FINANCE RECEIVABLES

We segment our North America and International portfolio of finance receivables into “consumer” and “non-consumer” receivables. The receivables are generally 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.

Finance receivables are recorded at the time of origination or purchase at fair value and are subsequently reported at amortized cost, net of any allowance for credit losses.

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.

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 financing 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.

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.

NOTE 2. FINANCE RECEIVABLES (Continued)

Finance Receivables, Net

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



	December 31, 2013									December 31, 2012
	North America			International			Total Finance Receivables			North America			International			Total Finance Receivables
Consumer
Retail financing, gross (a)	$	40,902		$	10,797		$	51,699		$	39,504		$	8,964		$	48,468
Less: Unearned interest supplements (b)	(1,255		)	(247		)	(1,502		)	(1,264		)	(222		)	(1,486		)
Consumer finance receivables	39,647			10,550			50,197			38,240			8,742			46,982

Non-Consumer
Dealer financing (a)(c)	22,139			8,232			30,371			19,494			7,496			26,990
Other	1,050			375			1,425			1,072			404			1,476
Non-Consumer finance receivables	23,189			8,607			31,796			20,566			7,900			28,466

Total recorded investment	$	62,836		$	19,157		$	81,993		$	58,806		$	16,642		$	75,448

Recorded investment in finance receivables (d)	$	62,836		$	19,157		$	81,993		$	58,806		$	16,642		$	75,448
Less: Allowance for credit losses (e)	(280		)	(77		)	(357		)	(309		)	(76		)	(385		)
Finance receivables, net	$	62,556		$	19,080		$	81,636		$	58,497		$	16,566		$	75,063

Net finance receivables subject to fair value (f)							$	79,969								$	74,171
Fair Value							81,658									76,171

__________

(a)

At December 31, 2013 and 2012, includes North America consumer receivables of $21.8 billion and $23.0 billion and non-consumer receivables of $18.9 billion and $17.1 billion, respectively, and International consumer receivables of $5.9 billion and $6.3 billion and non-consumer receivables of $5.0 billion and $4.5 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 issued by, and other obligations of, the securitization entities that are parties to those 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 issued by, and other obligations of, the securitization entities that are parties to those securitization transactions. See Note 5 for additional information.


(b)	Ford-sponsored special financing programs attributable to retail financing. See Note 17 for additional information related to interest supplements and other support costs earned from affiliated companies.

(c)

At December 31, 2013 and 2012, includes $67 million and $65 million, respectively, of North America dealer financing receivables with entities (primarily dealers) that are reported as consolidated subsidiaries of Ford. At December 31, 2013 and 2012, includes $399 million and $346 million, respectively, of International dealer financing 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, 2013 and 2012, excludes $196 million and $183 million, respectively, of accrued uncollected interest, which we report in Other assets on our balance sheet.


(e)	See Note 4 for additional information related to our allowance for credit losses.


(f)	At December 31, 2013 and 2012, excludes $1.7 billion and $892 million, respectively, of certain receivables (primarily direct financing leases) that are not subject to fair value disclosure requirements.

NOTE 2. FINANCE RECEIVABLES (Continued)

Contractual maturities of total finance receivables outstanding at December 31, 2013, reflect contractual repayments due from customers or borrowers and were as follows (in millions):



	2014		2015		2016		Thereafter		Total
North America
Consumer
Retail financing, gross	$	11,808	$	10,134	$	8,487	$	10,473	$	40,902
Non-Consumer
Dealer financing	20,428		583		153		975		22,139
Other	1,047		2		1		—		1,050
Total North America	$	33,283	$	10,719	$	8,641	$	11,448	$	64,091

International
Consumer
Retail financing, gross	$	3,842	$	3,363	$	2,207	$	1,385	$	10,797
Non-Consumer
Dealer financing	7,317		851		46		18		8,232
Other	375		—		—		—		375
Total International	$	11,534	$	4,214	$	2,253	$	1,403	$	19,404

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, 2013, finance receivables included $1.4 billion owed by the three customers with the largest receivables balances. These balances are included in non-consumer receivables.

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



	December 31, 2013									December 31, 2012
	North America			International			Total Direct Financing Leases			North America			International			Total Direct Financing Leases
Total minimum lease rentals to be received	$	216		$	1,468		$	1,684		$	58		$	418		$	476
Initial direct costs	4			15			19			1			10			11
Estimated residual values	—			143			143			—			509			509
Less: Unearned income	(22		)	(116		)	(138		)	(7		)	(83		)	(90		)
Less: Unearned interest supplements	—			(40		)	(40		)	—			(19		)	(19		)
Recorded investment in direct financing leases	198			1,470			1,668			52			835			887
Less: Allowance for credit losses	(2		)	(5		)	(7		)	(1		)	(4		)	(5		)
Net investment in direct financing leases	$	196		$	1,465		$	1,661		$	51		$	831		$	882

Future minimum rental payments due from direct financing leases at December 31, 2013 were as follows (in millions):



	2014		2015		2016		2017		Thereafter
North America	$	73	$	52	$	50	$	28	$	13
International	568		459		272		139		30

NOTE 2. FINANCE RECEIVABLES (Continued)

Aging

For all finance receivables, we define “past due” as any payment, including principal and interest, that is at least 31 days past the contractual due date. The recorded investment of consumer receivables greater than 90 days past due and still accruing interest was $14 million and $13 million at December 31, 2013 and 2012, respectively. The recorded investment of non-consumer receivables greater than 90 days past due and still accruing interest was $21 million and $5 million at December 31, 2013 and 2012, respectively.

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



	December 31, 2013						December 31, 2012
	North America		International		Total		North America		International		Total
Consumer
31-60 days past due	$	715	$	39	$	754	$	783	$	46	$	829
61-90 days past due	88		17		105		97		17		114
91-120 days past due	18		9		27		21		9		30
Greater than 120 days past due	37		26		63		52		29		81
Total past due	858		91		949		953		101		1,054
Current	38,789		10,459		49,248		37,287		8,641		45,928
Consumer finance receivables	39,647		10,550		50,197		38,240		8,742		46,982

Non-Consumer
Total past due	49		40		89		29		11		40
Current	23,140		8,567		31,707		20,537		7,889		28,426
Non-Consumer finance receivables	23,189		8,607		31,796		20,566		7,900		28,466

Total recorded investment	$	62,836	$	19,157	$	81,993	$	58,806	$	16,642	$	75,448

Credit Quality

Consumer Segment. 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 retail financing 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 which allows us to focus collection activity on higher-risk accounts. These models are used to refine our risk-based staffing model to ensure collection resources are aligned with portfolio risk. 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.

Credit quality ratings for consumer receivables are based on our aging analysis. Refer to the 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 2. FINANCE RECEIVABLES (Continued)

Non-Consumer Segment. 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. Payment is required when the dealer has sold the vehicle. 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 dealer performance data to identify key factors about a dealer that we consider most 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 regularly audit dealer inventory and dealer sales records to verify that the dealer is in possession of the financed vehicles and is promptly paying each receivable following the sale of the financed vehicle. The frequency of on-site vehicle inventory audits depends on the dealer’s risk rating. Under our policies on-site vehicle inventory audits of low-risk dealers are conducted only as circumstances warrant in North America and at least annually internationally, and audits of higher risk dealers are conducted with increased frequency based on risk ratings worldwide. We perform a credit review of each dealer at least annually and adjust the dealer’s risk rating, if necessary.

The credit quality of non-consumer receivables is evaluated based on our internal dealer risk rating analysis. A dealer has the same risk rating for its entire dealer financing regardless of the type of financing.

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



	December 31, 2013						December 31, 2012
	North America		International		Total		North America		International		Total
Dealer financing
Group I	$	18,424	$	5,450	$	23,874	$	16,591	$	4,822	$	21,413
Group II	3,289		2,092		5,381		2,608		1,390		3,998
Group III	424		649		1,073		277		1,277		1,554
Group IV	2		41		43		18		7		25
Total recorded investment	$	22,139	$	8,232	$	30,371	$	19,494	$	7,496	$	26,990

NOTE 2. FINANCE RECEIVABLES (Continued)

Impaired Receivables

Impaired consumer receivables include accounts that have been rewritten 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, 2013 and 2012 was $435 million, or 0.9% of consumer receivables, and $422 million, or 0.9% of consumer receivables, respectively. The recorded investment of non-consumer receivables that were impaired at December 31, 2013 and 2012 was $71 million, or 0.2% of non-consumer receivables, and $47 million, or 0.2% of non-consumer receivables, respectively. Impaired finance receivables are evaluated both collectively and specifically. See Note 4 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 $238 million, or 0.5% of consumer receivables, at December 31, 2013, and $304 million, or 0.6% of consumer receivables, at December 31, 2012. The recorded investment of non-consumer receivables in non-accrual status was $41 million, or 0.1% of non-consumer receivables, at December 31, 2013, and $29 million, or 0.1% of non-consumer receivables, at December 31, 2012.

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 and non-consumer receivables that have a modified interest rate below market rate or that were modified in reorganization proceedings pursuant to the U.S. Bankruptcy Code, except non-consumer receivables that are current with minimal risk of loss, are considered to be TDRs. We do not grant concessions on the principal balance of our receivables. If a receivable is modified in a 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 was $233 million, or 0.5%, and $249 million, or 0.5%, of consumer receivables, during the years ended December 31, 2013 and 2012, respectively. The annual subsequent default rate of TDRs that were previously modified in TDRs within the last twelve months and resulted in repossession for consumer receivables was 5.8% and 5.8% of TDRs at December 31, 2013 and 2012, respectively. There were no non-consumer receivables involved in TDRs during the year ended December 31, 2013 and the outstanding recorded investment of non-consumer receivables involved in TDRs was de minimis during the year ended December 31, 2012.

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 contract’s original effective interest rate, or for receivables where foreclosure is probable, the fair value of the collateral adjusted for estimated costs to sell. The allowance for credit losses related to all active consumer TDRs was $23 million and $19 million at December 31, 2013 and 2012, respectively. The allowance for credit losses related to all active non-consumer TDRs was de minimis during the years ended December 31, 2013 and 2012.