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Derivative Financial Instruments and Hedging Activities (Notes)
 9 Months Ended
Sep. 30, 2015
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

In the normal course of business, our operations are exposed to global market risks, including the effect of changes in foreign currency exchange rates, certain commodity prices, and interest rates. To manage these risks, we enter into highly effective derivatives contracts. We have elected to apply hedge accounting to certain derivatives. Derivatives that are designated in hedging relationships are evaluated for effectiveness using regression analysis at the time they are designated and throughout the hedge period. Some derivatives do not qualify for hedge accounting; for others, we elect not to apply hedge accounting.

Income Effect of Derivative Financial Instruments

The gains/(losses), by hedge designation, recorded in income for the periods ended September 30 were as follows (in millions):

 
Third Quarter
 
First Nine Months
 
2015
 
2014
 
2015
 
2014
Automotive Sector
 
 
 
 
 
 
 
Cash flow hedges (a)
 
 
 
 
 
 
 
Reclassified from AOCI to income
$
(60
)
 
$
(61
)
 
$
(196
)
 
$
99

Ineffectiveness
—

 
—

 
—

 
—

Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
Foreign currency exchange contracts
25

 
168

 
170

 
107

Commodity contracts
(22
)
 
(28
)
 
(47
)
 
7

Total
$
(57
)
 
$
79

 
$
(73
)
 
$
213

 
 
 
 
 
 
 
 
Financial Services Sector
 
 
 
 
 
 
 
Fair value hedges
 
 
 
 
 
 
 
Interest rate contracts
 
 
 
 
 
 
 
Net interest settlements and accruals excluded from the assessment of hedge effectiveness
$
94

 
$
79

 
$
271

 
$
220

Ineffectiveness (b)
10

 
(2
)
 
6

 
8

Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
Interest rate contracts
(22
)
 
(10
)
 
(83
)
 
(37
)
Foreign currency exchange contracts
40

 
52

 
40

 
22

Cross-currency interest rate swap contracts
63

 
118

 
75

 
102

Total
$
185

 
$
237

 
$
309

 
$
315

__________
(a)
For the third quarter and first nine months of 2015, $453 million gain and a $86 million gain, respectively, were recorded in Other comprehensive income. For the third quarter and first nine months of 2014, $128 million loss and a $336 million loss, respectively, were recorded in Other comprehensive income.
(b)
For the third quarter and first nine months of 2015, hedge ineffectiveness reflects the net change in fair value on derivatives of $373 million gain and $345 million gain, respectively, and change in value on hedged debt attributable to the change in benchmark interest rates of $363 million loss and $339 million loss, respectively. For the third quarter and first nine months of 2014, hedge ineffectiveness reflects the net change in fair value on derivatives of $88 million loss and $179 million gain, respectively, and change in value on hedged debt attributable to the change in benchmark interest rates of $86 million gain and $171 million loss, respectively.
 
NOTE 12. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)

Balance Sheet Effect of Derivative Financial Instruments

Derivative financial instruments are recorded on the balance sheet at fair value, presented on a gross basis, and include an adjustment for non-performance risk. Notional amounts are presented on a gross basis. The notional amounts of the derivative financial instruments do not necessarily represent amounts exchanged by the parties and, therefore, are not a direct measure of our financial risk exposure. We enter into master agreements with counterparties that may allow for netting of exposure in the event of default or termination of the counterparty agreement due to breach of contract.

The notional amount and estimated fair value of our derivative financial instruments were as follows (in millions):

 
September 30, 2015
 
December 31, 2014
 
Notional
 
Fair Value of
Assets
 
Fair Value of
Liabilities
 
Notional
 
Fair Value of
Assets
 
Fair Value of
Liabilities
Automotive Sector
 
 
 
 
 
 
 
 
 
 
 
Cash flow hedges
 
 
 
 
 
 
 
 
 
 
 
Foreign currency exchange and commodity contracts
$
10,232

 
$
510

 
$
422

 
$
15,434

 
$
359

 
$
517

 
 
 
 
 
 
 
 
 
 
 
 
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
Foreign currency exchange contracts
15,059

 
243

 
205

 
12,198

 
157

 
129

Commodity contracts
490

 
1

 
24

 
693

 
1

 
67

Total derivative financial instruments, gross
$
25,781

 
754

 
651

 
$
28,325

 
517

 
713

Counterparty netting and collateral (a)


 
(514
)
 
(514
)
 


 
(463
)
 
(463
)
Total derivative financial instruments, net
 
$
240

 
$
137

 


 
$
54

 
$
250

 
 
 
 
 
 
 
 
 
 
 
 
Financial Services Sector
 

 
 

 
 

 
 
 
 
 
 
Fair value hedges
 

 
 

 
 

 
 
 
 
 
 
Interest rate contracts
$
26,323

 
$
848

 
$
4

 
$
23,203

 
$
602

 
$
38

 
 
 
 
 
 
 
 
 
 
 
 
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
56,173

 
216

 
174

 
56,558

 
168

 
89

Foreign currency exchange contracts
1,189

 
7

 
1

 
1,527

 
18

 
1

Cross-currency interest rate swap contracts
2,615

 
97

 
101

 
2,425

 
71

 
39

Total derivative financial instruments, gross
$
86,300

 
1,168

 
280

 
$
83,713

 
859

 
167

Counterparty netting and collateral (a)
 
 
(189
)
 
(189
)
 
 
 
(136
)
 
(136
)
Total derivative financial instruments, net
 
$
979

 
$
91




 
$
723

 
$
31


__________
(a)
At September 30, 2015 and December 31, 2014, we did not receive or pledge any cash collateral.