Finance Receivables, Net (Disclosure)

3 Months Ended

Jun. 30, 2011

Note 5 – Finance Receivables, Net

Finance receivables, net consist of retail and dealer accounts including accrued interest and deferred costs, net of the allowance for credit losses and unearned income. Pledged retail receivables represent retail loan receivables that have been sold for legal purposes to securitization trusts but continue to be included in our consolidated financial statements. Cash flows from these receivables are available only for the repayment of debt issued by these trusts and other obligations arising from the securitization transactions. They are not available for payment of our other obligations or to satisfy claims of our other creditors.

(Dollars in millions)			June 30, 2011		March 31, 2011
Retail receivables			$	34,314	$	34,951
Pledged retail receivables				11,923		11,546
Dealer financing				10,097		12,189
Recorded investment				56,334		58,686

Deferred origination costs				660		650
Unearned income				(795)		(846)
Allowance for credit losses
	Retail and pledged retail receivables			(393)		(613)
	Dealer financing			(135)		(141)
		Total allowance for credit losses		(528)		(754)
Finance receivables, net			$	55,671	$	57,736

Finance receivables, net and retail receivables presented in the previous table include direct finance leases of $220 million and $237 million at June 30, 2011 and March 31, 2011, respectively.

Credit Quality Indicators

We are exposed to credit risk on our finance receivables. Credit risk is the risk of loss arising from the failure of customers or dealers to meet the terms of their contracts with us or otherwise fail to perform as agreed.

Homogeneous Portfolio Segments

While we use various credit quality metrics to develop our allowance for credit losses on the retail loan and commercial finance portfolio segments, we primarily utilize the aging of the individual accounts to monitor the credit quality of these finance receivables. Based on our experience, the payment status of borrowers is the strongest indication of the credit quality of the underlying receivables. Payment status also impacts charge-offs.

Individual borrower accounts for each of the two classes of finance receivables (retail and commercial loans) are segregated into one of four aging categories based on the number of days outstanding. The aging for each class of finance receivables is updated quarterly.

Note 5 – Finance Receivables, Net (Continued)

Dealer Products Portfolio Segment

For the three classes of finance receivables within the dealer products portfolio segment (wholesale, real estate and working capital), all loans outstanding to an individual dealer, affiliated entity or dealership group are aggregated and evaluated collectively by dealer or dealership group. This reflects the interconnected nature of financing provided to our individual dealer, affiliated entities and dealer group customers.

When assessing the credit quality of the finance receivables within the dealer products portfolio segment, we segregate the finance receivables account balances into four distinct credit quality indicators based on internal risk assessments. The internal risk assessments for all finance receivables within the dealer products portfolio segment are updated on a monthly basis.

The four credit quality indicators are:

Performing – Account not classified as either Credit Watch, At Risk or Default.
Credit Watch – Account designated for elevated attention.
At Risk – Account where there is a probability that default exists based on qualitative and quantitative factors.
Default – Account is not currently meeting contractual obligations or we have temporarily waived certain contractual requirements.

The tables below show the recorded investment for each credit quality indicator by class of finance receivable as of June 30, 2011 and March 31, 2011:

		Retail Loan				Commercial
(Dollars in millions)		June 30, 2011		March 31, 2011		June 30, 2011		March 31, 2011

Aging of finance receivables:
	Current	$	45,050	$	45,351	$	389	$	416
	30-59 days past due		596		562		12		15
	60-89 days past due		142		108		4		5
	90 days past due		42		39		2		1
Total		$	45,830	$	46,060	$	407	$	437

		Wholesale				Real Estate				Working Capital
(Dollars in millions)		June 30, 2011		March 31, 2011		June 30, 2011		March 31, 2011		June 30, 2011		March 31, 2011

Credit quality indicators:
	Performing	$	4,301	$	6,073	$	3,369	$	3,409	$	1,074	$	1,088
	Credit Watch		491		699		598		505		65		147
	At Risk		46		78		139		148		14		13
	Default		-		10		-		11		-		8
Total		$	4,838	$	6,860	$	4,106	$	4,073	$	1,153	$	1,256

Note 5 – Finance Receivables, Net (Continued)

Impaired Finance Receivables

The following table summarizes the information related to our recorded investment in impaired loans by class of finance receivable as of June 30, 2011 and March 31, 2011:

	Recorded Investment				Unpaid Principal Balance				Allowance
(Dollars in millions)	June 30, 2011		March 31, 2011		June 30, 2011		March 31, 2011		June 30, 2011		March 31, 2011

Impaired account balances with an allowance:

Wholesale	$	9	$	19	$	9	$	19	$	2	$	3
Real estate		136		156		136		156		50		50
Working capital		14		18		14		18		12		14
Total	$	159	$	193	$	159	$	193	$	64	$	67

Impaired account balances without an allowance:

Wholesale	$	31	$	62	$	31	$	62	$	-	$	-
Real estate		-		-		-		-		-		-
Working capital		1		3		1		3		-		-
Total	$	32	$	65	$	32	$	65	$	-	$	-

Total impaired account balances:

Wholesale	$	40	$	81	$	40	$	81	$	2	$	3
Real estate		136		156		136		156		50		50
Working capital		15		21		15		21		12		14
Total	$	191	$	258	$	191	$	258	$	64	$	67

As of June 30, 2011 and March 31, 2011, all impaired finance receivables within the dealer products portfolio segment were on nonaccrual status and there were no charge-offs against the allowance for credit losses. Therefore, the recorded investment in impaired loans is equal to the unpaid principal balance.

Note 5 – Finance Receivables, Net (Continued)

Impaired Finance Receivables

The following table summarizes the average recorded investment in impaired loans and the related interest income recognized by class of finance receivable for the three months ended June 30, 2011 and 2010:

		Average Recorded Investment				Interest Income Recognized
		Three Months Ended June 30,				Three Months Ended June 30,
(Dollars in millions)		2011		2010		2011		2010

Impaired account balances with an allowance:

Wholesale	$	10	$	64	$	-	$	1
Real estate		137		145		1		1
Working capital		14		16		-		-
Total	$	161	$	225	$	1	$	2

Impaired account balances without an allowance:

Wholesale	$	42	$	15	$	1	$	-
Real estate		-		12		-		-
Working capital		1		3		-		-
Total	$	43	$	30	$	1	$	-

Total impaired account balances:

Wholesale	$	52	$	79	$	1	$	1
Real estate		137		157		1		1
Working capital		15		19		-		-
Total	$	204	$	255	$	2	$	2