Leasing

12 Months Ended

Dec. 31, 2020

Leasing

Ally as the Lessee

We have operating leases for our corporate facilities, which have remaining lease terms of 1 months to 11 years. Most of the property leases have fixed payment terms with annual fixed-escalation clauses and include options to extend the leases for periods that range from 1 year to 15 years. Some of those lease agreements also include options to terminate the leases in periods that range from approximately 5 years to 6 years after the commencement of the leases. We have not included any of these term extensions or termination provisions in our estimates of the lease term, as we do not consider it reasonably certain that the options will be exercised.

We also have operating leases for a fleet of vehicles that is used by our sales force for business purposes, with noncancelable lease terms of 367 days. Thereafter, the leases are month-to-month, up to a maximum of 48 months from inception.

During both the years ended December 31, 2020, and December 31, 2019, we paid $49 million in cash for amounts included in the measurement of lease liabilities. These amounts are included in net cash provided by operating activities in the Consolidated Statement of Cash Flows. During the years ended December 31, 2020, and December 31, 2019, we obtained $93 million and $52 million of ROU assets in exchange for new lease liabilities, respectively. As of December 31, 2020, the weighted-average remaining lease term of our operating lease portfolio was 7 years, and the weighted-average discount rate was 2.21%, compared to 7 years and 2.85% as of December 31, 2019.

The following table presents future minimum rental payments we are required to make under operating leases that have commenced as of December 31, 2020, and that have noncancelable lease terms expiring after December 31, 2020.


Year ended December 31, ($ in millions)
2021	$	45
2022	35
2023	26
2024	19
2025	18
2026 and thereafter	58
Total undiscounted cash flows	201
Difference between undiscounted cash flows and discounted cash flows	(14)
Total lease liability	$	187

In addition to the above, we entered into a forward-starting lease agreement in September 2017, for a new corporate facility in Charlotte, North Carolina, where we plan to consolidate several existing facilities into that location. The lessor and their agents are currently constructing the facilities at this location, with the lease scheduled to commence in April 2021 after construction is completed. The lease agreement will have a total of $290 million in undiscounted future lease payments over the 15-year term of the lease. We also have an option to purchase this facility after construction is completed, subject to certain terms and conditions.

The following table details the components of total net operating lease expense.



Year ended December 31, ($ in millions)	2020		2019		2018
Operating lease expense	$	46	$	45	$	43

Variable lease expense	8		8		7

Total lease expense, net (a)	$	54	$	53	$	50

(a)Included in other operating expenses in our Consolidated Statement of Income.

Ally as the Lessor

Investment in Operating Leases

We purchase consumer operating lease contracts and the associated vehicles from dealerships after those contracts are executed by the dealers and the consumers. The amount we pay a dealer for an operating lease contract is based on the negotiated price for the vehicle less vehicle trade-in, down payment from the consumer, and available automotive manufacturer incentives. Under the operating lease, the consumer is obligated to make payments in amounts equal to the amount by which the negotiated purchase price of the vehicle (less any trade-in value, down payment, or available manufacturer incentives) exceeds the contract residual value (including residual support) of the vehicle at lease termination, plus operating lease rental charges. The customer can terminate the lease at any point after commencement, subject to additional charges and fees. Both the consumer and the dealership have the option to purchase the vehicle at the end of the lease term, which can range from 24 to 60 months, at the residual value of the vehicle, however it is not reasonably certain this option will be exercised and accordingly our consumer leases are classified as operating leases. In addition to the charges described above, the consumer is generally responsible for certain charges related to excess mileage or excessive wear and tear on the vehicle. These charges are deemed variable lease payments and, as these payments are not based on a rate or index, they are recognized as net depreciation expense on operating lease assets in our Consolidated Statement of Income as incurred. Additionally, lease modifications made related to the COVID-19 pandemic are not considered a new lease contract, and the remaining lease payments will be recorded on a straight-line basis over the modified lease term.

When we acquire a consumer operating lease, we assume ownership of the vehicle from the dealer. We require that property damage, bodily injury, collision, and comprehensive insurance be obtained by the lessee on all consumer operating leases. Neither the consumer nor the dealer is responsible for the value of the vehicle at the time of lease termination. When vehicles are not purchased by customers or the receiving dealer at scheduled lease termination, the vehicle is returned to us for remarketing. We generally bear the risk of loss to the extent the value of a leased vehicle upon remarketing is below the expected residual value. At termination, our actual sales proceeds from remarketing the vehicle may be higher or lower than the estimated residual value resulting in a gain or loss on remarketing, which is included in net depreciation expense on operating lease assets in our Consolidated Statement of Income. Excessive mileage or excessive wear and tear on the vehicle during the lease may impact the sales proceeds received upon remarketing. As of both December 31, 2020, and December 31, 2019, consumer operating leases with a carrying value, net of accumulated depreciation, of $352 million, were covered by a residual value guarantee of 15% of the manufacturer’s suggested retail price.

The following table details our investment in operating leases.


Year ended December 31, ($ in millions)	2020		2019

Vehicles	$	11,182	$	10,426
Accumulated depreciation	(1,543)		(1,562)
Investment in operating leases, net	$	9,639	$	8,864

The following table presents future minimum rental payments we have the right to receive under operating leases with noncancelable lease terms expiring after December 31, 2020.


Year ended December 31, ($ in millions)
2021	$	1,395
2022	954
2023	498
2024	94
2025	6
2026 and thereafter	—
Total lease payments from operating leases	$	2,947

We recognized operating lease revenue of $1.4 billion for the year ended December 31, 2020, and $1.5 billion for both the years ended December 31, 2019, and 2018. Depreciation expense on operating lease assets includes net remarketing gains recognized on the sale of operating lease assets. The following table summarizes the components of depreciation expense on operating lease assets.




Year ended December 31, ($ in millions)	2020		2019		2018
Depreciation expense on operating lease assets (excluding remarketing gains) (a)	$	978	$	1,050	$	1,115
Remarketing gains, net	(127)		(69)		(90)
Net depreciation expense on operating lease assets	$	851	$	981	$	1,025

(a)Includes variable lease payments related to excess mileage and excessive wear and tear on vehicles of $23 million during the year ended December 31, 2020, $19 million during the year ended December 31, 2019, and $24 million during the year ended December 31, 2018.

Finance Leases

Our total gross investment in finance leases, which is included in finance receivables and loans, net, on our Consolidated Balance Sheet was $450 million and $472 million as of December 31, 2020, and December 31, 2019, respectively. This includes lease payment receivables of $437 million and $459 million at December 31, 2020, and December 31, 2019, respectively, and unguaranteed residual assets of $13 million at both December 31, 2020, and 2019. Interest income on finance lease receivables was $24 million for the year ended December 31, 2020, and $25 million for the year ended December 31, 2019, and is included in interest and fees on finance receivables and loans in our Consolidated Statement of Income.

The following table presents future minimum rental payments we have the right to receive under finance leases with noncancelable lease terms expiring after December 31, 2020.


Year ended December 31, ($ in millions)
2021	$	158
2022	121
2023	95
2024	63
2025	31
2026 and thereafter	17
Total undiscounted cash flows	485
Difference between undiscounted cash flows and discounted cash flows	(48)
Present value of lease payments recorded as lease receivable	$	437