0.1 billion outside of North America.

Liquidity and Capital Resources We believe that our current level of cash and cash equivalents, marketable securities and availability under our revolving credit facilities will be sufficient to meet our liquidity needs. We expect to have substantial cash requirements going forward which we plan to fund through total available liquidity and cash flows generated from operations. We also maintain access to the capital markets and may issue debt or equity securities from time to time, which may provide an additional source of liquidity. Our future uses of cash, which may vary from time to time based on market conditions and other factors, are focused on three objectives: (1) reinvest in our business; (2) maintain an investment-grade balance sheet; and (3) return excess cash to stockholders. Our known future material uses of cash include, among other possible demands: (1) capital expenditures of approximately $9 billion annually as well as payments for engineering and product development activities; (2) payments

GENERAL MOTORS COMPANY AND SUBSIDIARIES

associated with previously announced vehicle recalls, the settlements of the multidistrict litigation and any other recall-related contingencies; (3) payments to service debt and other long-term obligations, including discretionary and mandatory contributions to our pension plans; (4) dividend payments on our common stock that are declared by our Board of Directors; and (5) payments to purchase shares of our common stock authorized by our Board of Directors.

Our liquidity plans are subject to a number of risks and uncertainties, including those described in the "Forward-Looking Statements" section of this MD&A and Item 1A. Risk Factors, some of which are outside of our control.

We continue to monitor and evaluate opportunities to strengthen our competitive position over the long-term while maintaining an investment-grade balance sheet. These actions may include opportunistic payments to reduce our long-term obligations as well as the possibility of acquisitions, dispositions, investments with joint venture partners and strategic alliances that we believe would generate significant advantages and substantially strengthen our business. These actions may negatively impact our liquidity in the short term.

Our senior management evaluates our capital allocation program on an ongoing basis and recommends any modifications to the program to our Board of Directors not less than once annually. Over the last six months of 2016, management conducted an extensive review of various capital allocation strategies including consideration of potential variations in our capital structure, changes in the pacing and/or nature of return of capital to shareholders (including a potential increase in our share repurchase program) and issuance or distribution of preferred or other securities. We regularly engage with our shareholders and received input as to the views of certain of our shareholders on capital allocation during this review. Ultimately, management reaffirmed and our Board of Directors approved the capital allocation program, which includes reinvesting in our business at an average target ROIC-adjusted rate of 20% or greater, maintaining a strong investment grade balance sheet, including a target cash balance of $20 billion, and returning remaining free cash flow to shareholders. We also announced in January 2017 that our Board of Directors had authorized the purchase of up to an additional $5 billion of our common stock with no expiration date, subsequent to completing the remaining portion of the previously announced programs.

As part of our capital allocation program we previously announced that our Board of Directors had authorized programs to purchase up to $5 billion and $4 billion of our common stock before the end of 2016 and 2017. We completed the $5 billion program in the three months ended September 30, 2016 and $1 billion of the $4 billion program in the three months ended December 31, 2016. Through February 1, 2017 we had purchased an aggregate of 180 million shares of our outstanding common stock under our common stock repurchase program for $6.0 billion. In the year ended December 31, 2016, we returned total cash to shareholders of $4.8 billion, consisting of dividends paid on our common stock and purchases of our common stock.

In February 2016 we issued $2.0 billion in aggregate principal amount of automotive senior unsecured notes and used the entire net proceeds to fund discretionary contributions to our U.S. hourly pension plan in the year ended December 31, 2016 to improve its funded status. Refer to Note 13 to our consolidated financial statements for additional information on the senior unsecured notes.

In May 2016 we amended our two primary revolving credit facilities, increasing our aggregate borrowing capacity from $12.5 billion to $14.5 billion. These facilities consist of a three-year, $4.0 billion facility and a five-year, $10.5 billion facility. Both facilities are available to us as well as certain wholly-owned subsidiaries, including GM Financial. The three-year, $4.0 billion facility allows for borrowings in U.S. Dollars and other currencies and includes a GM Financial borrowing sub-limit of $1.0 billion and a letter of credit sub-facility of $1.0 billion. The five-year, $10.5 billion facility allows for borrowings in U.S. Dollars and other currencies and includes a GM Financial borrowing sub-limit of $3.0 billion and a letter of credit sub-limit of $500 million.

Automotive Liquidity Total available liquidity includes cash, cash equivalents, marketable securities and funds available under credit facilities. The amount of available liquidity is subject to intra-month and seasonal fluctuations and includes balances held by various business units and subsidiaries worldwide that are needed to fund their operations.

We manage our liquidity primarily at our treasury centers as well as at certain of our significant consolidated overseas subsidiaries. Over 90% of our available liquidity excluding funds available under credit facilities was held within North America and at our regional treasury centers at December 31, 2016. Our available liquidity includes approximately $0.6 billion deemed indefinitely reinvested in our foreign subsidiaries. We have used and will continue to use other methods including intercompany loans to utilize these funds across our global operations as needed.

Our cash equivalents and marketable securities balances are primarily denominated in U.S. Dollars and include investments in U.S. government and agency obligations, foreign government securities, time deposits, corporate debt securities and mortgage

GENERAL MOTORS COMPANY AND SUBSIDIARIES

and asset-backed securities. Our investment guidelines, which we may change from time to time, prescribe certain minimum credit worthiness thresholds and limit our exposures to any particular sector, asset class, issuance or security type. The majority of our current investments in debt securities are with A/A2 or better rated issuers.

We use credit facilities as a mechanism to provide additional flexibility in managing our global liquidity. The total size of our credit facilities was $14.6 billion and $12.6 billion at December 31, 2016 and 2015, which consisted principally of our two primary revolving credit facilities. We did not have any borrowings against our primary facilities, but had letters of credit outstanding under our sub-facility of $0.6 billion at December 31, 2016. GM Financial had access to our revolving credit facilities at December 31, 2016 and 2015 but did not borrow against them. Refer to Note 13 to our consolidated financial statements for additional information on credit facilities. At December 31, 2016 and 2015 we had intercompany loans from GM Financial of $0.5 billion and $0.4 billion, which consisted primarily of commercial loans to dealers we consolidate, and we had no intercompany loans to GM Financial. The following table summarizes our automotive available liquidity (dollars in billions):

December 31, 2016December 31, 2015
Cash and cash equivalents$9.8$12.1
Marketable securities11.88.2
Available liquidity21.620.3
Available under credit facilities14.012.2
Total automotive available liquidity$35.6$32.5

The following table summarizes the changes in our automotive available liquidity (dollars in billions):

Year Ended December 31, 2016
Operating cash flow$14.3
Capital expenditures(9.4)
Dividends paid and payments to purchase common stock(4.8)
Investment in Lyft(0.5)
Acquisition of Cruise(0.3)
Issuance of senior unsecured notes2.0
Increase in available credit facilities1.8
Total change in automotive available liquidity$3.1

Automotive Cash Flow (Dollars in Billions)

Years Ended December 31,2016 vs. 2015 Change2015 vs. 2014 Change
201620152014
Operating Activities
Net income$8.4$8.9$3.5$(0.5)$5.4
Depreciation, amortization and impairments charges5.75.76.3—(0.6)
Pension and OPEB activities(4.0)(1.3)(0.9)(2.7)(0.4)
Working capital2.20.2(1.6)2.01.8
Equipment on operating leases0.50.2(1.9)0.32.1
Accrued and other liabilities0.8(1.0)6.01.8(7.0)
Income taxes1.7(2.7)(0.9)4.4(1.8)
Undistributed earnings of nonconsolidated affiliates, net——(0.3)—0.3
Other(1.0)—(0.1)(1.0)0.1
Net automotive cash provided by operating activities$14.3$10.0$10.1$4.3$(0.1)

In the year ended December 31, 2016 the change in Pension and OPEB activities was due primarily to discretionary contributions of $2.0 billion made to our U.S. hourly pension plan and pension income from the refinement to the discount rate methodology

GENERAL MOTORS COMPANY AND SUBSIDIARIES

for service and interest cost. The change in Working capital was due primarily to increased accounts payable due to increased production volumes and decreased inventories due to lower repurchased rental car activity. The change in Accrued and other liabilities was due primarily to an increase in sales incentives of $1.6 billion. The change in Income taxes was due primarily to the reversal of valuation allowances in 2015. The change in Other was due primarily to foreign exchange and increase in deposits.

In the year ended December 31, 2015 the change in Working capital was due primarily to increased accounts payable due to increased production volumes. The change in Equipment on operating leases was due primarily to the reduction of units provided to rental car companies. The change in Accrued and other liabilities was due primarily to recalls and deposits from rental car companies. The change in Income taxes was due primarily to the reversal of valuation allowances, partially offset by deferred tax expense in 2015 compared to deferred tax benefit in 2014.

Years Ended December 31,2016 vs. 2015 Change2015 vs. 2014 Change
201620152014
Investing Activities
Capital expenditures$(9.4)$(7.8)$(7.0)$(1.6)$(0.8)
Acquisitions and liquidations of marketable securities, net(3.7)0.9(0.4)(4.6)1.3
Investment in Lyft(0.5)——(0.5)—
Acquisition of Cruise(0.3)——(0.3)—
Other0.1—0.30.1(0.3)
Net automotive cash used in investing activities$(13.8)$(6.9)$(7.1)$(6.9)$0.2

In the year ended December 31, 2016 the change in Acquisitions and liquidations of marketable securities, net was due primarily to the acquisition of sovereign debt and corporate debt available-for-sale securities. In the year ended December 31, 2015 the change in Acquisitions and liquidations of marketable securities, net was due primarily to the liquidation of our sovereign debt trading securities.

Years Ended December 31,2016 vs. 2015 Change2015 vs. 2014 Change
201620152014
Financing Activities
Issuance of senior unsecured notes$2.0$—$2.5$2.0$(2.5)
Redemption and purchase of Series A Preferred Stock——(3.9)—3.9
Payments to purchase common stock(2.5)(3.5)(0.2)1.0(3.3)
Dividends paid (excluding charge related to redemption and purchase of Series A Preferred Stock)(2.3)(2.2)(2.4)(0.1)0.2
Other(0.3)(0.1)(0.1)(0.2)—
Net automotive cash used in financing activities$(3.1)$(5.8)$(4.1)$2.7$(1.7)

In the year ended December 31, 2016 the change in Net automotive cash used in financing activities was due primarily to the issuance of senior unsecured notes and the purchase of common stock as part of the common stock repurchase program. In the year ended December 31, 2015 the change in Net automotive cash used in financing activities was due primarily to the purchase of common stock as part of the common stock repurchase program.

Adjusted Automotive Free Cash Flow (Dollars in Billions)

Years Ended December 31,
201620152014
Net automotive cash provided by operating activities$14.3$10.0$10.1
Less: capital expenditures(9.4)(7.8)(7.0)
Adjustment – discretionary pension plan contributions2.0——
Adjusted automotive free cash flow$6.9$2.2$3.1

GENERAL MOTORS COMPANY AND SUBSIDIARIES

Status of Credit Ratings We receive ratings from four independent credit rating agencies: DBRS Limited, Fitch Ratings (Fitch), Moody's Investor Service (Moody's) and Standard & Poor's (S&P). All four credit rating agencies currently rate our corporate credit at investment grade. The following table summarizes our credit ratings at February 1, 2017:

CorporateRevolving Credit FacilitiesSenior UnsecuredOutlook
DBRS LimitedBBBBBBN/AStable
FitchBBB-BBB-BBB-Positive
Moody'sInvestment GradeBaa2Baa3Stable
S&PBBBBBBBBBStable

Rating actions taken by each of the credit rating agencies from January 1, 2016 through February 1, 2017 were as follows: (1) Moody’s revised their outlook to Positive from Stable in February 2016, and upgraded our debt rating, including the revolving credit facilities, to Baa2 from Baa3, and revised their outlook to Stable from Positive in January 2017. Our senior unsecured bonds were upgraded to Baa3 from Ba1 and remain notched below our revolving credit facilities rating; (2) S&P revised their outlook to Positive from Stable in April 2016, and upgraded our corporate rating, revolving credit facilities rating and senior unsecured rating to BBB from BBB- and revised their outlook to Stable from Positive in January 2017; (3) Fitch revised their outlook to Positive from Stable in June 2016; and (4) DBRS Limited upgraded our corporate rating and revolving credit facilities rating to BBB from BBB (low) and revised their outlook to Stable from Positive in March 2016.

Automotive Financing – GM Financial Liquidity GM Financial's primary sources of cash are finance charge income, leasing income and proceeds from the sale of terminated leased vehicles, servicing fees, net distributions from secured debt facilities, including securitizations, secured and unsecured borrowings and collections and recoveries on finance receivables. GM Financial's 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 debt facilities, operating expenses, and interest costs. GM Financial continues to monitor and evaluate opportunities to optimize its liquidity position and the mix of its debt. The following table summarizes GM Financial's available liquidity (dollars in billions):

December 31, 2016December 31, 2015
Cash and cash equivalents$3.2$3.1
Borrowing capacity on unpledged eligible assets9.59.7
Borrowing capacity on committed unsecured lines of credit0.50.9
Available liquidity$13.2$13.7

In the year ended December 31, 2016 available liquidity decreased due primarily to increased usage of secured debt facilities and increased usage of committed unsecured lines of credit primarily due to asset growth.

GM Financial has the ability to borrow up to $1.0 billion against our three-year, $4.0 billion revolving credit facility and up to $3.0 billion against our five-year, $10.5 billion revolving credit facility. In September 2014 we and GM Financial entered into a support agreement which, among other things, established commitments of funding from us to GM Financial. This agreement also provides that we will continue to own all of GM Financial’s outstanding voting shares so long as any unsecured debt securities remain outstanding at GM Financial. In addition we are required to use our commercially reasonable efforts to ensure GM Financial remains a subsidiary borrower under our corporate revolving credit facilities.

Credit Facilities In the normal course of business, in addition to using its available cash, GM Financial utilizes borrowings under its credit facilities, which may be secured or unsecured, and GM Financial repays these borrowings as appropriate under its cash management strategy. At December 31, 2016 secured, committed unsecured and uncommitted unsecured credit facilities totaled $25.8 billion, $1.4 billion and $2.4 billion with advances outstanding of $9.8 billion, $1.0 billion and $2.4 billion.

GM Financial Cash Flow (Dollars in Billions)

GENERAL MOTORS COMPANY AND SUBSIDIARIES

Years Ended December 31,2016 vs. 2015 Change2015 vs. 2014 Change
201620152014
Net cash provided by operating activities$4.9$2.8$1.9$2.1$0.9
Net cash used in investing activities$(24.6)$(22.0)$(10.2)$(2.6)$(11.8)
Net cash provided by financing activities$20.2$19.5$9.8$0.7$9.7

In the years ended December 31, 2016 and 2015 Net cash provided by operating activities increased due primarily to an increase in leased vehicle income, partially offset by increased operating expenses and interest expense.

In the year ended December 31, 2016 Net cash used in investing activities increased due primarily to: (1) increased purchases of leased vehicles of $4.5 billion; and (2) increased purchases and funding of finance receivables of $2.0 billion; partially offset by (3) increased proceeds from the termination of leased vehicles of $1.5 billion; (4) increased collections on finance receivables of $1.4 billion; and (5) prior year impact of cash used for the acquisition of the equity interest in SAIC-GMAC of $0.9 billion.

In the year ended December 31, 2015 Net cash used in investing activities increased due primarily to: (1) increased purchases of leased vehicles of $10.4 billion; (2) increased purchases and funding of finance receivables of $1.0 billion; and (3) net cash used for the acquisition of the equity interest in SAIC-GMAC of $0.9 billion; partially offset by (4) increased proceeds from the termination of leased vehicles of $0.6 billion.

In the years ended December 31, 2016 and 2015 Net cash provided by financing activities increased due primarily to a net increase in borrowings.

Off-Balance Sheet Arrangements We do not currently utilize off-balance sheet securitization arrangements. All trade or finance receivables and related obligations subject to securitization programs are recorded on our consolidated balance sheets at December 31, 2016 and 2015. Refer to Note 15 of our consolidated financial statements for detailed information related to guarantees we have provided and for our noncancelable operating lease obligations.

Contractual Obligations and Other Long-Term Liabilities We have minimum commitments under contractual obligations, including purchase obligations. A purchase obligation is defined as an agreement to purchase goods or services that is enforceable and legally binding on us and that specifies all significant terms, including fixed or minimum quantities to be purchased or fixed minimum price provisions, and the approximate timing of the transaction. Based on these definitions, the following table includes only those contracts which include fixed or minimum obligations. The majority of our purchases are not included in the table as they are made under purchase orders which are requirements based and accordingly do not specify minimum quantities. The following table summarizes aggregated information about our outstanding contractual obligations and other long-term liabilities at December 31, 2016:

Payments Due by Period
20172018-20192020-20212022 and afterTotal
Automotive debt$819$1,584$77$7,950$10,430
Automotive Financing debt28,59626,97111,0127,79174,370
Capital lease obligations35619750218821
Automotive interest payments(a)5821,0309346,9279,473
Automotive Financing interest payments(b)1,6242,0039497935,369
Postretirement benefits(c)24048220—742
Operating lease obligations, net2324112782721,193
Other contractual commitments:
Material7889561071441,995
Marketing776487197321,492
Rental car repurchases2,965———2,965
Other9397382132402,130
Total contractual commitments(d)$37,917$34,859$13,837$24,367$110,980
Non-contractual postretirement benefits(e)$140$261$707$9,673$10,781

GENERAL MOTORS COMPANY AND SUBSIDIARIES

(a)Amounts include automotive interest payments based on contractual terms and current interest rates on our debt and capital lease obligations. Automotive interest payments based on variable interest rates were determined using the interest rate in effect at December 31, 2016.
(b)GM Financial interest payments were determined using the interest rate in effect at December 31, 2016 for floating rate debt and the contractual rates for fixed rate debt. GM Financial interest payments on floating rate tranches of the securitization notes payable were converted to a fixed rate based on the floating rate plus any expected hedge payments.
(c)Amounts include OPEB payments under the current U.S. contractual labor agreements through 2019 and Canada labor agreements through 2020. These agreements are generally renegotiated in the year of expiration. Amounts do not include pension funding obligations, which are discussed in Note 14 to our consolidated financial statements.
(d)Amounts do not include future cash payments for long-term purchase obligations and other accrued expenditures (unless specifically listed in the table above) which were recorded in Accounts payable or Accrued liabilities at December 31, 2016.
(e)Amounts include all expected future payments for both current and expected future service at December 31, 2016 for OPEB obligations for salaried and hourly employees extending beyond the current North American union contract agreements. Amounts do not include pension funding obligations, which are discussed in Note 14 to our consolidated financial statements.

The table above does not reflect product warranty and related liabilities of $9.7 billion and unrecognized tax benefits of $1.2 billion due to the uncertainty regarding the future cash outflows potentially associated with these amounts.

Critical Accounting Estimates Accounting estimates are an integral part of the consolidated financial statements. These estimates require the use of judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses in the periods presented. We believe the accounting estimates employed are appropriate and the resulting balances are reasonable; however, due to the inherent uncertainties in developing estimates actual results could differ from the original estimates, requiring adjustments to these balances in future periods. Refer to Note 2 to our consolidated financial statements for our significant accounting policies related to our critical accounting estimates.

Pension and OPEB Plans Our defined benefit pension plans are accounted for on an actuarial basis, which requires the selection of various assumptions, including an expected long-term rate of return on plan assets, a discount rate, mortality rates of participants and expectation of mortality improvement. The expected long-term rate of return on U.S. plan assets that is utilized in determining pension expense is derived from periodic studies, which include a review of asset allocation strategies, anticipated future long-term performance of individual asset classes, risks using standard deviations and correlations of returns among the asset classes that comprise the plans' asset mix. While the studies give appropriate consideration to recent plan performance and historical returns, the assumptions are primarily long-term, prospective rates of return.

In December 2016 an investment policy study was completed for the U.S. pension plans. The study resulted in new target asset allocations being approved for the U.S. pension plans with resulting changes to the expected long-term rate of return on assets. The weighted-average long-term rate of return on assets decreased from 6.3% at December 31, 2015 to 6.2% at December 31, 2016. The expected long-term rate of return on plan assets used in determining pension expense for non-U.S. plans is determined in a similar manner to the U.S. plans.

Another key assumption in determining net pension and OPEB expense is the assumed discount rate used to discount plan obligations. We estimate the assumed discount rate for U.S. plans using a cash flow matching approach, which uses projected cash flows matched to spot rates along a high quality corporate yield curve to determine the weighted-average discount rate for the calculation of the present value of cash flows. Effective 2016 we applied the individual annual yield curve rates instead of the assumed discount rate to determine the service cost and interest cost. This refinement more specifically links the cash flows related to service cost and interest cost to bonds maturing in their year of payment. The refinement reduced the service cost and interest cost in 2016 by $0.8 billion. There was no effect on the determination of the plan obligations which continues to be calculated using the assumed discount rate.

We have reviewed and incorporated the mortality improvement tables published by the Society of Actuaries in the three months ended December 31, 2016 that lowered life expectancies and thereby indicated the amount of estimated aggregate benefit payments to our U.S. pension plans' participants was decreasing. This change in assumption decreased the December 31, 2016 U.S. pension and OPEB plans’ benefit obligations by $0.9 billion.

Significant differences in actual experience or significant changes in assumptions may materially affect the pension obligations. The effects of actual results differing from assumptions and the changing of assumptions are included in unamortized net actuarial gains and losses that are subject to amortization to pension expense over future periods. The unamortized pre-tax actuarial loss on our pension plans was $4.8 billion and $3.7 billion at December 31, 2016 and 2015. The year-over-year change is primarily due

GENERAL MOTORS COMPANY AND SUBSIDIARIES

to the decrease in discount rates partially offset by assumption changes, primarily the U.S. mortality improvement scale. At December 31, 2016 $2.9 billion of the unamortized pre-tax actuarial loss is outside the corridor (10% of the projected benefit obligation (PBO)) and subject to amortization. The weighted-average amortization period is approximately twelve years resulting in amortization expense of $0.2 billion in 2017.

The underfunded status of the U.S. pension plans decreased by $3.2 billion in the year ended December 31, 2016 to $7.2 billion due primarily to: (1) a favorable effect of actual returns on plan assets of $4.0 billion; (2) contributions of $2.1 billion; and (3) favorable assumption changes, primarily the U.S. mortality improvement scale of $0.9 billion; partially offset by (4) interest and service cost of $2.4 billion; and (5) an unfavorable effect due to a decrease in discount rates of $1.5 billion.

The following table illustrates the sensitivity to a change in certain assumptions for the pension plans, holding all other assumptions constant:

U.S. Plans(a)Non-U.S. Plans(a)
Effect on 2017 Pension ExpenseEffect on December 31, 2016 PBOEffect on 2017 Pension ExpenseEffect on December 31, 2016 PBO
25 basis point decrease in discount rate-$78+$1,726+$39+$788
25 basis point increase in discount rate+$59-$1,652-$13-$745
25 basis point decrease in expected rate of return on assets+$147N/A+$31N/A
25 basis point increase in expected rate of return on assets-$147N/A-$31N/A
(a)The sensitivity does not include the effects of the individual annual yield curve rates applied for the calculation of the service cost and interest cost effective in 2016.

Refer to Note 14 to our consolidated financial statements for additional information on pension contributions, investment strategies, assumptions, the change in benefit obligations and related plan assets, pension funding requirements and future net benefit payments. Refer to Note 2 to our consolidated financial statements for a discussion of the inputs used to determine fair value for each significant asset class or category.

Valuation of Deferred Tax Assets 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 the valuation of deferred tax assets represents our best estimate of future events. Changes in our current estimates, due to unanticipated market conditions, governmental legislative actions or events, could have a material effect on our ability to utilize deferred tax assets.

At December 31, 2016 total deferred tax assets were $40 billion and valuation allowances against those deferred tax assets were $4.6 billion. Refer to Note 16 to our consolidated financial statements for additional information on the composition of these valuation allowances.

If law is enacted that reduces the U.S. statutory tax rate, we would record a significant, one-time reduction to the net deferred tax assets and related increase to income tax expense in the period that includes the enactment date of the tax rate change.

Valuation of GM Financial Equipment on Operating Leases Assets and Residuals GM Financial has investments in leased vehicles recorded as operating leases, which relate to vehicle leases to retail customers with lease terms ranging from two to five years. At the beginning of the lease contract a determination is made of the estimated realizable value (i.e., residual value) of the vehicle at the end of the lease term, which is the critical assumption underlying the estimated carrying value of leased assets. The estimated realizable value is based on the lower of the contracted residual value or the current market estimate of residual value based on independent lease guides. Since the customer is not obligated to purchase the vehicle at the end of the contract, GM Financial is exposed to a risk of loss to the extent the value of the vehicle at the end of the lease term is below the residual value estimated at contract inception. Over the life of the lease GM Financial evaluates the adequacy of the estimate of the residual value and may make adjustments to the extent the expected value of the vehicle at lease termination changes. Adjustments could result in a change in the depreciation rate of the leased asset or if an impairment exists, an impairment charge.

The following table summarizes vehicles included in GM Financial equipment on operating leases, net (vehicles in thousands):

GENERAL MOTORS COMPANY AND SUBSIDIARIES

December 31, 2016December 31, 2015
Cars430271
Trucks224121
Crossovers681401
Total1,335793

At December 31, 2016 GM Financial's estimated residual value of the leased assets at the end of the lease term was $23.6 billion. The following table illustrates the effect of a 1% change in the estimated residual values at December 31, 2016, which will increase or decrease depreciation expense over the remaining term of GM Financial's operating leases, holding all other assumptions constant:

Impact to Depreciation Expense
Cars$53
Trucks52
Crossovers131
Total$236

Product Warranty and Recall Campaigns The estimates related to product warranties are established using historical information on the nature, frequency and average cost of claims of each vehicle line or each model year of the vehicle line and assumptions about future activity and events. When little or no claims experience exists for a model year or a vehicle line, the estimate is based on comparable models.

In GMNA we primarily accrue the costs for recall campaigns at the time of vehicle sale. In the other regions, there is not sufficient historical data to support the application of an actuarial-based estimation technique and the estimated costs are accrued at the time when they are probable and reasonably estimable, which typically occurs once it is determined a specific recall campaign is needed and announced.

The estimates related to recall campaigns accrued at the time of vehicle sale are established by applying a frequency times severity approach that considers the number of recall events, the number of vehicles per recall event, the assumed number of vehicles that will be brought in by customers for repair (take rate) and the cost per vehicle for each recall event. These estimates consider the nature, frequency and magnitude of historical recall campaigns. Costs associated with recall campaigns not accrued at the time of vehicle sale are estimated based on the estimated cost of repairs and the estimated vehicles to be repaired. Depending on part availability and time to complete repairs we may, from time to time, offer courtesy transportation at no cost to our customers. These estimates are re-evaluated on an ongoing basis and based on the best available information. Revisions are made when necessary based on changes in these factors.

The estimated amount accrued for recall campaigns at the time of vehicle sale is most sensitive to the estimated number of recall events, the number of vehicles per recall event, the take rate, and the cost per vehicle for each recall event. The estimated cost of a recall campaign that is accrued on an individual basis is most sensitive to our estimated assumed take rate that is primarily developed based on our historical take rate experience. A 10% increase in the estimated take rate for all recall campaigns would increase the estimated cost by approximately $0.3 billion.

Actual experience could differ from the amounts estimated requiring adjustments to these liabilities in future periods. Due to the uncertainty and potential volatility of the factors contributing to developing estimates, changes in our assumptions could materially affect our results of operations.

Sales Incentives The estimated effect of sales incentives offered to dealers and end customers is recorded as a reduction of Automotive net sales and revenue at the later of the time of sale or announcement of an incentive program to dealers. There may be numerous types of incentives available at any particular time, including a choice of incentives for a specific model. Incentive programs are generally brand specific, model specific or sales region specific and are for specified time periods, which may be extended. Significant factors used in estimating the cost of incentives include the volume of vehicles that will be affected by the incentive programs offered by product, the product mix, the rate of customer acceptance of any incentive program and the likelihood that an incentive program will be extended, all of which are estimated based on historical experience and assumptions concerning customer behavior and future market conditions. When an incentive program is announced, the number of vehicles in dealer

GENERAL MOTORS COMPANY AND SUBSIDIARIES

inventory eligible for the incentive program is determined and a reduction of Automotive net sales and revenue is recorded in the period in which the program is announced. If the actual number of affected vehicles differs from this estimate, or if a different mix of incentives is actually paid, the reduction in Automotive net sales and revenue due to incentives could be affected. There are a multitude of inputs affecting the calculation of the estimate for sales incentives and an increase or decrease in any of these variables could have a significant effect on recorded sales incentives.

Forward-Looking Statements In this 2016 Form 10-K and in reports we subsequently file and have previously filed with the SEC on Forms 10-K and 10-Q and file or furnish on Form 8-K, and in related comments by our management, we use words like “anticipate,” “appears,” “approximately,” “believe,” “continue,” “could,” “designed,” “effect,” “estimate,” “evaluate,” “expect,” “forecast,” “goal,” “initiative,” “intend,” “may,” “objective,” “outlook,” “plan,” “potential,” “priorities,” “project,” “pursue,” “seek,” “should,” “target,” “when,” “will,” “would,” or the negative of any of those words or similar expressions to identify forward-looking statements that represent our current judgment about possible future events. In making these statements we rely on assumptions and analyses based on our experience and perception of historical trends, current conditions and expected future developments as well as other factors we consider appropriate under the circumstances. We believe these judgments are reasonable, but these statements are not guarantees of any events or financial results, and our actual results may differ materially due to a variety of important factors, both positive and negative. These factors, which may be revised or supplemented in subsequent reports on SEC Forms 10-Q and 8-K, include among others the following: (1) our ability to deliver new products, services and customer experiences in response to new participants in the automotive industry; (2) our ability to fund and introduce new and improved vehicle models that are able to attract a sufficient number of consumers; (3) the success of our full-size pick-up trucks and SUVs, which may be affected by increases in the price of oil; (4) global automobile market sales volume, which can be volatile; (5) aggressive competition in China; (6) the international scale and footprint of our operations which exposes us to a variety of domestic and foreign political, economic and regulatory risks, including the risk of changes in existing, the adoption of new, or the introduction of novel interpretations of, laws regulations, policies or other activities of governments, agencies and similar organizations particularly laws, regulations and policies relating to free trade agreements, vehicle safety including recalls, and, including such actions that may affect the production, licensing, distribution or sale of our products, the cost thereof or applicable tax rates; (7) our joint ventures, which we cannot operate solely for our benefit and over which we may have limited control; (8) our ability to comply with extensive laws and regulations applicable to our industry, including those regarding fuel economy and emissions; (9) costs and risks associated with litigation and government investigations including the potential imposition of damages, substantial fines, civil lawsuits and criminal penalties, interruptions of business, modification of business practices, equitable remedies and other sanctions against us in connection with various legal proceedings and investigations relating to our various recalls; (10) our ability to comply with the terms of the DPA; (11) our ability to maintain quality control over our vehicles and avoid material vehicle recalls and the cost and effect on our reputation and products; (12) the ability of our suppliers to deliver parts, systems and components without disruption and at such times to allow us to meet production schedules; (13) our dependence on our manufacturing facilities around the world; (14) our highly competitive industry, which is characterized by excess manufacturing capacity and the use of incentives and the introduction of new and improved vehicle models by our competitors; (15) our ability to realize production efficiencies and to achieve reductions in costs as we implement operating effectiveness initiatives throughout our automotive operations; (16) our ability to successfully restructure our operations in various countries; (17) our ability to manage risks related to security breaches and other disruptions to our vehicles, information technology networks and systems; (18) our continued ability to develop captive financing capability through GM Financial; (19) significant increases in our pension expense or projected pension contributions resulting from changes in the value of plan assets, the discount rate applied to value the pension liabilities or mortality or other assumption changes; and (20) significant changes in economic, political, regulatory environment, market conditions, foreign currency exchange rates or political stability in the countries in which we operate, particularly China, with the effect of competition from new market entrants and in the United Kingdom with passage of a referendum to discontinue membership in the European Union.

We caution readers not to place undue reliance on forward-looking statements. We undertake no obligation to update publicly or otherwise revise any forward-looking statements, whether as a result of new information, future events or other factors that affect the subject of these statements, except where we are expressly required to do so by law.

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