Finance Receivables



	March 31, 2017			December 31, 2016
Retail finance receivables
Retail finance receivables, collectively evaluated for impairment, net of fees^(a)	$	34,047		$	30,989
Retail finance receivables, individually evaluated for impairment, net of fees	1,957			1,921
Total retail finance receivables, net of fees^(b)	36,004			32,910
Less: allowance for loan losses - collective	(568		)	(517		)
Less: allowance for loan losses - specific	(284		)	(276		)
Total retail finance receivables, net	35,152			32,117
Commercial finance receivables
Commercial finance receivables, collectively evaluated for impairment, net of fees	11,725			11,053
Commercial finance receivables, individually evaluated for impairment, net of fees	87			70
Total commercial finance receivables, net of fees	11,812			11,123
Less: allowance for loan losses - collective	(46		)	(43		)
Less: allowance for loan losses - specific	(8		)	(7		)
Total commercial finance receivables, net	11,758			11,073
Total finance receivables, net	$	46,910		$	43,190
Fair value of finance receivables	$	46,722		$	43,140

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(a) Includes $1.6 billion and $1.3 billion of direct-finance leases at March 31, 2017 and December 31, 2016.

(b) Net of unearned income, unamortized premiums and discounts, and deferred fees and costs of $199 million and $191 million at March 31, 2017 and December 31, 2016.

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 March 31,
	2017			2016
Allowance for retail loan losses beginning balance	$	793		$	735
Provision for loan losses	213			197
Charge-offs	(307		)	(293		)
Recoveries	147			150
Foreign currency translation	6			7
Allowance for retail loan losses ending balance	$	852		$	796

Retail Credit Quality 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. At the time of loan origination, substantially all of our International Segment customers have the equivalent of prime credit scores. In the North America Segment, while we historically focused on consumers with lower than prime credit scores, we have expanded our prime lending programs. A summary of the credit risk profile by FICO score band or equivalent scores, determined at origination, of the retail finance receivables in the North America Segment is as follows:



	March 31, 2017				December 31, 2016
	Amount		Percent		Amount		Percent
Prime - FICO Score 680 and greater	$	10,062	41.3	%	$	7,923	36.4	%
Near-prime - FICO Score 620 to 679	3,742		15.4		3,468		15.9
Sub-prime - FICO Score less than 620	10,550		43.3		10,395		47.7
Balance at end of period	$	24,354	100.0	%	$	21,786	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.



	March 31, 2017				March 31, 2016
	Total		Percent of Contractual Amount Due		Total		Percent of Contractual Amount Due
31 - 60 days	$	1,006	2.8	%	$	963	3.1	%
Greater than 60 days	441		1.2		421		1.4
Total finance receivables more than 30 days delinquent	1,447		4.0		1,384		4.5
In repossession	51		0.1		48		0.2
Total finance receivables more than 30 days delinquent or in repossession	$	1,498	4.1	%	$	1,432	4.7	%

At March 31, 2017 and December 31, 2016, the accrual of finance charge income had been suspended on retail finance receivables with contractual amounts due of $711 million and $807 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.

At March 31, 2017 and December 31, 2016, the outstanding balance of retail finance receivables in the International Segment determined to be TDRs was insignificant; therefore, the following information is presented with regard to the TDRs in the North America Segment only. The outstanding recorded investment for retail finance receivables that are considered to be TDRs and the related allowance is presented below:



	March 31, 2017			December 31, 2016
Outstanding recorded investment	$	1,957		$	1,920
Less: allowance for loan losses	(284		)	(276		)
Outstanding recorded investment, net of allowance	$	1,673		$	1,644
Unpaid principal balance	$	1,998		$	1,967

Additional information about loans classified as TDRs is presented below:



	Three Months Ended March 31,
	2017		2016
Average outstanding recorded investment	$	1,939	$	1,636
Finance charge income recognized	$	60	$	51
Number of loans classified as TDRs during the period	16,474		14,646
Recorded investment of loans classified as TDRs during the period	$	287	$	254

The unpaid principal balance, 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 months ended March 31, 2017 and 2016.

Commercial Finance Receivables

Commercial Credit Quality We extend wholesale credit to dealers primarily in the form of approved lines of credit to purchase new vehicles as well as used vehicles. Each commercial lending request is evaluated, taking into consideration the borrower's financial condition and the underlying collateral for the loan. We use proprietary models to assign each dealer a risk rating. These models use 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 including, but not limited to, capitalization and leverage, liquidity and cash flow, profitability and credit history.

We regularly review our models to confirm the continued business significance and statistical predictability of the factors and update the models to incorporate new factors or other information that improves 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 dealers (i.e., Groups III, IV, V and VI). 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 funding restrictions including suspension of lines of credit and liquidation of assets.

Performance of our commercial finance receivables is evaluated based on our internal dealer risk rating analysis, as payment for wholesale receivables is generally not required until the dealer has sold or leased the vehicle inventory. All receivables from the same dealer customer share the same risk rating. The following table summarizes the credit risk profile by dealer risk rating of commercial finance receivables:



			March 31, 2017				December 31, 2016
			Amount		Percent		Amount		Percent
Group I	-	Dealers with superior financial metrics	$	1,664	14.1	%	$	1,596	14.3	%
Group II	-	Dealers with strong financial metrics	3,804		32.2		3,445		31.0
Group III	-	Dealers with fair financial metrics	4,171		35.3		4,039		36.3
Group IV	-	Dealers with weak financial metrics	1,441		12.2		1,231		11.1
Group V	-	Dealers warranting special mention due to potential weaknesses	548		4.6		642		5.8
Group VI	-	Dealers with loans classified as substandard, doubtful or impaired	184		1.6		170		1.5
Balance at end of period			$	11,812	100.0	%	$	11,123	100.0	%

At March 31, 2017 and December 31, 2016, substantially all of our commercial finance receivables were current with respect to payment status and none were classified as TDRs. Activity in the allowance for commercial loan losses was insignificant for the three months ended March 31, 2017 and 2016.