Finance Receivables



	June 30, 2018			December 31, 2017
Retail finance receivables
Retail finance receivables, collectively evaluated for impairment, net of fees	$	33,398		$	30,574
Retail finance receivables, individually evaluated for impairment, net of fees	2,277			2,228
Total retail finance receivables, net of fees^(a)	35,675			32,802
Less: allowance for loan losses - collective	(508		)	(561		)
Less: allowance for loan losses - specific	(307		)	(328		)
Total retail finance receivables, net	34,860			31,913
Commercial finance receivables
Commercial finance receivables, collectively evaluated for impairment, net of fees	10,652			10,290
Commercial finance receivables, individually evaluated for impairment, net of fees	46			22
Total commercial finance receivables, net of fees	10,698			10,312
Less: allowance for loan losses - collective	(52		)	(50		)
Less: allowance for loan losses - specific	(6		)	(3		)
Total commercial finance receivables, net	10,640			10,259
Total finance receivables, net	$	45,500		$	42,172
Fair value of finance receivables	$	45,128		$	42,178

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(a) Net of unearned income, unamortized premiums and discounts, and deferred fees and costs of $184 million and $228 million at June 30, 2018 and December 31, 2017.

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,
	2018			2017			2018			2017
Allowance for retail loan losses beginning balance	$	858		$	823		$	889		$	765
Provision for loan losses	123			152			258			359
Charge-offs	(298		)	(272		)	(593		)	(570		)
Recoveries	145			142			268			285
Foreign currency translation	(13		)	(1		)	(7		)	5
Allowance for retail loan losses ending balance	$	815		$	844		$	815		$	844

Retail Credit Quality Our retail finance receivables portfolio includes loans made to consumers and businesses to finance the purchase of vehicles for personal and commercial use. 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. A summary of the credit risk profile by FICO score band or equivalent scores, determined at origination, of the retail finance receivables is as follows:



	June 30, 2018				December 31, 2017
	Amount		Percent		Amount		Percent
Prime - FICO Score 680 and greater	$	19,751	55.4	%	$	16,892	51.5	%
Near-prime - FICO Score 620 to 679	5,618		15.7		5,226		15.9
Sub-prime - FICO Score less than 620	10,306		28.9		10,684		32.6
Balance at end of period	$	35,675	100.0	%	$	32,802	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, 2018				June 30, 2017
	Amount		Percent of Contractual Amount Due		Amount		Percent of Contractual Amount Due
31 - 60 days	$	1,178	3.3	%	$	1,076	3.4	%
Greater than 60 days	462		1.3		464		1.5
Total finance receivables more than 30 days delinquent	1,640		4.6		1,540		4.9
In repossession	57		0.1		43		0.2
Total finance receivables more than 30 days delinquent or in repossession	$	1,697	4.7	%	$	1,583	5.1	%

At June 30, 2018 and December 31, 2017, the accrual of finance charge income had been suspended on retail finance receivables with contractual amounts due of $822 million and $778 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, 2018			December 31, 2017
Outstanding recorded investment	$	2,277		$	2,228
Less: allowance for loan losses	(307		)	(328		)
Outstanding recorded investment, net of allowance	$	1,970		$	1,900
Unpaid principal balance	$	2,313		$	2,266

Additional information about loans classified as TDRs is presented below:



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Average outstanding recorded investment	$	2,238	$	1,985	$	2,253	$	1,966
Finance charge income recognized	$	62	$	57	$	126	$	117
Number of loans classified as TDRs during the period	19,662		17,364		33,096		33,838
Recorded investment of loans classified as TDRs during the period	$	360	$	302	$	613	$	590

The unpaid principal balances, 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, 2018 and 2017.

Commercial Finance Receivables

Commercial Credit Quality Our commercial finance receivables consist of dealer financings, primarily for inventory purchases. Proprietary models are 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, 2018				December 31, 2017
			Amount		Percent		Amount		Percent
Group I	-	Dealers with superior financial metrics	$	1,971	18.4	%	$	1,915	18.6	%
Group II	-	Dealers with strong financial metrics	4,031		37.7		3,584		34.7
Group III	-	Dealers with fair financial metrics	3,192		29.8		3,424		33.2
Group IV	-	Dealers with weak financial metrics	1,001		9.4		1,048		10.2
Group V	-	Dealers warranting special mention due to elevated risks	426		4.0		260		2.5
Group VI	-	Dealers with loans classified as substandard, doubtful or impaired	77		0.7		81		0.8
Balance at end of period			$	10,698	100.0	%	$	10,312	100.0	%

At June 30, 2018 and December 31, 2017, 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, 2018 and 2017.