FINANCE RECEIVABLES

We segment our 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 include products offered to individuals and businesses that finance the acquisition of Ford and Lincoln vehicles from dealers for personal or commercial use. Retail financing includes retail installment contracts for new and used vehicles and direct financing leases with retail customers, government entities, daily rental companies, and fleet customers.

Non-Consumer Segment. Receivables in this portfolio segment include products offered to automotive dealers and receivables purchased from Ford and its affiliates. The products include:


•	Dealer financing – wholesale loans to dealers to finance the purchase of vehicle inventory, also known as floorplan financing, and loans to dealers to finance working capital and improvements to dealership facilities,

finance the purchase of dealership real estate and other dealer vehicle program financing. Wholesale is approximately 95% of our dealer financing.

•

Other financing – purchased receivables from Ford and its affiliates, primarily related to the sale of parts and accessories to dealers, receivables from Ford related loans, and certain used vehicles from daily rental fleet companies. These receivables are excluded from our credit quality reporting since the performance of this group of receivables is generally guaranteed by Ford and there are no amounts past due.

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, unamortized deferred fees or costs, and unearned interest supplements.

Revenue from finance receivables is recognized using the interest method and includes the accretion of certain direct origination costs that are deferred and interest supplements received from Ford and other affiliates. The unamortized balance of unearned interest supplements on consumer finance receivables is included in Finance receivables, net on the balance sheet.

NOTE 3. FINANCE RECEIVABLES (Continued)

Notes and accounts receivable from affiliated companies are presented separately on the balance sheet. These receivables are based on intercompany relationships and the balances are settled regularly. We do not assess these receivables for potential credit losses, nor are they subjected to aging analysis, credit quality reviews, or other formal assessments. As a result, Notes and accounts receivable from affiliated companies are not subject to the following disclosures contained herein.

Finance Receivables, Net

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



	December 31, 2012									December 31, 2011
	North America			International			Total Finance Receivables			North America			International			Total Finance Receivables
Consumer
Retail financing, gross (a)	$	39,504		$	8,964		$	48,468		$	38,410		$	9,112		$	47,522
Less: Unearned interest supplements (b)	(1,264		)	(222		)	(1,486		)	(1,407		)	(236		)	(1,643		)
Consumer finance receivables	$	38,240		$	8,742		$	46,982		$	37,003		$	8,876		$	45,879

Non-Consumer
Dealer financing (a)(c)	$	19,494		$	7,496		$	26,990		$	16,583		$	8,579		$	25,162
Other	1,072			404			1,476			988			372			1,360
Non-Consumer finance receivables	20,566			7,900			28,466			17,571			8,951			26,522
Total recorded investment	$	58,806		$	16,642		$	75,448		$	54,574		$	17,827		$	72,401

Recorded investment in finance receivables (d)	$	58,806		$	16,642		$	75,448		$	54,574		$	17,827		$	72,401
Less: Allowance for credit losses (e)	(309		)	(76		)	(385		)	(388		)	(106		)	(494		)
Finance receivables, net	$	58,497		$	16,566		$	75,063		$	54,186		$	17,721		$	71,907

Net finance receivables subject to fair value (f)							$	74,171								$	70,926
Fair Value							76,171									72,466

__________

(a)

At December 31, 2012 and 2011, includes North America consumer receivables of $23.0 billion and $29.4 billion and non-consumer receivables of $17.1 billion and $14.2 billion, respectively, and International consumer receivables of $6.3 billion and $6.6 billion and non-consumer receivables of $4.5 billion and $5.6 billion, respectively, that have been sold for legal purposes in securitization transactions but continue to be reported in our consolidated financial statements. The receivables are available only for payment of the debt and other obligations issued or arising in the securitization transactions; they are not available to pay our other obligations or the claims of our other creditors. We hold the right to receive the excess cash flows not needed to pay the debt and other obligations issued or arising in securitization transactions. See Note 6 for additional information.


(b)	Ford-sponsored special-rate financing attributable to retail financing. See Note 19 for additional information related to interest supplements and other support costs earned from affiliated companies.

(c)

At December 31, 2012 and 2011, includes $50 million and $67 million, respectively, of North America wholesale receivables and $15 million and $16 million, respectively, of North America dealer loans with entities (primarily dealers) that are reported as consolidated subsidiaries of Ford. At December 31, 2012 and 2011, includes $346 million and $305 million, respectively, of International wholesale receivables with entities (primarily dealers) that are reported as consolidated subsidiaries of Ford. The associated vehicles that are being financed by us are reported as inventory on Ford's balance sheet.


(d)	At December 31, 2012 and 2011, excludes $183 million and $180 million, respectively, of accrued uncollected interest receivables, which we report in Other assets on our balance sheet.


(e)	See Note 5 for additional information related to our allowance for credit losses.


(f)	At December 31, 2012 and 2011, excludes $892 million and $1.0 billion, respectively, of certain receivables (primarily direct financing leases) that are not subject to fair value disclosure requirements. All finance receivables are categorized within Level 3 of the fair value hierarchy. See Note 18 for additional information.

NOTE 3. FINANCE RECEIVABLES (Continued)

Contractual maturities of total finance receivables, excluding unearned interest supplements received from Ford, outstanding at December 31, 2012, reflect contractual repayments due from customers or borrowers were as follows (in millions):



	2013		2014		2015		Thereafter		Total
North America
Consumer
Retail financing, gross	$	11,599	$	9,992	$	8,096	$	9,817	$	39,504
Non-Consumer
Dealer financing	18,017		549		72		856		19,494
Other	1,065		3		2		2		1,072
Total North America	$	30,681	$	10,544	$	8,170	$	10,675	$	60,070

International
Consumer
Retail financing, gross	$	3,764	$	2,658	$	1,512	$	1,030	$	8,964
Non-Consumer
Dealer financing	6,680		752		61		3		7,496
Other	404		—		—		—		404
Total International	$	10,848	$	3,410	$	1,573	$	1,033	$	16,864

Our finance receivables are pre-payable without penalty, so prepayments may cause actual maturities to differ from contractual maturities. The above table, therefore, is not to be regarded as a forecast of future cash collections. For wholesale receivables, which are included in dealer financing, maturities stated above are estimated based on historical trends, as maturities on outstanding amounts are scheduled upon the sale of the underlying vehicle by the dealer.

At December 31, 2012, finance receivables included $1.1 billion owed by the three customers with the largest receivables balances. These are included in non-consumer.

Investment in direct financing leases, which are included in our consumer receivables, were as follows (in millions):



	December 31, 2012									December 31, 2011
	North America			International			Total Direct Financing Leases			North America			International			Total Direct Financing Leases
Total minimum lease rentals to be received	$	58		$	418		$	476		$	4		$	460		$	464
Initial direct costs	1			10			11			—			10			10
Estimated residual values	—			509			509			1			613			614
Less: Unearned income	(7		)	(83		)	(90		)	(1		)	(95		)	(96		)
Less: Unearned interest supplements	—			(19		)	(19		)	—			(19		)	(19		)
Recorded investment in direct financing leases	52			835			887			4			969			973
Less: Allowance for credit losses	(1		)	(4		)	(5		)	—			(7		)	(7		)
Net investment in direct financing leases	$	51		$	831		$	882		$	4		$	962		$	966

Future minimum rental payments due from direct financing leases at December 31, 2012 were as follows (in millions):



	2013		2014		2015		2016		Thereafter
North America	$	21	$	12	$	13	$	9	$	3
International	188		107		75		40		8

NOTE 3. FINANCE RECEIVABLES (Continued)

Aging

For all classes of finance receivables, we define "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. Recorded investment of consumer accounts greater than 90 days past due and still accruing interest was $13 million and $14 million at December 31, 2012 and 2011, respectively. The recorded investment of non-consumer accounts that are 90 days past due and still accruing interest was $5 million and de minimis at December 31, 2012 and 2011, respectively.

The aging analysis of our finance receivables balances was as follows (in millions):



	December 31, 2012						December 31, 2011
	North America		International		Total		North America		International		Total
Consumer
31-60 Days past due	$	783	$	46	$	829	$	732	$	61	$	793
61-90 Days past due	97		17		114		68		26		94
91-120 Days past due	21		9		30		22		11		33
Greater than 120 days past due	52		29		81		70		43		113
Total past due	953		101		1,054		892		141		1,033
Current	37,287		8,641		45,928		36,111		8,735		44,846
Consumer finance receivables	$	38,240	$	8,742	$	46,982	$	37,003	$	8,876	$	45,879

Non-Consumer
Total past due	$	29	$	11	$	40	$	30	$	9	$	39
Current	20,537		7,889		28,426		17,541		8,942		26,483
Non-Consumer finance receivables	20,566		7,900		28,466		17,571		8,951		26,522
Total recorded investment	$	58,806	$	16,642	$	75,448	$	54,574	$	17,827	$	72,401

Credit Quality

Consumer. When originating all classes of consumer receivables, we use a proprietary scoring system that measures 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.

Subsequent to origination, we review the credit quality of our retail and direct financing lease receivables based on customer payment activity. As each customer develops a payment history, we use 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. Our 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 our risk-based staffing model to ensure collection resources are aligned with portfolio risk.

Credit quality ratings for our consumer receivables are based on our aging analysis. Refer to aging table above. Consumer receivables credit quality ratings are as follows:


•	Pass – current to 60 days past due


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


•	Substandard – 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 collateral

NOTE 3. FINANCE RECEIVABLES (Continued)

Non-Consumer. We extend credit to dealers primarily in the form of lines of credit to purchase new Ford and Lincoln vehicles as well as used vehicles. Each non-consumer lending request is evaluated by taking into consideration the borrower's financial condition and the underlying collateral securing the loan. We use a proprietary model to assign each dealer a risk rating. This model uses 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 of the dealer's operations 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 ratings as follows:


•	Group I – strong to superior financial metrics


•	Group II – fair to favorable financial metrics


•	Group III – marginal to weak financial metrics


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

We suspend credit lines and extend no further funding to dealers classified in Group IV.

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

Performance of non-consumer receivables is evaluated based on our internal dealer risk rating analysis, as payment for wholesale receivables generally is not required until the dealer has sold the vehicle. A dealer has the same risk rating for all of its dealer financing regardless of the type of financing.

The credit quality analysis of our dealer financing receivables was as follows (in millions):



	December 31, 2012						December 31, 2011
	North America		International		Total		North America		International		Total
Dealer financing
Group I	$	16,591	$	4,822	$	21,413	$	13,588	$	5,319	$	18,907
Group II	2,608		1,390		3,998		2,654		1,922		4,576
Group III	277		1,277		1,554		331		1,328		1,659
Group IV	18		7		25		10		10		20
Total recorded investment	$	19,494	$	7,496	$	26,990	$	16,583	$	8,579	$	25,162

NOTE 3. FINANCE RECEIVABLES (Continued)

Impaired Receivables

Impaired consumer receivables include accounts that have been re-written or modified in reorganization proceedings pursuant to the U.S. Bankruptcy Code that are considered to be Troubled Debt Restructurings ("TDRs"), as well as all accounts greater than 120 days past due. Impaired non-consumer receivables represent accounts with dealers that have weak or poor financial metrics or dealer financing that has been modified in TDRs. The recorded investment of consumer receivables that were impaired at December 31, 2012 and 2011 was $422 million, or 0.9% of consumer receivables, and $382 million, or 0.8% of consumer receivables, respectively. The recorded investment of non-consumer receivables that were impaired at December 31, 2012 and 2011 was $47 million, or 0.2% of non-consumer receivables, and $64 million, or 0.2% of non-consumer receivables, respectively. Impaired finance receivables are evaluated both collectively and specifically. See Note 5 for additional information related to the development of our allowance for credit losses.

Non-Accrual Receivables

The accrual of revenue is discontinued at the earlier of the time a receivable is determined to be uncollectible, at bankruptcy status notification, or greater than 120 days past due. 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.

The recorded investment of consumer receivables in non-accrual status was $304 million, or 0.6% of our consumer receivables, at December 31, 2012, and $402 million, or 0.9% of our consumer receivables, at December 31, 2011. The recorded investment of non-consumer receivables in non-accrual status was $29 million, or 0.1% of our non-consumer receivables, at December 31, 2012, and $27 million, or 0.1% of our non-consumer receivables, at December 31, 2011.

Troubled Debt Restructurings

A restructuring of debt constitutes a TDR if we grant a concession to a borrower for economic or legal reasons related to the debtor's financial difficulties that we otherwise would not consider. Consumer contracts that have a modified interest rate that is below the market rate and those modified in reorganization proceedings pursuant to the U.S. Bankruptcy Code are considered to be TDRs. Non-consumer receivables 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. We do not grant concessions on the principal balance of our loans. If a contract is modified in reorganization proceeding, all payment requirements of the reorganization plan need to be met before remaining balances are forgiven. The outstanding recorded investment at time of modification for consumer receivables that are considered to be TDRs were $249 million, or 0.5% and $370 million, or 0.8% of our consumer receivables, during the years ended December 31, 2012 and 2011, respectively. The subsequent default rate of TDRs that were previously modified in TDRs within the last twelve months and resulted in repossession for consumer contracts was 5.8% and 3.8% of TDRs at December 31, 2012 and 2011, respectively. The outstanding recorded investment of non-consumer loans involved in TDRs was de minimis during the years ended December 31, 2012 and 2011.

Finance receivables involved in TDRs are specifically assessed for impairment. An impairment charge is recorded as part of the provision to the allowance for credit losses for the amount that the recorded investment of the receivable exceeds its estimated fair value. Estimated fair value is 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 for loans where foreclosure is probable, the fair value of the collateral adjusted for estimated costs to sell. The allowance for credit losses related to consumer TDRs was $19 million and $16 million at December 31, 2012 and 2011, respectively. The allowance for credit losses related to non-consumer TDRs was de minimis during the years ended December 31, 2012 and 2011.