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Notes to the Financial Statements
Ford Motor Company | 2011 Annual Report 113
NOTE 7. FINANCE RECEIVABLES (Continued)
The credit quality analysis of Ford Credit's consumer receivables portfolio at December 31 was as follows (in millions):
North America
Pass
Special Mention
Substandard
Subtotal
International
Pass
Special Mention
Substandard
Subtotal
Total recorded investment
2011
Retail
$36,839
90
70
36,999
8,107
34
40
8,181
$45,180
Direct
Financing
Leases
$4
—
—
4
2,559
5
3
2,567
$2,571
2010
Retail
$37,348
119
82
37,549
9,068
60
19
9,147
$46,696
Direct
Financing
Leases
$17
—
—
17
2,914
10
3
2,927
$ 2,944
Non-consumer Credit Quality. For all classes of non-consumer receivables, Ford Credit extends commercial credit to
dealers primarily in the form of approved lines of credit to purchase new Ford and Lincoln vehicles as well as used
vehicles. Each commercial lending request is evaluated by taking into consideration the borrower's financial condition and
the underlying collateral securing the loan. Ford Credit uses a proprietary model to assign each dealer a risk rating. This
model uses historical performance data to identify key factors about a dealer that Ford Credit considers significant in
predicting a dealer's ability to meet its financial obligations. Ford Credit also considers numerous other financial and
qualitative factors 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 their risk rating 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
Ford Credit suspends credit lines and extends no further funding to dealers classified in Group IV.
Ford Credit regularly reviews its model to confirm the continued business significance and statistical predictability of
the factors and updates the model to incorporate new factors or other information that improves its statistical predictability.
In addition, Ford Credit verifies 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. Ford
Credit performs a credit review of each dealer at least annually and adjusts the dealer's risk rating, if necessary.