Finance Receivables



	June 30, 2017			December 31, 2016
Retail finance receivables
Retail finance receivables, collectively evaluated for impairment, net of fees	$	29,088		$	24,480
Retail finance receivables, individually evaluated for impairment, net of fees	2,012			1,920
Total retail finance receivables, net of fees^(a)	31,100			26,400
Less: allowance for loan losses - collective	(538		)	(489		)
Less: allowance for loan losses - specific	(306		)	(276		)
Total retail finance receivables, net	30,256			25,635
Commercial finance receivables
Commercial finance receivables, collectively evaluated for impairment, net of fees	9,640			7,853
Commercial finance receivables, individually evaluated for impairment, net of fees	35			27
Total commercial finance receivables, net of fees	9,675			7,880
Less: allowance for loan losses - collective	(45		)	(36		)
Less: allowance for loan losses - specific	(4		)	(4		)
Total commercial finance receivables, net	9,626			7,840
Total finance receivables, net	$	39,882		$	33,475
Fair value of finance receivables	$	39,926		$	33,528

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(a) Net of unearned income, unamortized premiums and discounts, and deferred fees and costs of $259 million and $178 million at June 30, 2017 and December 31, 2016.

We estimate the fair value of retail finance receivables using observable and unobservable Level 3 inputs within a cash flow model. The inputs reflect assumptions regarding expected prepayments, deferrals, delinquencies, recoveries and charge-offs of the loans within the portfolio. The cash flow model produces an estimated amortization schedule of the finance receivables. The projected cash flows are then discounted to derive the fair value of the portfolio. Macroeconomic factors could affect the credit performance of the portfolio and, therefore, could potentially affect the assumptions used in our cash flow model. A substantial majority of our commercial finance receivables have variable interest rates. The carrying amount, a Level 2 input, is considered to be a reasonable estimate of fair value.



Retail Finance Receivables	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Allowance for retail loan losses beginning balance	$	823		$	772		$	765		$	713
Provision for loan losses	152			142			359			333
Charge-offs	(272		)	(258		)	(570		)	(542		)
Recoveries	142			130			285			275
Foreign currency translation	(1		)	4			5			11
Allowance for retail loan losses ending balance	$	844		$	790		$	844		$	790

Retail 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 or its equivalent), and contract characteristics. We also consider other factors, such as employment history, financial stability and capacity to pay. In North America, while we historically focused on consumers with lower than prime credit scores, we have expanded our prime lending programs. A summary of the credit risk profile by FICO score band or equivalent scores, determined at origination, of the retail finance receivables in North America is as follows:



	June 30, 2017				December 31, 2016
	Amount		Percent		Amount		Percent
Prime - FICO Score 680 and greater	$	11,497	44.2	%	$	7,923	36.4	%
Near-prime - FICO Score 620 to 679	3,973		15.2		3,468		15.9
Sub-prime - FICO Score less than 620	10,560		40.6		10,395		47.7
Balance at end of period	$	26,030	100.0	%	$	21,786	100.0	%

In addition, we review the credit quality of our retail finance receivables based on customer payment activity. A retail account is considered delinquent if a substantial portion of a scheduled payment has not been received by the date such payment was contractually due. Retail 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 customer defaults on the payment terms of the contract. The following is a consolidated summary of the contractual amounts of delinquent retail finance receivables, which is not significantly different than the recorded investment for such receivables.



	June 30, 2017				June 30, 2016
	Amount		Percent of Contractual Amount Due		Amount		Percent of Contractual Amount Due
31 - 60 days	$	1,076	3.4	%	$	1,055	4.3	%
Greater than 60 days	464		1.5		454		1.9
Total finance receivables more than 30 days delinquent	1,540		4.9		1,509		6.2
In repossession	43		0.2		47		0.2
Total finance receivables more than 30 days delinquent or in repossession	$	1,583	5.1	%	$	1,556	6.4	%

At June 30, 2017 and December 31, 2016, the accrual of finance charge income had been suspended on retail finance receivables with contractual amounts due of $772 million and $798 million.

Impaired Retail Finance Receivables - TDRs Retail 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. Accounts that become classified as TDRs because of a payment deferral 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; therefore, there are no additional financial effects of deferred loans becoming classified as TDRs. Accounts in the U.S. 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. 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.

The outstanding recorded investment for retail finance receivables that are considered to be TDRs and the related allowance is presented below:



	June 30, 2017			December 31, 2016
Outstanding recorded investment	$	2,012		$	1,920
Less: allowance for loan losses	(306		)	(276		)
Outstanding recorded investment, net of allowance	$	1,706		$	1,644
Unpaid principal balance	$	2,053		$	1,967

Additional information about loans classified as TDRs is presented below:



	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Average outstanding recorded investment	$	1,985	$	1,696	$	1,966	$	1,673
Finance charge income recognized	$	57	$	50	$	117	$	101
Number of loans classified as TDRs during the period	17,364		16,133		33,838		30,779
Recorded investment of loans classified as TDRs during the period	$	302	$	277	$	590	$	531

The unpaid principal balance, net of recoveries, of loans that were charged off during the reporting period and were within 12 months of being modified as a TDR were insignificant for the three and six months ended June 30, 2017 and 2016.

Commercial Finance Receivables

Commercial Credit Quality Our commercial finance receivables consist of dealer financings, primarily for inventory purchases. A proprietary model is used to assign a risk rating to each dealer. We perform periodic credit reviews of each dealership and adjust the dealership's risk rating, if necessary. Dealers in Group VI are subject to additional restrictions on funding, including suspension of lines of credit and liquidation of assets. The following table summarizes the credit risk profile by dealer risk rating of commercial finance receivables:



			June 30, 2017				December 31, 2016
			Amount		Percent		Amount		Percent
Group I	-	Dealers with superior financial metrics	$	1,610	16.6	%	$	1,389	17.6	%
Group II	-	Dealers with strong financial metrics	3,344		34.6		2,661		33.8
Group III	-	Dealers with fair financial metrics	3,398		35.1		2,775		35.2
Group IV	-	Dealers with weak financial metrics	885		9.2		631		8.0
Group V	-	Dealers warranting special mention due to elevated risks	328		3.4		334		4.2
Group VI	-	Dealers with loans classified as substandard, doubtful or impaired	110		1.1		90		1.2
Balance at end of period			$	9,675	100.0	%	$	7,880	100.0	%

At June 30, 2017 and December 31, 2016, substantially all of our commercial finance receivables were current with respect to payment status. Commercial finance receivables on non-accrual status were insignificant, and none were classified as TDRs. Activity in the allowance for commercial loan losses was insignificant for the three and six months ended June 30, 2017 and 2016.