Ford 2009 Annual Report Download - page 35

Management’s Discussion and Analysis of Financial Condition and Results of Operations
Ford Motor Company | 2009 Annual Report 33
Receivables decreased from year-end 2008, primarily reflecting lower industry volumes, lower dealer stocks, and the
transition of Jaguar, Land Rover, and Mazda financing to other finance providers. In 2009, as part of Ford Credit's
commitment to support the sale of Ford, Lincoln, and Mercury brand vehicles, Volvo began to transition its financing to
other sources. At December 31, 2009, the Jaguar, Land Rover, and Mazda financing portfolio represented 7% of Ford
Credit's managed receivables and the Volvo financing portfolio represented 5% of Ford Credit's managed receivables.
These percentages will decline over time.
The following table shows worldwide charge-offs (credit losses net of recoveries), for Ford Credit for the various
categories of financing during the periods indicated. The loss-to-receivables ratios, which equal charge-offs on an
annualized basis divided by the average amount of receivables outstanding for the period, excluding the allowance for
credit losses and unearned interest supplements related to finance receivables, are shown below for Ford Credit's on-
balance sheet and managed portfolios.
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Most of Ford Credit's charge-offs are related to retail installment sale and lease contracts. Charge-offs depend on the
number of vehicle repossessions, the unpaid balance outstanding at the time of repossession, the auction price of
repossessed vehicles, and other charge-offs. Ford Credit also incurs credit losses on its wholesale loans, but default rates
for these receivables historically have been substantially lower than those for retail installment sale and lease contracts.
The decrease in charge-offs from a year ago reflected lower losses in the United States, offset partially by higher losses
in Europe. The decrease in charge-offs in the United States reflected lower severity and lower other charge-offs, offset
partially by higher repossessions. The increase in charge-offs in Europe primarily reflected higher losses in Spain and
Germany. The increase in loss-to-receivables ratios from a year ago primarily reflected a combination of lower average
receivables, higher repossessions in the United States, and higher losses in Spain and Germany.
Shown below is an analysis of Ford Credit's allowance for credit losses and its allowance for credit losses as a
percentage of end-of-period receivables (finance receivables (excluding unearned interest supplements), and net
investment in operating leases, excluding the allowance for credit losses) for its on-balance sheet portfolio for the years
ended December 31 (dollar amounts in billions):
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1HWGHGXFWLRQV
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   
%DODQFHHQGRI\HDU 
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   
$OORZDQFHIRUFUHGLWORVVHVDVDSHUFHQWDJHRIHQGRISHULRGQHWUHFHLYDEOHV 

   
The allowance for credit losses is estimated using a combination of models and management judgment, and is based
on such factors as portfolio quality, historical loss performance, and receivable levels. The decrease in Ford Credit's
allowance for credit losses primarily reflected the decline in receivables and decrease in charge-offs. At
December 31, 2009, Ford Credit's allowance for credit losses included about $215 million, which was based on
management's judgment regarding higher retail installment and lease repossession assumptions and higher wholesale and