FINANCE RECEIVABLES

Finance receivable balances were as follows (in millions):



	December 31, 2012			December 31, 2011
Automotive sector (a)	$	519		$	355
Financial Services sector	75,770			73,330
Reclassification of receivables purchased by Financial Services sector from Automotive sector to Other receivables, net	(4,779		)	(3,709		)
Finance receivables, net	$	71,510		$	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 notes receivable consist primarily of amounts loaned to our unconsolidated affiliates. 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):



	December 31, 2012			December 31, 2011
Notes receivable	$	542		$	384
Less: Allowance for credit losses	(23		)	(29		)
Notes receivable, net	$	519		$	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 include products offered to individuals and businesses that finance the acquisition of Ford and Lincoln vehicles from dealers for personal or commercial use. Retail financing includes retail installment contracts for new and used vehicles and direct financing leases with retail customers, government entities, daily rental companies, and fleet customers.

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


•	Dealer financing – wholesale loans to dealers to finance the purchase of vehicle inventory, also known as floorplan financing, and loans to dealers to finance working capital and improvements to dealership facilities, finance the purchase of dealership real estate, and other dealer vehicle program financing. Wholesale is approximately 95% of our dealer financing


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

Finance receivables are recorded at the time of origination or purchase for the principal amount financed and are subsequently reported at amortized cost, net of any allowance for credit losses. Amortized cost is the outstanding principal adjusted for any charge-offs, unamortized deferred fees or costs, and unearned interest supplements.

NOTE 7. FINANCE RECEIVABLES (Continued)

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



	December 31, 2012									December 31, 2011
	North America			International			Total Finance Receivables			North America			International			Total Finance Receivables
Consumer
Retail financing, gross	$	39,504		$	10,460		$	49,964		$	38,410		$	11,083		$	49,493
Less: Unearned interest supplements	(1,264		)	(287		)	(1,551		)	(1,407		)	(335		)	(1,742		)
Consumer finance receivables	$	38,240		$	10,173		$	48,413		$	37,003		$	10,748		$	47,751
Non-Consumer
Dealer financing	$	19,429		$	7,242		$	26,671		$	16,501		$	8,479		$	24,980
Other	689			386			1,075			723			377			1,100
Non-Consumer finance receivables	20,118			7,628			27,746			17,224			8,856			26,080
Total recorded investment	$	58,358		$	17,801		$	76,159		$	54,227		$	19,604		$	73,831

Recorded investment in finance receivables	$	58,358		$	17,801		$	76,159		$	54,227		$	19,604		$	73,831
Less: Allowance for credit losses	(309		)	(80		)	(389		)	(388		)	(113		)	(501		)
Finance receivables, net	$	58,049		$	17,721		$	75,770		$	53,839		$	19,491		$	73,330

Net finance receivables subject to fair value (a)							$	73,618								$	70,754
Fair value							75,618									72,294

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(a)	At December 31, 2012 and 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 4 for additional information.

Excluded from Financial Services sector finance receivables at December 31, 2012 and 2011, was $183 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 December 31, 2012 and 2011 were North America consumer receivables of $23 billion and $29.4 billion and non-consumer receivables of $17.1 billion and $14.2 billion, respectively, and International consumer receivables of $6.6 billion and $7.1 billion and non-consumer receivables of $4.5 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 Notes 12 and 17).

NOTE 7. FINANCE RECEIVABLES (Continued)

Contractual maturities of total finance receivables, excluding unearned interest supplements, outstanding at December 31, 2012 reflect contractual repayments due from customers or borrowers as follows (in millions):



	Due in Year Ending December 31,
	2013		2014		2015		Thereafter		Total
North America
Consumer
Retail financing, gross	$	11,599	$	9,992	$	8,096	$	9,817	$	39,504
Non-Consumer
Dealer financing	17,966		546		72		845		19,429
Other	685		2		1		1		689
Total North America	$	30,250	$	10,540	$	8,169	$	10,663	$	59,622

International
Consumer
Retail financing, gross	$	4,381	$	3,096	$	1,826	$	1,157	$	10,460
Non-Consumer
Dealer financing	6,464		717		58		3		7,242
Other	386		—		—		—		386
Total International	$	11,231	$	3,813	$	1,884	$	1,160	$	18,088

Our finance receivables are pre-payable without penalty, so prepayments may cause actual maturities to differ from contractual maturities. The above table, therefore, is not to be regarded as a forecast of future cash collections. For wholesale receivables, which are included in dealer financing, maturities stated above are estimated based on historical trends, as maturities on outstanding amounts are scheduled upon the sale of the underlying vehicle by the dealer.

Investment in direct financing leases, which are included in consumer receivables, were as follows (in millions):



	December 31, 2012									December 31, 2011
	North America			International			Total Direct Financing Leases			North America			International			Total Direct Financing Leases
Total minimum lease rentals to be received	$	58		$	1,466		$	1,524		$	4		$	1,897		$	1,901
Initial direct costs	1			16			17			—			18			18
Estimated residual values	—			851			851			1			971			972
Less: Unearned income	(7		)	(152		)	(159		)	(1		)	(203		)	(204		)
Less: Unearned interest supplements	—			(82		)	(82		)	—			(116		)	(116		)
Recorded investment in direct financing leases	52			2,099			2,151			4			2,567			2,571
Less: Allowance for credit losses	(1		)	(8		)	(9		)	—			(12		)	(12		)
Net investment in direct financing leases	$	51		$	2,091		$	2,142		$	4		$	2,555		$	2,559

Future minimum rental payments due from direct financing leases at December 31, 2012 were as follows (in millions):



	2013		2014		2015		2016		Thereafter
North America	$	21	$	12	$	13	$	9	$	3
International	571		430		317		136		12

NOTE 7. 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. Recorded investment of consumer accounts greater than 90 days past due and still accruing interest was $13 million and $14 million at December 31, 2012 and 2011, respectively. The recorded investment of non-consumer accounts greater than 90 days past due and still accruing interest was $5 million and de minimis at December 31, 2012 and 2011, respectively.

The aging analysis of our Financial Services sector finance receivables balances at December 31 were as follows (in millions):



	2012						2011
	North America		International		Total		North America		International		Total
Consumer
31-60 days past due	$	783	$	50	$	833	$	732	$	64	$	796
61-90 days past due	97		18		115		68		28		96
91-120 days past due	21		9		30		22		12		34
Greater than 120 days past due	52		29		81		70		43		113
Total past due	953		106		1,059		892		147		1,039
Current	37,287		10,067		47,354		36,111		10,601		46,712
Consumer finance receivables	$	38,240	$	10,173	$	48,413	$	37,003	$	10,748	$	47,751

Non-Consumer
Total past due	$	29	$	11	$	40	$	30	$	9	$	39
Current	20,089		7,617		27,706		17,194		8,847		26,041
Non-Consumer finance receivables	20,118		7,628		27,746		17,224		8,856		26,080
Total recorded investment	$	58,358	$	17,801	$	76,159	$	54,227	$	19,604	$	73,831

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 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 based on aging (as described in the aging table above). Consumer receivables credit quality ratings are 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 collateral

NOTE 7. FINANCE RECEIVABLES (Continued)

Non-Consumer Credit Quality. We extend credit to dealers primarily in the form of lines of credit to purchase new Ford and Lincoln vehicles as well as used vehicles. Each non-consumer 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 extend 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.

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. A dealer has the same risk rating for all of its dealer financing regardless of the type of financing.

The credit quality analysis of our dealer financing receivables at December 31 were as follows (in millions):



	2012						2011
	North America		International		Total		North America		International		Total
Dealer Financing
Group I	$	16,526	$	4,551	$	21,077	$	13,506	$	5,157	$	18,663
Group II	2,608		1,405		4,013		2,654		1,975		4,629
Group III	277		1,279		1,556		331		1,337		1,668
Group IV	18		7		25		10		10		20
Total recorded investment	$	19,429	$	7,242	$	26,671	$	16,501	$	8,479	$	24,980

NOTE 7. FINANCE RECEIVABLES (Continued)

Impaired Receivables. 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. Impaired non-consumer receivables represent accounts with dealers that have weak or poor financial metrics or dealer financing that have been modified in TDRs. The recorded investment of consumer receivables that were impaired at December 31, 2012 and 2011 was $422 million or 0.9% of consumer receivables, and $382 million or 0.8% of consumer receivables, respectively. The recorded investment of non-consumer receivables that were impaired at December 31, 2012 and 2011 was $47 million or 0.2% of non-consumer receivables, and $64 million or 0.2% of the non-consumer receivables, respectively. Impaired finance receivables are evaluated both collectively and specifically. See Note 9 for additional information related to the development of our allowance for credit losses.

Non-Accrual Receivables. 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. 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 generally are applied first to outstanding interest and then to the unpaid principal balance.

The recorded investment of consumer receivables in non-accrual status was $304 million or 0.6% of our consumer receivables, at December 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 $29 million or 0.1% of our non-consumer receivables, at December 31, 2012, and $27 million or 0.1% of our non-consumer receivables, at December 31, 2011.

Troubled Debt Restructurings. 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 contracts that have a modified interest rate that is below the market rate and those modified in reorganization proceedings pursuant to the U.S. Bankruptcy Code are considered to be TDRs. Non-consumer receivables 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 our loans. If a contract is modified in reorganization proceeding, all payment requirements of the reorganization plan need to be met before remaining balances are forgiven. The outstanding recorded investment at time of modification for consumer receivables that are considered to be TDRs were $249 million or 0.5% and $370 million or 0.8% of our consumer receivables during the period ended

December 31, 2012 and 2011, respectively. The subsequent default rate of TDRs that were previously modified in TDRs within the last twelve months and resulted in repossession for consumer contracts was 5.8% and 3.7% of TDRs at December 31, 2012 and 2011, respectively. The outstanding recorded investment of non-consumer loans involved in TDRs was de minimis during the years ended December 31, 2012 and 2011.

Finance receivables involved in TDRs are specifically assessed for impairment. An impairment charge is recorded as part of the provision to the allowance for credit losses for the amount that the recorded investment of the receivable exceeds its estimated fair value. Estimated fair value is 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 for loans where foreclosure is probable the fair value of the collateral adjusted for estimated costs to sell. The allowance for credit losses related to consumer TDRs was $19 million and $16 million at December 31, 2012 and 2011, respectively. The allowance for credit losses related to non-consumer TDRs was de minimis during the years ended December 31, 2012 and 2011.