Finance Receivables

The finance receivables portfolio consists of the following (in millions):



	March 31, 2014									December 31, 2013
	North America			International			Total			North America			International			Total
Consumer
Pre-acquisition consumer finance receivables - outstanding balance	$	735		$	293		$	1,028		$	931		$	363		$	1,294
Pre-acquisition consumer finance receivables - carrying value	$	645		$	285		$	930		$	826		$	348		$	1,174
Post-acquisition consumer finance receivables, collectively evaluated for impairment, net of fees^(a)	10,047			12,183			22,230			9,795			11,394			21,189
Post-acquisition consumer finance receivables, individually evaluated for impairment, net of fees	864			—			864			767			—			767
	11,556			12,468			24,024			11,388			11,742			23,130
Less: allowance for loan losses - collective	(387		)	(46		)	(433		)	(365		)	(29		)	(394		)
Less: allowance for loan losses - specific	(104		)	—			(104		)	(103		)	—			(103		)
Total consumer finance receivables, net	11,065			12,422			23,487			10,920			11,713			22,633
Commercial
Commercial finance receivables, collectively evaluated for impairment, net of fees	2,190			4,840			7,030			1,975			4,627			6,602
Commercial finance receivables, individually evaluated for impairment, net of fees	—			78			78			—			98			98
	2,190			4,918			7,108			1,975			4,725			6,700
Less: allowance for loan losses - collective	(16		)	(27		)	(43		)	(17		)	(27		)	(44		)
Less: allowance for loan losses - specific	—			(6		)	(6		)	—			(7		)	(7		)
Total commercial finance receivables, net	2,174			4,885			7,059			1,958			4,691			6,649
Total finance receivables, net	$	13,239		$	17,307		$	30,546		$	12,878		$	16,404		$	29,282

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(a) Amount reported for International includes $1.0 billion of direct-financing leases at March 31, 2014 and December 31, 2013.

Consumer Finance Receivables

Our consumer finance receivables are reported in two portfolios: pre-acquisition and post-acquisition. The pre-acquisition finance receivables portfolio consists of (i) finance receivables originated in North America prior to our merger with GM, all of which were considered to have had deterioration in credit quality, and (ii) finance receivables that were considered to have had deterioration in credit quality that were acquired with the international operations. The pre-acquisition consumer portfolio will decrease over time with the amortization of the acquired receivables.

The post-acquisition consumer finance receivables portfolio consists of (i) finance receivables originated in North America since our merger with GM, (ii) finance receivables originated in the international operations since the applicable acquisition dates and (iii) finance receivables that were considered to have had no deterioration in credit quality that were acquired with the international operations. The post-acquisition consumer portfolio is expected to grow over time as we originate new receivables.

Pre-acquisition Consumer Finance Receivables

Following is a summary of activity in our pre-acquisition consumer finance receivables portfolio (in millions):



	Three Months Ended March 31,
	2014									2013
	North America			International			Total			North America
Pre-acquisition consumer finance receivables - outstanding balance, beginning of period	$	931		$	363		$	1,294		$	2,162
Pre-acquisition consumer finance receivables - carrying value, beginning of period	$	826		$	348		$	1,174		$	1,958
Principal collections and other	(172		)	(68		)	(240		)	(350		)
Change in carrying value adjustment	(9		)	16			7			(28		)
Foreign currency translation	—			(11		)	(11		)	—
Balance at end of period	$	645		$	285		$	930		$	1,580

We review our pre-acquisition portfolio for differences between contractual cash flows and the cash flows expected to be collected to determine if the difference is attributable, at least in part, to credit quality. During the three months ended March 31, 2014 and 2013, as a result of improvements in the credit performance of the North America pre-acquisition portfolio, expected cash flows increased by $33 million and $48 million. We transferred the amount of excess cash flows from the non-accretable difference to accretable yield. This excess will be amortized through finance charge income over the remaining life of the portfolio.

A summary of the activity in the accretable yield on the pre-acquisition consumer finance receivables portfolios is as follows (in millions):



	Three Months Ended March 31,
	2014									2013
	North America			International			Total			North America
Balance at beginning of period	$	181		$	74		$	255		$	404
Accretion of accretable yield	(40		)	(17		)	(57		)	(81		)
Transfer from non-accretable difference	33			—			33			48
Foreign currency translation	—			(2		)	(2		)	—
Balance at end of period	$	174		$	55		$	229		$	371

Post-acquisition Consumer Finance Receivables

We generally purchase consumer finance contracts from auto dealers without recourse, and accordingly, the dealer has no liability to us if the consumer defaults on the contract. Depending upon the contract structure and consumer credit attributes, we may pay dealers a participation fee or we may charge dealers a non-refundable acquisition fee when purchasing individual finance contracts. We also have subvention programs with GM and other new vehicle manufacturers, under which the manufacturers provide us cash payments in order for us to offer lower interest rates on consumer finance contracts we purchase. We record the amortization of participation fees and subvention and accretion of acquisition fees to finance charge income using the effective interest method.

Following is a summary of activity in our post-acquisition consumer finance receivables portfolio (in millions):



	Three Months Ended March 31,
	2014									2013
	North America			International			Total			North America
Post-acquisition consumer finance receivables, net of fees - beginning of period	$	10,562		$	11,394		$	21,956		$	8,831
Loans purchased	1,364			2,048			3,412			1,359
Charge-offs	(192		)	(32		)	(224		)	(132		)
Principal collections and other	(822		)	(1,412		)	(2,234		)	(625		)
Foreign currency translation	(1		)	185			184			—
Balance at end of period	$	10,911		$	12,183		$	23,094		$	9,433

A summary of the activity in the allowance for consumer loan losses is as follows (in millions):



	Three Months Ended March 31,
	2014									2013
	North America			International			Total			North America
Balance at beginning of period	$	468		$	29		$	497		$	345
Provision for loan losses	104			33			137			89
Charge-offs	(192		)	(32		)	(224		)	(132		)
Recoveries	111			16			127			80
Balance at end of period	$	491		$	46		$	537		$	382

Consumer Credit Quality

We use proprietary scoring systems in the underwriting process that measure 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. At the time of loan origination, substantially all of our international consumers have the equivalent of prime credit scores. In the North America Segment, however, our consumer finance receivables are predominantly sub-prime. A summary of the credit risk profile by FICO score band, determined at origination, of the consumer finance receivables in the North America Segment is as follows (dollars in millions):



	March 31, 2014				December 31, 2013
	Amount		Percent		Amount		Percent
FICO Score less than 540	$	3,611	31.0	%	$	3,511	30.6	%
FICO Score 540 to 599	5,539		47.6		5,435		47.3
FICO Score 600 to 659	2,250		19.3		2,277		19.8
FICO Score 660 and greater	246		2.1		270		2.3
Balance at end of period^(a)	$	11,646	100.0	%	$	11,493	100.0	%

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(a)	Balance at the end of the period is the sum of pre-acquisition consumer finance receivables-outstanding balance and post-acquisition consumer finance receivables, net of fees for North America Segment.

In addition we review the credit quality of all of our consumer finance receivables based on consumer payment activity. A consumer account is considered delinquent if a substantial portion of a scheduled payment has not been received by the date such payment was contractually due. Consumer finance receivables are collateralized by vehicle titles and, subject to local laws, we generally have the right to repossess the vehicle in the event the consumer defaults on the payment terms of the contract. The following is a summary of the contractual amounts of consumer finance receivables, which is not significantly different than recorded investment, that are (i) more than 30 days delinquent, not yet in repossession, and (ii) in repossession, but not yet charged off (dollars in millions):



	March 31,
	2014								2013
	North America		International		Total				North America
	Amount		Amount		Amount		Percent of Contractual Amount Due		Amount		Percent of Contractual Amount Due
31 - 60 days	$	579	$	138	$	717	3.1	%	$	477	4.3	%
Greater than 60 days	210		126		336		1.4		169		1.5
	789		264		1,053		4.5		646		5.8
In repossession	33		5		38		0.1		32		0.3
	$	822	$	269	$	1,091	4.6	%	$	678	6.1	%

The accrual of finance charge income has been suspended on $545 million and $642 million of consumer finance receivables (based on contractual amount due) as of March 31, 2014 and December 31, 2013.

Impaired Consumer Finance Receivables - TDRs

Consumer finance receivables that become classified as troubled debt restructurings ("TDRs") are separately 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. The financial effects of the accounts that become classified as TDRs result in an impairment charge recorded as part of the provision for loan losses. Accounts that become classified as TDRs because of a payment deferral still accrue interest at the contractual rate and an additional fee is collected (where permitted) at each time of deferral and recorded as a reduction of accrued interest. No interest or fees are forgiven on a payment deferral to a customer and therefore, there are no additional financial effects of deferred loans becoming classified as TDRs. Accounts in Chapter 13 bankruptcy would have already been placed on non-accrual; therefore, there are no additional financial effects from these loans becoming classified as TDRs. As of March 31, 2014, the outstanding balance of consumer finance receivables in the International Segment determined to be TDRs was insignificant; therefore, the following information is presented with regard to the TDRs in the North America Segment only.

The outstanding recorded investment for consumer finance receivables that are considered to be TDRs and the related allowance is presented below (in millions):



	March 31, 2014			December 31, 2013
Outstanding recorded investment	$	864		$	767
Less: allowance for loan losses	(104		)	(103		)
Outstanding recorded investment, net of allowance	$	760		$	664
Unpaid principal balance	$	880		$	779

Finance charge income from loans classified as TDRs is accounted for in the same manner as other accruing loans. Cash collections on these loans are allocated according to the same payment hierarchy methodology applied to loans that are not classified as TDRs. Additional information about loans classified as TDRs is presented below (in millions):



	Three Months Ended March 31,
	2014		2013
Average recorded investment	$	816	$	282
Finance charge income recognized	$	29	$	10

The following table provides information on consumer loans at the time they became classified as TDRs (dollars in millions):



	Three Months Ended March 31,
	2014			2013
	Number of Accounts	Amount		Number of Accounts	Amount
Recorded investment	10,127	$	183	6,992	$	131

A redefault is when an account meets the requirements for evaluation under our charge-off policy (See Note 1 - "Summary of Significant Accounting Policies" in our Form 10-K for additional information). The unpaid principal balance, net of recoveries, of loans that redefaulted during the reporting period and were within 12 months or less of being modified as a TDR were $14 million and $5 million for the three months ended March 31, 2014 and 2013.

Commercial Finance Receivables

Following is a summary of activity in our commercial finance receivables portfolio (in millions):



	Three Months Ended March 31,
	2014							2013
	North America			International		Total		North America
Commercial finance receivables, net of fees - beginning of period	$	1,975		$	4,725	$	6,700	$	560
Net funding of commercial finance receivables	223			154		377		323
Charge-offs	—			—		—		—
Foreign currency translation	(8		)	39		31		—
Balance at end of period	$	2,190		$	4,918	$	7,108	$	883

A summary of the activity in the allowance for commercial loan losses is as follows (in millions):



	Three Months Ended March 31,
	2014									2013
	North America			International			Total			North America
Balance at beginning of period	$	17		$	34		$	51		$	6
Provision for loan losses	(1		)	(1		)	(2		)	5
Recoveries	—			—			—			—
Charge-offs	—			—			—			—
Balance at end of period	$	16		$	33		$	49		$	11

Commercial Credit Quality

We extend wholesale credit to dealers primarily in the form of approved lines of credit to purchase new vehicles as well as used vehicles. Each commercial lending request is evaluated, taking into consideration the borrower's financial condition and the underlying collateral for the loan.

We use proprietary models to assign each dealer a risk rating. These models use 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.

We regularly review our models to confirm the continued business significance and statistical predictability of the factors and update the models to incorporate new factors or other information that improves 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., Groups III, IV, V and VI) dealers. We perform a credit review of each dealer at least annually and adjust the dealer's risk rating, if necessary.

Performance of our commercial finance receivables is evaluated based on our internal dealer risk rating analysis, as payment for wholesale receivables is generally not required until the dealer has sold the vehicle inventory. Wholesale and dealer loan receivables with the same dealer customer share the same risk rating.

A summary of the credit risk profile by dealer grouping of the commercial finance receivables is as follows (in millions):



		March 31, 2014		December 31, 2013
Group I -	Dealers with strong to superior financial metrics	$	609	$	598
Group II -	Dealers with fair to favorable financial metrics	1,626		1,588
Group III -	Dealers with marginal to weak financial metrics	2,422		2,174
Group IV -	Dealers with poor financial metrics	1,680		1,622
Group V -	Dealers warranting special mention due to potential weaknesses	543		488
Group VI -	Dealers with loans classified as substandard, doubtful or impaired	228		230
Balance at end of period		$	7,108	$	6,700

The credit lines for Group VI dealers are suspended and no further funding is extended to these dealers.

At March 31, 2014, substantially all of our commercial finance receivables were current with respect to payment status.

Impaired Commercial Finance Receivables

We consider a loan impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. The amount of impairment is based on expected proceeds, including the estimated amount of future cash flows and/or the fair value of underlying collateral, compared to the recorded investment of the loan. A specific allowance for losses is established in the amount of any measured impairment.

Commercial finance receivables classified as TDRs are assessed for impairment and included in our allowance for credit losses based on the present value of the expected future cash flows of the receivable discounted at the loan's original effective interest rate. For receivables where foreclosure is probable, the fair value of the collateral is used to estimate the specific impairment. At March 31, 2014 and December 31, 2013, there were no outstanding commercial finance receivables classified as TDRs.