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Finance Receivables
3 Months Ended
Sep. 30, 2012
Receivables [Abstract]  
FINANCE RECEIVABLES
FINANCE RECEIVABLES

Finance receivable balances were as follows (in millions):
 
September 30,
2012
 
December 31,
2011
Automotive sector (a)
$
733

 
$
355

Financial Services sector
72,598

 
73,330

Reclassification of receivables purchased by Financial Services sector from Automotive sector to Other receivables, net
(4,999
)
 
(3,709
)
Finance receivables, net
$
68,332

 
$
69,976

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

Automotive Sector

Our Automotive sector notes receivable consist primarily of amounts loaned to Ford Romania SA, Geely Sweden AB, and FordSollers. 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):
 
September 30,
2012
 
December 31,
2011
Notes receivable
$
760

 
$
384

Less:  Allowance for credit losses
(27
)
 
(29
)
   Notes receivable, net
$
733

 
$
355



Financial Services Sector

Our Financial Services sector finance receivables primarily relate to Ford Credit, but also include the Other Financial Services segment and certain intersector eliminations.

Our Financial Services sector segments the 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

NOTE 5.  FINANCE RECEIVABLES (Continued)

Non-Consumer Segment. Receivables in this portfolio segment relate to products offered to automotive 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

Finance receivables, net were as follows (in millions):
 
September 30, 2012
 
December 31, 2011
 
North
America
 
International
 
Total Finance Receivables
 
North
America
 
International
 
Total Finance Receivables
Consumer
 
 
 
 
 
 
 
 
 
 
 
Retail, gross
$
39,279

 
$
8,261

 
$
47,540

 
$
38,406

 
$
8,400

 
$
46,806

Less: Unearned interest supplements
(1,326
)
 
(215
)
 
(1,541
)
 
(1,407
)
 
(219
)
 
(1,626
)
Retail
37,953

 
8,046

 
45,999

 
36,999

 
8,181

 
45,180

Direct financing leases, gross
31

 
2,265

 
2,296

 
4

 
2,683

 
2,687

Less: Unearned interest supplements

 
(88
)
 
(88
)
 

 
(116
)
 
(116
)
Direct financing leases
31

 
2,177

 
2,208

 
4

 
2,567

 
2,571

Consumer finance receivables
$
37,984

 
$
10,223

 
$
48,207

 
$
37,003

 
$
10,748

 
$
47,751

Non-Consumer
 

 
 

 
 

 
 

 
 

 
 

Wholesale
$
15,517

 
$
6,792

 
$
22,309

 
$
15,413

 
$
8,416

 
$
23,829

Dealer loans
1,146

 
58

 
1,204

 
1,088

 
63

 
1,151

Other
878

 
394

 
1,272

 
723

 
377

 
1,100

Non-Consumer finance receivables
17,541

 
7,244

 
24,785

 
17,224

 
8,856

 
26,080

Total recorded investment
$
55,525

 
$
17,467

 
$
72,992

 
$
54,227

 
$
19,604

 
$
73,831

 
 
 
 
 
 
 
 
 
 
 
 
Recorded investment in finance receivables
$
55,525

 
$
17,467

 
$
72,992

 
$
54,227

 
$
19,604

 
$
73,831

Less:  Allowance for credit losses
(298
)
 
(96
)
 
(394
)
 
(388
)
 
(113
)
 
(501
)
Finance receivables, net
$
55,227

 
$
17,371

 
$
72,598

 
$
53,839

 
$
19,491

 
$
73,330

 
 
 
 
 
 
 
 
 
 
 
 
Net finance receivables subject to fair value (a)
 
 
 
 
$
70,388

 
 
 
 
 
$
70,754

Fair value
 
 
 
 
72,296

 
 
 
 
 
72,294

__________
(a)
At September 30, 2012 and December 31, 2011, excludes $2.2 billion and $2.6 billion, respectively, 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.

Our Financial Services sector excluded in the recorded investment in finance receivables at September 30, 2012 and December 31, 2011 $173 million and $180 million, respectively, of accrued uncollected interest receivable, which we report in Other assets on the balance sheet.

Included in the recorded investment in finance receivables at September 30, 2012 and December 31, 2011 were North America consumer receivables of $23.9 billion and $29.4 billion and non-consumer receivables of $14.2 billion and $14.2 billion, respectively, and International consumer receivables of $6.1 billion and $7.1 billion and non-consumer receivables of $4.3 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 our other creditors. We hold 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).

NOTE 5.  FINANCE RECEIVABLES (Continued)

Aging. For all classes of finance receivables, we define "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 our Financial Services sector finance receivables balances at September 30, 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
$
625

 
$
72

 
$
20

 
$
55

 
$
772

 
$
37,181

 
$
37,953

Direct financing leases

 

 

 

 

 
31

 
31

Non-Consumer
 
 
 
 
 
 
 
 
 

 
 

 
 

Wholesale

 
1

 
1

 
2

 
4

 
15,513

 
15,517

Dealer loans
3

 
4

 
4

 
11

 
22

 
1,124

 
1,146

Other

 

 

 

 

 
878

 
878

Total North America recorded investment
628

 
77

 
25

 
68

 
798

 
54,727

 
55,525

 
 
 
 
 
 
 
 
 
 
 
 
 
 
International
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer
 
 
 
 
 
 
 
 
 
 
 
 
 
Retail
34

 
18

 
10

 
28

 
90

 
7,956

 
8,046

Direct financing leases
6

 
3

 
2

 
3

 
14

 
2,163

 
2,177

Non-Consumer
 
 
 
 
 
 
 
 
 

 
 

 
 

Wholesale
1

 

 

 
4

 
5

 
6,787

 
6,792

Dealer loans

 

 

 
1

 
1

 
57

 
58

Other

 

 

 
2

 
2

 
392

 
394

Total International recorded investment
41

 
21

 
12

 
38

 
112

 
17,355

 
17,467

Total recorded investment
$
669

 
$
98

 
$
37

 
$
106

 
$
910

 
$
72,082

 
$
72,992



Consumer Credit Quality. When originating all classes of consumer receivables, we use 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 our proprietary scoring system, we consider other individual consumer factors, such as employment history, financial stability, and capacity to pay.
    
Subsequent to origination, we review the credit quality of retail and direct financing lease receivables based on customer payment activity. As each customer develops a payment history, we use 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. Our 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 our risk-based staffing model to ensure collection resources are aligned with portfolio risk.

Credit quality ratings for our consumer receivables are categorized as follows:

Passcurrent to 60 days past due
Special Mention – 61 to 120 days past due and in intensified collection status
Substandardgreater 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 collateral

NOTE 5.  FINANCE RECEIVABLES (Continued)

The credit quality analysis of our Financial Services sector consumer receivables portfolio was as follows (in millions):
 
September 30, 2012
 
December 31, 2011
 
Retail
 
Direct Financing
Leases
 
Retail
 
Direct Financing
Leases
North America
 
 
 
 
 
 
 
Pass
$
37,806

 
$
31

 
$
36,839

 
$
4

Special Mention
92

 

 
90

 

Substandard
55

 

 
70

 

Total North America recorded investment
37,953

 
31

 
36,999

 
4

 
 
 
 
 
 
 
 
International
 

 
 

 
 

 
 

Pass
7,990

 
2,169

 
8,107

 
2,559

Special Mention
28

 
5

 
34

 
5

Substandard
28

 
3

 
40

 
3

Total International recorded investment
8,046

 
2,177

 
8,181

 
2,567

Total recorded investment
$
45,999

 
$
2,208

 
$
45,180

 
$
2,571



Non-Consumer Credit Quality. For all classes of non-consumer receivables, we extend 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. We use a proprietary model to assign each dealer a risk rating. This model uses historical performance data to identify key factors about a dealer that we consider significant in predicting a dealer's ability to meet its financial obligations. We also consider numerous other financial and qualitative factors including capitalization and leverage, liquidity and cash flow, profitability, and credit history with ourselves 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

We suspend credit lines and extends no further funding to dealers classified in Group IV.

We regularly review our model to confirm the continued business significance and statistical predictability of the factors and update the model to incorporate new factors or other information that improves its statistical predictability. In addition, we verify 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. We perform a credit review of each dealer at least annually and adjust the dealer's risk rating, if necessary.




NOTE 5.  FINANCE RECEIVABLES (Continued)

Performance of non-consumer receivables is evaluated based on our 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):
 
September 30, 2012
 
December 31, 2011
 
Wholesale
 
Dealer Loan
 
Wholesale
 
Dealer Loan
North America
 
 
 
 
 
 
 
Group I
$
12,934

 
$
943

 
$
12,645

 
$
861

Group II
2,322

 
149

 
2,489

 
165

Group III
247

 
48

 
273

 
58

Group IV
14

 
6

 
6

 
4

Total North America recorded investment
15,517

 
1,146

 
15,413

 
1,088

 
 
 
 
 
 
 
 
International
 

 
 

 
 

 
 

Group I
4,356

 
38

 
5,115

 
42

Group II
1,352

 
10

 
1,965

 
10

Group III
1,080

 
9

 
1,327

 
10

Group IV
4

 
1

 
9

 
1

Total International recorded investment
6,792

 
58

 
8,416

 
63

Total recorded investment
$
22,309

 
$
1,204

 
$
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 $323 million, or 0.7% of our consumer receivables, at September 30, 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 $28 million, or 0.1% of our non-consumer receivables, at September 30, 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 included $15 million and $14 million of non-bankrupt consumer accounts at September 30, 2012 and December 31, 2011, respectively, and were $14 million and de minimis for non-consumer loans at September 30, 2012 and December 31, 2011, respectively.

NOTE 5.  FINANCE RECEIVABLES (Continued)

Consumer Impairment. Our Financial Services sector finance receivables are evaluated both collectively and specifically for impairment. Impaired consumer receivables include accounts that have been re-written or modified in reorganization proceedings pursuant to the U.S. Bankruptcy Code that 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 September 30, 2012 and December 31, 2011 was $411 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 September 30, 2012 and
December 31, 2011, was $61 million, or 0.2% of non-consumer receivables, and $64 million, or 0.2% of the non-consumer receivables, respectively.

Troubled Debt Restructurings

Effective July 1, 2011, we 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 we grant a concession to a customer or borrower for economic or legal reasons related to the debtor's financial difficulties that we 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. We do not grant concessions on the principal balance for re-written contracts. Contracts that are modified at an interest rate that is below the market rate are considered to be TDRs. In addition, consumer receivables modified in reorganization proceedings pursuant to the U.S. Bankruptcy Code are considered to be TDRs.

The outstanding recorded investment at time of modification for consumer receivables that are considered to be TDRs was $185 million, or 0.4% of our consumer receivables during the period ended September 30, 2012 and $297 million, or 0.6% during the period ended September 30, 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 5.7% of TDRs during the period ended September 30, 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 collateral is used to estimate the specific impairment. The allowance for credit losses related to consumer TDRs was $18 million and $13 million at September 30, 2012 and at September 30, 2011, respectively.
NOTE 5.  FINANCE RECEIVABLES (Continued)

Non-Consumer. Within our Financial Services sector 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. We do not grant concessions on the principal balance of dealer loans. The recorded investment of dealer loans modified as TDRs during the periods ended September 30, 2012 and September 30, 2011 were de minimis.

Dealer loans involved in TDRs are assessed for impairment and included in our 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 collateral adjusted for estimated costs to sell. For loans where foreclosure is probable, the fair value of 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 for both periods ended September 30, 2012 and September 30, 2011 were de minimis.