FINANCE RECEIVABLES

Finance receivables reflected on our consolidated balance sheet were as follows (in millions):



	March 31, 2012			December 31, 2011
Automotive sector (a)	$	356		$	355
Financial Services sector	73,911			73,330
Reclassification of receivables purchased by Financial Services sector from Automotive sector to Other receivables, net	(4,370		)	(3,709		)
Finance receivables, net	$	69,897		$	69,976

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(a)	Finance receivables are reported on our sector balance sheet in Receivables, less allowances and Other assets.

Automotive Sector

Our Automotive sector holds notes receivable, which consist primarily of notes related to the restructuring of our businesses and loans with certain suppliers. Performance of this group of receivables is evaluated based on payment activity and the financial stability of the debtor. Notes receivable initially are recorded at fair value and subsequently measured at amortized cost.

Notes receivable, net were as follows (in millions):



	March 31, 2012			December 31, 2011
Notes receivable	$	390		$	384
Less: Allowance for credit losses	(34		)	(29		)
Notes receivable, net	$	356		$	355

NOTE 5. FINANCE RECEIVABLES (Continued)

Financial Services Sector

Ford Credit segments its North America and International portfolio of finance receivables into "consumer" and "non-consumer" receivables. The receivables are secured by the vehicles, inventory, or other property being financed.

Consumer Segment. Receivables in this portfolio segment relate to products offered to individuals and businesses that finance the acquisition of Ford vehicles from dealers for personal or commercial use. The products include:


•	Retail financing – retail installment contracts for new and used vehicles


•	Direct financing leases – direct financing leases with retail customers, government entities, daily rental companies, and fleet customers

Non-consumer Segment. Receivables in this portfolio segment relate to products offered to dealers. The products include:


•	Wholesale financing – loans to dealers to finance the purchase of vehicle inventory, also known as floorplan financing


•	Dealer loans – loans to dealers to finance working capital, and to finance the purchase of dealership real estate and/or make improvements to dealership facilities


•	Other financing – receivables related to the sale of parts and accessories to dealers

At March 31, 2012 and December 31, 2011, the recorded investment in Ford Credit's finance receivables excluded $172 million and $180 million of accrued uncollected interest receivable, respectively, which we report in Other assets on the balance sheet.

Finance receivables, net were as follows (in millions):



	March 31, 2012									December 31, 2011
	North America			International			Total Finance Receivables			North America			International			Total Finance Receivables
Consumer
Retail, gross	$	38,276		$	8,565		$	46,841		$	38,406		$	8,400		$	46,806
Less: Unearned interest supplements	(1,341		)	(210		)	(1,551		)	(1,407		)	(219		)	(1,626		)
Retail	36,935			8,355			45,290			36,999			8,181			45,180
Direct financing leases, gross	3			2,671			2,674			4			2,683			2,687
Less: Unearned interest supplements	—			(115		)	(115		)	—			(116		)	(116		)
Direct financing leases	3			2,556			2,559			4			2,567			2,571
Consumer finance receivables	$	36,938		$	10,911		$	47,849		$	37,003		$	10,748		$	47,751
Non-consumer
Wholesale	$	15,648		$	8,438		$	24,086		$	15,413		$	8,416		$	23,829
Dealer loans	1,084			60			1,144			1,088			63			1,151
Other	818			466			1,284			723			377			1,100
Non-consumer finance receivables	17,550			8,964			26,514			17,224			8,856			26,080
Total recorded investment	$	54,488		$	19,875		$	74,363		$	54,227		$	19,604		$	73,831

Recorded investment in finance receivables	$	54,488		$	19,875		$	74,363		$	54,227		$	19,604		$	73,831
Less: Allowance for credit losses	(343		)	(109		)	(452		)	(388		)	(113		)	(501		)
Finance receivables, net	$	54,145		$	19,766		$	73,911		$	53,839		$	19,491		$	73,330

Net finance receivables subject to fair value (a)							$	71,349								$	70,754
Fair value							72,936									72,294

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(a)	At March 31, 2012 and December 31, 2011, excludes $2.6 billion of certain receivables (primarily direct financing leases) that are not subject to fair value disclosure requirements. All finance receivables are categorized within Level 3 of the fair value hierarchy. See Note 3 for additional information.

NOTE 5. FINANCE RECEIVABLES (Continued)

Included in the recorded investment in finance receivables at March 31, 2012 and December 31, 2011 were North America consumer receivables of $27.9 billion and $29.4 billion and non-consumer receivables of $14.3 billion and $14.2 billion, respectively, and International consumer receivables of $7.3 billion and $7.1 billion and non-consumer receivables of $6.3 billion and $5.6 billion, respectively, that secure certain debt obligations. The receivables are available only for payment of the debt and other obligations issued or arising in securitization transactions; they are not available to pay the other obligations of our Financial Services sector or the claims of its other creditors. Ford Credit holds the right to receive the excess cash flows not needed to pay the debt and other obligations issued or arising in securitization transactions (see Note 8).

Aging. For all classes of finance receivables, Ford Credit defines "past due" as any payment, including principal and interest, that has not been collected and is at least 31 days past the contractual due date. The aging analysis of Ford Credit's finance receivables balances at March 31, 2012 was as follows (in millions):



	31-60 Days Past Due		61-90 Days Past Due		91-120 Days Past Due		Greater Than 120 Days Past Due		Total Past Due		Current		Total Finance Receivables
North America
Consumer
Retail	$	580	$	49	$	19	$	66	$	714	$	36,221	$	36,935
Direct financing leases	—		—		—		—		—		3		3
Non-consumer
Wholesale	7		—		—		2		9		15,639		15,648
Dealer loans	1		—		—		3		4		1,080		1,084
Other	1		—		—		—		1		817		818
Total North America recorded investment	589		49		19		71		728		53,760		54,488

International
Consumer
Retail	56		19		12		35		122		8,233		8,355
Direct financing leases	8		3		1		4		16		2,540		2,556
Non-consumer
Wholesale	2		1		—		5		8		8,430		8,438
Dealer loans	—		—		—		1		1		59		60
Other	—		—		—		1		1		465		466
Total International recorded investment	66		23		13		46		148		19,727		19,875
Total recorded investment	$	655	$	72	$	32	$	117	$	876	$	73,487	$	74,363

Consumer Credit Quality. When originating all classes of consumer receivables, Ford Credit uses a proprietary scoring system that measures the credit quality of the receivables using several factors, such as credit bureau information, consumer credit risk scores (e.g., FICO score), and customer and contract characteristics. In addition to its proprietary scoring system, Ford Credit considers other individual consumer factors, such as employment history, financial stability, and capacity to pay.

Subsequent to origination, Ford Credit reviews the credit quality of retail and direct financing lease receivables based on customer payment activity. As each customer develops a payment history, Ford Credit uses an internally-developed behavioral scoring model to assist in determining the best collection strategies. Based on data from this scoring model, contracts are categorized by collection risk. Ford Credit's collection models evaluate several factors, including origination characteristics, updated credit bureau data, and payment patterns. These models allow for more focused collection activity on higher-risk accounts and are used to refine Ford Credit's risk-based staffing model to ensure collection resources are aligned with portfolio risk.

NOTE 5. FINANCE RECEIVABLES (Continued)

Credit quality ratings for Ford Credit's consumer receivables are categorized as follows:


•	Pass – current to 60 days past due


•	Special Mention – 61 to 120 days past due and in intensified collection status


•	Substandard – greater than 120 days past due and for which the uncollectible portion of the receivables has already been charged-off, as measured using the fair value of the collateral

The credit quality analysis of Ford Credit's consumer receivables portfolio was as follows (in millions):



	March 31, 2012				December 31, 2011
	Retail		Direct Financing Leases		Retail		Direct Financing Leases
North America
Pass	$	36,801	$	3	$	36,839	$	4
Special Mention	68		—		90		—
Substandard	66		—		70		—
Total North America recorded investment	36,935		3		36,999		4

International
Pass	8,289		2,548		8,107		2,559
Special Mention	31		4		34		5
Substandard	35		4		40		3
Total International recorded investment	8,355		2,556		8,181		2,567
Total recorded investment	$	45,290	$	2,559	$	45,180	$	2,571

Non-consumer Credit Quality. For all classes of non-consumer receivables, Ford Credit extends commercial credit to dealers primarily in the form of approved lines of credit to purchase new Ford and Lincoln vehicles as well as used vehicles. Each commercial lending request is evaluated by taking into consideration the borrower's financial condition and the underlying collateral securing the loan. Ford Credit uses a proprietary model to assign each dealer a risk rating. This model uses historical performance data to identify key factors about a dealer that Ford Credit considers significant in predicting a dealer's ability to meet its financial obligations. Ford Credit also considers numerous other financial and qualitative factors including capitalization and leverage, liquidity and cash flow, profitability, and credit history with Ford Credit and other creditors. A dealer's risk rating does not reflect any guarantees or a dealer owner's net worth.

Dealers are assigned to one of four groups according to their risk rating as follows:


•	Group I – strong to superior financial metrics


•	Group II – fair to favorable financial metrics


•	Group III – marginal to weak financial metrics


•	Group IV – poor financial metrics, including dealers classified as uncollectible

Ford Credit suspends credit lines and extends no further funding to dealers classified in Group IV.

Ford Credit regularly reviews its model to confirm the continued business significance and statistical predictability of the factors and updates the model to incorporate new factors or other information that improves its statistical predictability. In addition, Ford Credit verifies the existence of the assets collateralizing the receivables by physical audits of vehicle inventories, which are performed with increased frequency for higher-risk (i.e., Group III and Group IV) dealers. Ford Credit performs a credit review of each dealer at least annually and adjusts the dealer's risk rating, if necessary.

NOTE 5. FINANCE RECEIVABLES (Continued)

Performance of non-consumer receivables is evaluated based on Ford Credit's internal dealer risk rating analysis, as payment for wholesale receivables generally is not required until the dealer has sold the vehicle. Wholesale and dealer loan receivables with the same dealer share the same risk rating. The credit quality analysis of wholesale and dealer loan receivables was as follows (in millions):



	March 31, 2012				December 31, 2011
	Wholesale		Dealer Loan		Wholesale		Dealer Loan
North America
Group I	$	12,918	$	857	$	12,645	$	861
Group II	2,450		154		2,489		165
Group III	258		66		273		58
Group IV	22		7		6		4
Total North America recorded investment	15,648		1,084		15,413		1,088

International
Group I	5,459		41		5,115		42
Group II	1,847		9		1,965		10
Group III	1,129		9		1,327		10
Group IV	3		1		9		1
Total international recorded investment	8,438		60		8,416		63
Total recorded investment	$	24,086	$	1,144	$	23,829	$	1,151

Non-accrual Status. The accrual of revenue is discontinued at the earlier of the time a receivable is determined to be uncollectible, at bankruptcy status notification, or greater than 120 days past due. Finance receivable accounts may be restored to accrual status only when a customer settles all past-due deficiency balances and future payments are reasonably assured. For receivables in non-accrual status, subsequent financing revenue is recognized only to the extent a payment is received. Payments are generally applied first to outstanding interest and then to the unpaid principal balance.

The recorded investment of consumer receivables in non-accrual status was $368 million, or 0.8% of our consumer receivables, at March 31, 2012, and $402 million, or 0.9% of our consumer receivables, at December 31, 2011.

The recorded investment of non-consumer receivables in non-accrual status was $18 million, or 0.1% of our non-consumer receivables, at March 31, 2012, and $27 million, or 0.1% of our non-consumer receivables, at

December 31, 2011.

Finance receivables greater than 90 days past due and still accruing interest was $14 million of non-bankrupt retail accounts at March 31, 2012 and December 31, 2011, and $1 million of dealer loans were greater than 90 days past due and still accruing at March 31, 2012 and December 31, 2011.

NOTE 5. FINANCE RECEIVABLES (Continued)

Consumer Impairment. Ford Credit's finance receivables are evaluated both collectively and specifically for impairment. Impaired consumer receivables represent accounts that have been re-written or modified in reorganization proceedings pursuant to the U.S. Bankruptcy Code and are considered to be Troubled Debt Restructurings ("TDRs"), as well as all accounts greater than 120 days past due. The recorded investment of consumer receivables that were impaired at March 31, 2012 and December 31, 2011 was $394 million, or 0.9% of consumer receivables, and $382 million, or 0.8% of consumer receivables, respectively.

Non-consumer Impairment. Impaired non-consumer receivables represent accounts with dealers that have weak or poor financial metrics or dealer loans that have been modified in TDRs. The following factors (not necessarily in order of importance or probability of occurrence) are considered in determining whether a non-consumer receivable is impaired:


•	Delinquency in contractual payments of principal or interest


•	Deterioration of the borrower's competitive position


•	Cash flow difficulties experienced by the borrower


•	Breach of loan covenants or conditions


•	Initiation of dealer bankruptcy or other insolvency proceedings


•	Fraud or criminal conviction

The recorded investment of non-consumer receivables that were impaired at March 31, 2012 and

December 31, 2011, was $70 million, or 0.3% of non-consumer receivables, and $64 million, or 0.2% of the non-consumer receivables, respectively.

Troubled Debt Restructurings

Effective July 1, 2011, Ford Credit applied the requirements of the new accounting standard related to TDRs to restructurings occurring on or after January 1, 2011.

A restructuring of debt constitutes a TDR if Ford Credit grants a concession to a customer or borrower for economic or legal reasons related to the debtor's financial difficulties that Ford Credit otherwise would not consider.

Consumer. Payment extensions are granted to consumers in the normal course of business. Payment extensions result in a short-term deferral of the customer's normal monthly payment and do not constitute TDRs because payment concessions are not granted on the principal amount of the account or the interest rate charged and are not granted to consumers considered to be in financial difficulty.

Consumer receivable contracts may be modified to lower the customer's payment by extending the term of the contract or lowering the interest rate as a remedy to avoid or cure delinquency. Ford Credit does not grant concessions on the principal balance for re-written contracts. Contracts that have a modified interest rate that is below the market rate are considered to be TDRs.

Consumer receivables modified in reorganization proceedings pursuant to the U.S. Bankruptcy Code are considered to be TDRs. Ford Credit does not record changes to the recorded investment per the original contract for these TDRs until all payments and requirements of the reorganization plan are met.

The outstanding recorded investment at time of modification for consumer receivables that are considered to be TDRs was $63 million, or 0.1% of Ford Credit's consumer receivables during the period ended March 31, 2012 and $119 million, or 0.3% of Ford Credit's consumer receivables, during the period ended March 31, 2011. A subsequent default occurs when contracts that were previously modified in TDRs within the last twelve months and subsequently had past due payments that resulted in repossession. The subsequent annualized default rate for consumer contracts was 6.1% of TDRs during the period ended March 31, 2012.

Consumer receivables involved in TDRs are specifically assessed for impairment. A specific allowance is estimated based on the present value of the expected future cash flows of the receivable discounted at the loan's original effective interest rate or the fair value of any collateral adjusted for estimated costs to sell. For loans where foreclosure is probable, the fair value of the collateral is used to estimate the specific impairment. The allowance for credit losses related to consumer TDRs was $17 million at March 31, 2012. Ford Credit did not have any reserves for TDRs at March 31, 2011.

NOTE 5. FINANCE RECEIVABLES (Continued)

Non-consumer. Within Ford Credit's non-consumer receivables segment, only dealer loans subject to forbearance, moratoriums, extension agreements or other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral are classified as TDRs. Ford Credit does not grant concessions on the principal balance of dealer loans. There were no dealer loans involved in TDRs during the period ended March 31, 2012. The outstanding recorded investment of dealer loans involved in TDRs was $12 million, or less than 0.1% of Ford Credit's non-consumer receivables, during the period ended March 31, 2011. A subsequent default occurs when receivables that were previously modified in TDRs within the last twelve months and subsequently had past due payments that resulted in foreclosure or charge-off. There were no subsequent defaults for non-consumer contracts for the period ended March 31, 2012. The subsequent annualized default rate was 33.3% of TDRs during the period ended March 31, 2011.

Dealer loans involved in TDRs are assessed for impairment and included in Ford Credit's allowance for credit losses based on either the present value of the expected future cash flows of the receivable discounted at the loan's original effective interest rate, or the fair value of the collateral adjusted for estimated costs to sell. For loans where foreclosure is probable, the fair value of the collateral is used to estimate the specific impairment. An impairment charge is recorded as part of the provision to the allowance for credit losses for the amount by which the recorded investment of the receivable exceeds its estimated fair value. The allowance for credit losses related to non-consumer TDRs was $5 million and $8 million at March 31, 2012 and 2011, respectively.