Fair Value Measurements

9 Months Ended

Sep. 30, 2011

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

Cash equivalents, marketable securities, derivative financial instruments and retained interests in securitized assets are presented on our financial statements at fair value. The fair value of finance receivables and debt, together with the related carrying value, is disclosed in Notes 2 and 8, respectively. Certain other assets and liabilities are measured at fair value on a nonrecurring basis and vary based on specific circumstances such as impairments.

Fair Value Measurements

In determining fair value, we use various valuation methodologies and prioritize the use of observable inputs. We assess the inputs used to measure fair value using a three-tier hierarchy based on the extent to which inputs used in measuring fair value are observable in the market:

• Level 1 – inputs include quoted prices for identical instruments and are the most observable.

• Level 2 – inputs include quoted prices for similar assets and observable inputs such as interest rates, currency exchange rates and yield curves.

• Level 3 –inputs include data not observable in the market and reflect management judgment about the assumptions market participants would use in pricing the asset or liability.

The use of observable and unobservable inputs and their significance in measuring fair value are reflected in our hierarchy assessment.

Valuation Methodologies

Cash and Cash Equivalents. Included in Cash and cash equivalents are highly liquid investments that are readily convertible to known amounts of cash, and which are subject to an insignificant risk of changes in value due to interest rate, market price, or penalty on withdrawal. A debt security is classified as a cash equivalent if it meets these criteria and if it has a remaining time to maturity of 90 days or less from the date of acquisition. Amounts on deposit and available upon demand, or negotiated to provide for daily liquidity without penalty, are classified as Cash and cash equivalents. Time deposits, certificates of deposit, and money market accounts meeting this criteria are classified as Cash and cash equivalents, reported at par value, and excluded from the tables below.

Marketable Securities. Investments in securities with a maturity date greater than 90 days at the date of purchase and other securities for which there is a more than insignificant risk of changes in value because of interest rate, market price or penalty on withdrawal are classified as Marketable securities. For marketable securities, we generally measure fair value based on a market approach using prices obtained from pricing services. We review all pricing data for reasonability and observability of inputs. Pricing methodologies and inputs to valuation models used by the pricing services depend on the security type (i.e., asset class). Where possible, fair values are generated using market inputs including quoted prices (the closing price in an exchange market), bid prices (the price at which a dealer stands ready to purchase) and other market information. For securities that are not actively traded, the pricing services obtain quotes for similar fixed-income securities or utilize matrix pricing, benchmark curves or other factors to determine fair value. In certain cases, when observable pricing data are not available, we estimate the fair value of investment securities based on an income approach using industry standard valuation models and estimates regarding non-performance risk.

Derivative Financial Instruments. Our derivatives are over-the-counter customized derivative transactions and are not exchange traded. We estimate the fair value of these instruments based on an income approach using industry standard valuation models. These models project future cash flows and discount the future amounts to a present value using market-based expectations for interest rates, foreign exchange rates and the contractual terms of the derivative instruments. The discount rate used is the relevant interbank deposit rate (e.g., LIBOR) plus an adjustment for non-performance risk. The adjustment reflects the full credit default swap ("CDS") spread applied to a net exposure, by counterparty considering the master netting agreements. We use our counterparty's CDS spread when we are in a net asset position and our own CDS spread when we are in a net liability position.

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 10. FAIR VALUE MEASUREMENTS (Continued)

In certain cases, market data are not available and we develop assumptions or use models (e.g., Black Scholes) to determine fair value. This includes situations for longer-dated instruments where market data is less observable. Also, for interest rate swaps and cross-currency interest rate swaps used in securitization transactions, the notional amount of the swap is reset based on actual payments on the securitized contracts. We use management judgment to estimate timing and amount of the remaining swap cash flows based on historical pre-payment speeds.

We have two securitization transactions with derivative features related to Ford Upgrade Exchange Linked ("FUEL") notes. These features include a mandatory exchange to our unsecured notes when our senior unsecured debt receives two investment grade credit ratings among Fitch, Moody's and S&P and a make-whole provision. We estimated the fair value of these features by comparing the market value of the FUEL notes to the value of a hypothetical debt instrument without these features.

Retained Interests in Securitized Assets. We estimate the fair value of retained interests based on an income approach using internal valuation models. These models project future cash flows of the monthly collections on the sold finance receivables in excess of amounts needed for payment of the debt and other obligations issued or arising in the securitization transactions. The projected cash flows are discounted to a present value based on market inputs and our own assumptions regarding credit losses, pre-payment speed and the discount rate.

Finance Receivables. We generally estimate the fair value of finance receivables based on an income approach using internal valuation models. These models project future cash flows of financing contracts based on scheduled contract payments (including principal and interest). The projected cash flows are discounted to a present value based on market inputs and our own assumptions regarding credit losses, pre-payment speed and the discount rate. Our assumptions regarding pre-payment speed and credit losses are based on historical performance.

Debt. We estimate the fair value of debt based on a market approach using quoted market prices or current market rates for similar debt with approximately the same remaining maturities, where possible. Where market prices or current market rates are not available, we estimate fair value based on an income approach using discounted cash flow models. These models project future cash flows and discount the future amounts to a present value using market-based expectations for interest rates, our own credit risk and the contractual terms of the debt instruments. For asset-backed debt issued in securitization transactions, the principal payments are based on projected payments for specific assets securing the underlying debt considering historical pre-payment speeds.

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 10. FAIR VALUE MEASUREMENTS (Continued)

Input Hierarchy of Items Measured at Fair Value on a Recurring Basis

The following summarizes the fair values by input hierarchy of items measured at fair value on a recurring basis on our balance sheet (in millions):

	September 30, 2011								December 31, 2010
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
Cash equivalents — financial instruments
U.S. government	$	5	$	—	$	—	$	5	$	9	$	—	$	—	$	9
U.S. government-sponsored enterprises	—		190		—		190		—		150		—		150
Foreign government agencies (a)	—		701		—		701		—		100		—		100
Corporate debt	—		1		—		1		—		200		—		200
Mortgage-backed and other asset-backed	—		—		—		—		—		—		—		—
Government — non U.S.	—		386		—		386		—		323		—		323
Total cash equivalents — financial instruments (b)	5		1,278		—		1,283		9		773		—		782
Marketable securities
U.S. government	905		—		—		905		1,671		—		—		1,671
U.S. government-sponsored enterprises	—		1,039		—		1,039		—		2,905		—		2,905
Foreign government agencies (a)	—		778		—		778		—		821		1		822
Corporate debt	—		1,198		—		1,198		—		732		—		732
Mortgage-backed and other asset-backed	—		152		—		152		—		177		—		177
Government — non U.S.	—		157		—		157		—		364		—		364
Other liquid investments (c)	—		17		—		17		—		88		—		88
Total marketable securities	905		3,341		—		4,246		1,671		5,087		1		6,759
Derivative financial instruments
Interest rate contracts	—		889		534		1,423		—		1,031		157		1,188
Foreign exchange forward contracts	—		134		—		134		—		33		—		33
Cross-currency interest rate swap contracts	—		—		8		8		—		25		—		25
Other (d)	—		—		158		158		—		—		—		—
Total derivative financial instruments	—		1,023		700		1,723		—		1,089		157		1,246
Total assets at fair value	$	910	$	5,642	$	700	$	7,252	$	1,680	$	6,949	$	158	$	8,787
Liabilities
Derivative financial instruments
Interest rate contracts	$	—	$	85	$	168	$	253	$	—	$	134	$	195	$	329
Foreign exchange forward contracts	—		45		—		45		—		16		—		16
Cross-currency interest rate swap contracts	—		—		7		7		—		118		71		189
Total derivative financial instruments	—		130		175		305		—		268		266		534
Total liabilities at fair value	$	—	$	130	$	175	$	305	$	—	$	268	$	266	$	534

(a) Includes notes issued by foreign government agencies that include implicit and explicit guarantees as well as notes issued by supranational institutions.

(b) Excludes $4.5 billion and $5.6 billion of time deposits, certificates of deposit, money market accounts, and other cash equivalents reported at par value at September 30, 2011 and December 31, 2010, respectively. In addition to these cash equivalents, we also had cash on hand totaling $2.4 billion and $1.9 billion at September 30, 2011 and December 31, 2010, respectively.

(c) Includes certificates of deposits and time deposits.

(d) Represents derivative features included in the FUEL notes.

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 10. FAIR VALUE MEASUREMENTS (Continued)

Reconciliation of Changes in Level 3 Financial Instrument Balances

The following summarizes the changes in Level 3 financial instruments measured at fair value on a recurring basis on our balance sheet for the periods ended September 30 (in millions):

	Third Quarter
	2011										2010
	Marketable Securities			Derivative Financial Instruments, Net (a)		Retained Interest in Securitized Assets		Total Level 3 Fair Value			Marketable Securities		Derivative Financial Instruments, Net (a)			Retained Interest in Securitized Assets			Total Level 3 Fair Value
Beginning balance	$	5		$	80	$	—	$	85		$	—	$	(118	)	$	4		$	(114	)
Realized/unrealized gains/(losses)
Other income, net	0			397		—		397			0		(53		)	—			(53		)
Other comprehensive income/(loss) (b)	—			2		—		2			—		(8		)	0			(8		)
Interest income/(expense) (c)	—			40		—		40			—		—			—			—
Total realized/unrealized gains/(losses)	0			439		—		439			0		(61		)	0			(61		)
Purchases, issues, sales and settlements
Purchases	—			—		—		—			7		—			—			7
Issues	—			—		—		—			—		—			—			—
Sales	—			—		—		—			—		—			—			—
Settlements	—			6		—		6			—		44			(4		)	40
Total purchases, issues, sales and settlements	—			6		—		6			7		44			(4		)	47
Transfers into level 3	—			—		—		—			—		—			—			—
Transfers out of level 3 (d)	(5		)	—		—		(5		)	—		—			—			—
Ending balance	$	—		$	525	$	—	$	525		$	7	$	(135	)	$	—		$	(128	)
Unrealized gains/(losses) on instruments still held	$	0		$	436	$	—	$	436		$	—	$	(18	)	$	—		$	(18	)

(a) See Note 11 for detail on financial statement presentation by hedge designation.

(b) Represents foreign currency translation on derivative asset and liability balances held by non-U.S. dollar foreign affiliates.

(c) Recorded in Interest expense.

(d) Represents transfers out of $5 million during the third quarter of 2011 due to the availability of observable data as a result of increased market activity for these securities. Transfers in and transfers out represent the value at the end of the reporting period.

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 10. FAIR VALUE MEASUREMENTS (Continued)

The following summarizes the changes in Level 3 financial instruments measured at fair value on a recurring basis on our balance sheet for the periods ended September 30 (in millions):

	First Nine Months
	2011											2010
	Marketable Securities			Derivative Financial Instruments, Net (a)			Retained Interest in Securitized Assets		Total Level 3 Fair Value			Marketable Securities			Derivative Financial Instruments, Net (a)			Retained Interest in Securitized Assets			Total Level 3 Fair Value
Beginning balance	$	1		$	(109	)	$	—	$	(108	)	$	4		$	(168	)	$	26		$	(138	)
Realized/unrealized gains/(losses)
Other income, net	0			385			—		385			(4		)	(93		)	(3		)	(100		)
Other comprehensive income/(loss) (b)	—			(1		)	—		(1		)	—			(3		)	2			(1		)
Interest income/(expense) (c)	—			65			—		65			—			—			—			—
Total realized/unrealized gains/(losses)	0			449			—		449			(4		)	(96		)	(1		)	(101		)
Purchases, issues, sales and settlements
Purchases	5			—			—		5			7			—			—			7
Issues (d)	—			73			—		73			—			—			—			—
Sales	—			—			—		—			—			—			—			—
Settlements	—			112			—		112			—			129			(25		)	104
Total purchases, issues, sales and settlements	5			185			—		190			7			129			(25		)	111
Transfers into level 3	—			—			—		—			—			—			—			—
Transfers out of level 3 (e)	(6		)	—			—		(6		)	—			—			—			—
Ending balance	$	—		$	525		$	—	$	525		$	7		$	(135	)	$	—		$	(128	)
Unrealized gains/(losses) on instruments still held	$	0		$	475		$	—	$	475		$	0		$	32		$	0		$	32

(a) See Note 11 for detail on financial statement presentation by hedge designation.

(b) Represents foreign currency translation on derivative asset and liability balances held by non-U.S. dollar foreign affiliates.

(c) Recorded in Interest expense.

(d) Reflects derivative features included in the FUEL notes.

(e) Represents transfers out of $6 million during the first nine months of 2011 due to the availability of observable data as a result of increased market activity for these securities. Transfers in and transfers out represent the value at the end of the reporting period.

Input Hierarchy of Items Measured at Fair Value on a Nonrecurring Basis

The following table summarizes the items measured at fair value subsequent to initial recognition on a nonrecurring basis by input hierarchy for the quarter and year ended September 30, 2011 and December 31, 2010, respectively, that were still held on our balance sheet at those dates (in millions):

	September 30, 2011								December 31, 2010
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
North America
Retail receivables	$	—	$	—	$	73	$	73	$	—	$	—	$	82	$	82
Dealer loans, net	—		—		11		11		—		—		22		22
Total North America	$	—	$	—	$	84	$	84	$	—	$	—	$	104	$	104
International
Retail receivables	$	—	$	—	$	44	$	44	$	—	$	—	$	45	$	45

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 10. FAIR VALUE MEASUREMENTS (Continued)

Nonrecurring Fair Value Changes

Finance receivables, including retail accounts that have been charged-off and individual dealer loans where foreclosure is probable, are measured based on the fair value of the collateral adjusted for estimated costs to sell. The collateral for retail receivables is the vehicle being financed and for dealer loans is real estate or other property. See Note 4 for additional information related to the development of our allowance for credit losses.

The following table summarizes the total change in value of items for which a nonrecurring fair value adjustment has been included in our consolidated statement of operations for the periods ended September 30, 2011 and 2010, related to items still held on our balance sheet at those dates (in millions):

	Total Gains/(Losses)
	Third Quarter						First Nine Months
	2011			2010			2011			2010
North America
Retail receivables (a)	$	(8	)	$	(6	)	$	(19	)	$	(19	)
Dealer loans, net (a)	0			(1		)	0			(1		)
Total North America	$	(8	)	$	(7	)	$	(19	)	$	(20	)
International
Retail receivables (a)	$	(3	)	$	(8	)	$	(11	)	$	(25	)

(a) Fair value changes related to retail finance receivables that have been charged-off or dealer loans that have been impaired based on the fair value of the collateral adjusted for estimated costs to sell are recorded in Provision for credit losses.