FINANCE RECEIVABLES

Finance receivables reflected on our consolidated balance sheet are as follows (in millions):



	June 30, 2011			December 31, 2010
Automotive sector *	$	247		$	224
Financial Services sector	75,902			73,265
Reclassification of receivables purchased by Financial Services sector from Automotive sector to Other receivables, net	(5,126		)	(3,419		)
Finance receivables, net	$	71,023		$	70,070

__________

* Finance receivables are reported on our sector balance sheet in Receivables, less allowances and Other assets.

Automotive Sector

Our Automotive sector holds notes receivable, which consist primarily of a note with Geely Sweden AB related to our sale of Volvo and loans with certain suppliers. 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):



	June 30, 2011			December 31, 2010
Notes receivable	$	304		$	344
Less: Allowance for credit losses	(57		)	(120		)
Notes receivable, net	$	247		$	224

NOTE 5. FINANCE RECEIVABLES (Continued)

Financial Services Sector

Ford Credit segments its 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 relate to products offered to individuals and businesses that finance the acquisition of Ford vehicles from dealers for personal or commercial use. The products include:


•	Retail financing – retail installment contracts for new and used vehicles


•	Direct financing leases – direct financing leases with retail customers, government entities, daily rental companies, and fleet customers

Non-consumer Segment – Receivables in this portfolio segment relate to products offered to dealers. The products include:


•	Wholesale financing – loans to dealers to finance the purchase of vehicle inventory, also known as floorplan financing


•	Dealer loans – loans to dealers to finance working capital, and to finance the purchase of dealership real estate and/or make improvements to dealership facilities


•	Other financing – purchased receivables from Ford and its affiliates, 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 and any unamortized deferred fees or costs. At June 30, 2011 and

December 31, 2010, the recorded investment in Ford Credit's finance receivables excluded $170 million and $176 million of accrued uncollected interest receivable, respectively, which we report in Other assets on the balance sheet.

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



	June 30, 2011									December 31, 2010
	North America			International			Total Finance Receivables			North America			International			Total Finance Receivables
Consumer
Retail, gross	$	38,533		$	9,666		$	48,199		$	39,129		$	9,436		$	48,565
Less: Unearned interest supplements	(1,551		)	(290		)	(1,841		)	(1,580		)	(289		)	(1,869		)
Retail	36,982			9,376			46,358			37,549			9,147			46,696
Direct financing leases, gross	7			3,084			3,091			17			3,011			3,028
Less: Unearned interest supplements	—			(112		)	(112		)	—			(84		)	(84		)
Direct financing leases	7			2,972			2,979			17			2,927			2,944
Consumer finance receivables	$	36,989		$	12,348		$	49,337		$	37,566		$	12,074		$	49,640

Non-consumer
Wholesale	$	14,378		$	10,260		$	24,638		$	13,273		$	8,851		$	22,124
Dealer loans	1,047			66			1,113			1,117			33			1,150
Other	945			488			1,433			738			390			1,128
Non-consumer finance receivables	16,370			10,814			27,184			15,128			9,274			24,402
Total recorded investment	$	53,359		$	23,162		$	76,521		$	52,694		$	21,348		$	74,042

Recorded investment in finance receivables	$	53,359		$	23,162		$	76,521		$	52,694		$	21,348		$	74,042
Less: Allowance for credit losses	(482		)	(137		)	(619		)	(625		)	(152		)	(777		)
Finance receivables, net	$	52,877		$	23,025		$	75,902		$	52,069		$	21,196		$	73,265

Net finance receivables subject to fair value *							$	72,921								$	70,318
Fair value							74,574									72,021

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* At June 30, 2011 and December 31, 2010, excludes $3 billion and $2.9 billion, respectively, of certain receivables (primarily direct financing leases) that are not subject to fair value disclosure requirements.

NOTE 5. FINANCE RECEIVABLES (Continued)

Included in the recorded investment in finance receivables at June 30, 2011 and December 31, 2010 were $29.8 billion and $28.7 billion of North America consumer receivables, $13 billion and $12.8 billion of non-consumer receivables, International consumer receivables of $8.3 billion and $7.6 billion, and non-consumer receivables of $6.8 billion and $5.9 billion, respectively, that secure certain debt obligations. The cash flows generated from collection of these receivables can be used only for payment of the related debt and obligations; they are not available to pay the other obligations of our Financial Services sector or the claims of its other creditors (see Notes 8 and 11).

Aging. For all classes of finance receivables, Ford Credit defines "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. The aging analysis of Ford Credit's finance receivables balances at June 30, 2011 was as follows (in millions):



	31-60 Days Past Due		61-90 Days Past Due		91-120 Days Past Due		Greater Than 120 Days		Total Past Due		Current		Total Finance Receivables
North America Consumer
Retail	$	637	$	77	$	25	$	76	$	815	$	36,167	$	36,982
Direct financing leases	1		1		—		—		2		5		7
Non-consumer
Wholesale	—		—		—		3		3		14,375		14,378
Dealer loans	4		1		4		13		22		1,025		1,047
Other	—		—		—		—		—		945		945
Subtotal	642		79		29		92		842		52,517		53,359

International Consumer
Retail	68		35		18		48		169		9,207		9,376
Direct financing leases	11		5		3		4		23		2,949		2,972
Non-consumer
Wholesale	1		—		—		17		18		10,242		10,260
Dealer loans	—		—		—		1		1		65		66
Other	—		—		—		—		—		488		488
Subtotal	80		40		21		70		211		22,951		23,162
Total recorded investment	$	722	$	119	$	50	$	162	$	1,053	$	75,468	$	76,521

Consumer Credit Quality. When originating all classes of consumer finance receivables, Ford Credit uses a proprietary scoring system that measures the credit quality of the related receivables using several factors, such as credit bureau information, consumer credit risk scores (e.g., FICO score), customer characteristics, and contract characteristics. In addition to its proprietary scoring system, Ford Credit considers other individual consumer factors, such as employment history, financial stability, and capacity to pay.

Subsequent to origination, Ford Credit reviews the credit quality of retail and direct financing lease receivables based on customer payment activity. As each customer develops a payment history, Ford Credit uses 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. Ford Credit's 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 Ford Credit's risk-based staffing model to ensure collection resources are aligned with portfolio risk.

Credit quality ratings for Ford Credit's consumer finance receivables are categorized as follows:


•	Pass – receivables that are current to 60 days past due


•	Special Mention – receivables 61 to 120 days past due and in aggressive collection status


•	Substandard – receivables 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 the collateral

NOTE 5. FINANCE RECEIVABLES (Continued)

The credit quality analysis of Ford Credit's consumer finance receivables portfolio was as follows (in millions):



	June 30, 2011				December 31, 2010
	Retail		Direct Financing Leases		Retail		Direct Financing Leases
North America
Pass	$	36,804	$	6	$	37,348	$	17
Special Mention	102		1		119		—
Substandard	76		—		82		—
Subtotal	36,982		7		37,549		17

International
Pass	9,276		2,960		9,068		2,914
Special Mention	52		8		60		10
Substandard	48		4		19		3
Subtotal	9,376		2,972		9,147		2,927
Total recorded investment	$	46,358	$	2,979	$	46,696	$	2,944

Non-Consumer Credit Quality. For all classes of non-consumer receivables, Ford Credit extends commercial credit to dealers primarily in the form of approved lines of credit to purchase new Ford and Lincoln vehicles as well as used vehicles. Each commercial lending request is evaluated, taking into consideration the borrower's financial condition and the underlying collateral securing the loan. Ford Credit uses a proprietary model to assign each dealer a risk rating. This model uses historical performance data to identify key factors about a dealer that Ford Credit considers significant in predicting a dealer's ability to meet its financial obligations. Ford Credit also considers numerous other financial and qualitative factors including capitalization and leverage, liquidity and cash flow, profitability, and credit history with Ford Credit 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 risk rating as follows:


•	Group I – Dealers with strong to superior financial metrics


•	Group II – Dealers with fair to favorable financial metrics


•	Group III – Dealers with marginal to weak financial metrics


•	Group IV – Dealers with poor financial metrics, including dealers classified as uncollectible

Ford Credit suspends credit lines and extends no further funding to dealers classified in Group IV.

Ford Credit regularly reviews its model to confirm the continued business significance and statistical predictability of the factors and updates the model to incorporate new factors or other information that improves its statistical predictability. In addition, Ford Credit verifies 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. Ford Credit performs a credit review of each dealer at least annually and adjusts the dealer's risk rating, if necessary.

NOTE 5. FINANCE RECEIVABLES (Continued)

Performance of non-consumer receivables is evaluated based on Ford Credit's internal dealer risk rating analysis, as payment for wholesale receivables generally is 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. The credit quality analysis of wholesale and dealer loan receivables was as follows (in millions):



	June 30, 2011				December 31, 2010
	Wholesale		Dealer Loan		Wholesale		Dealer Loan
North America
Group I	$	11,808	$	777	$	10,540	$	785
Group II	2,170		160		2,372		208
Group III	385		99		353		107
Group IV	15		11		8		17
Subtotal	14,378		1,047		13,273		1,117

International
Group I	6,144		38		5,135		5
Group II	2,526		16		2,189		15
Group III	1,576		11		1,527		12
Group IV	14		1		—		1
Subtotal	10,260		66		8,851		33
Total recorded investment	$	24,638	$	1,113	$	22,124	$	1,150

Non-Accrual Status. The accrual of revenue is discontinued at the earlier of the time a receivable is determined to be uncollectible, bankruptcy status notification, or 120 days past due. Finance receivable 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 are generally applied first to outstanding interest and then to the unpaid principal balance.

Consumer receivables in non-accrual status were as follows (in millions):



	June 30, 2011				December 31, 2010
	Retail		Direct Financing Leases		Retail		Direct Financing Leases
North America
Greater than 120 days past due	$	76	$	—	$	82	$	—
Less than 120 days past due	328		—		355		—
Subtotal	404		—		437		—
International
Greater than 120 days past due	48		4		19		3
Less than 120 days past due	4		—		26		1
Subtotal	52		4		45		4
Total recorded investment	$	456	$	4	$	482	$	4

Finance receivables greater than 90 days past due and still accruing interest at June 30, 2011 and

December 31, 2010, represent $20 million and $7 million, respectively, of non-bankrupt retail accounts in the

91-120 days past due category that are in the process of collection and $4 million and $1 million, respectively, of dealer loans.

NOTE 5. FINANCE RECEIVABLES (Continued)

Impairment. Ford Credit's consumer receivables are evaluated collectively for impairment. Ford Credit's non-consumer receivables are evaluated both collectively and specifically for impairment. Specifically-impaired non-consumer receivables represent accounts with dealers that have weak or poor financial metrics or dealer loans that have been modified in TDRs. Ford Credit places impaired receivables in non-accrual status. The following factors (not necessarily in order of importance or probability of occurrence) are considered in determining whether a receivable is impaired:


•	Delinquency in contractual payments of principal or interest


•	Deterioration of the borrower's competitive position


•	Cash flow difficulties experienced by the borrower


•	Breach of loan covenants or conditions


•	Initiation of dealer bankruptcy or other insolvency proceedings


•	Fraud or criminal conviction

See Note 6 for additional information related to the development of Ford Credit's allowance for credit losses.

The table below identifies non-consumer receivables that were both impaired and in non-accrual status for the period ended June 30, 2011 (in millions):



	Recorded Investment in Impaired								Financing Revenue Collected
	Receivables & Receivables in Non-Accrual Status		Unpaid Principal Balance		Related Allowance for Credit Losses		Average Recorded Investment		Second Quarter 2011		First Half 2011
North America
With no allowance recorded
Wholesale	$	15	$	15	$	—	$	18	$	1	$	1
Dealer loans	2		2		—		7		—		—

With an allowance recorded
Wholesale	—		—		—		—		—		—
Dealer loans	62		62		8		66		1		1

International
With no allowance recorded
Wholesale	20		20		—		18		—		—
Dealer loans	2		2		—		1		—		—

With an allowance recorded
Wholesale	7		7		2		3		—		—
Dealer loans	—		—		—		—		—		—

Total
Wholesale	42		42		2		39		1		1
Dealer loans	66		66		8		74		1		1
Total	$	108	$	108	$	10	$	113	$	2	$	2

NOTE 5. FINANCE RECEIVABLES (Continued)

The table below identifies non-consumer receivables that were both impaired and in non-accrual status for the period ended December 31, 2010 (in millions):



	Recorded Investment in Impaired Receivables & Receivables in Non-Accrual Status		Unpaid Principal Balance		Related Allowance for Credit Losses		Average Recorded Investment
North America
With no allowance recorded
Wholesale	$	8	$	8	$	—	$	19
Dealer loans	2		2		—		9

With an allowance recorded
Wholesale	—		—		—		—
Dealer loans	64		64		10		69

International
With no allowance recorded
Wholesale	22		22		—		29
Dealer loans	1		1		—		2

With an allowance recorded
Wholesale	5		5		2		8
Dealer loans	—		—		—		—

Total
Wholesale	35		35		2		56
Dealer loans	67		67		10		80
Total	$	102	$	102	$	12	$	136

Impaired receivables with no related allowance for credit losses recorded are primarily attributable to accounts for which the uncollectible portion of the receivables already has been charged off.

Troubled Debt Restructurings

A restructuring of debt constitutes a TDR if Ford Credit grants a concession for economic or legal reasons related to the debtor's financial difficulties that Ford Credit otherwise would not consider in the normal course of business.

Consumer. While payment extensions are granted on consumer finance receivables in the normal course of the collection process, no concessions are made on the principal balance loaned or the interest rate charged. Payment extensions typically result in a one-month deferral of the consumer's normal monthly payment and do not constitute a TDR.

Non-Consumer. Within Ford Credit's non-consumer receivables segment, only dealer loans 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. Dealer loans that are in TDRs are assessed for impairment and included in Ford Credit's allowance for credit losses 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 the fair value of the collateral adjusted for estimated costs to sell. For loans where foreclosure is probable, the fair value of the collateral is used to estimate the specific impairment. An impairment charge is recorded as part of the provision to the allowance for credit losses for the amount by which the recorded investment of the receivable exceeds its estimated fair value. Ford Credit does not grant concessions on the principal balance of dealer loan modifications, but may make other concessions if the dealer is experiencing financial difficulties. During the first half of 2011, the principal balance of dealer loans that are in TDRs was $12 million.