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Notes to the Financial Statements
Ford Motor Company | 2011 Annual Report 117
NOTE 9. ALLOWANCE FOR CREDIT LOSSES
Automotive Sector
We estimate credit loss reserves for notes receivable on an individual receivable basis. A specific impairment
allowance reserve is established based on expected future cash flows, the fair value of any collateral, and the financial
condition of the debtor. Following is an analysis of the allowance for credit losses for the years ended December 31 (in
millions):
Allowance for credit losses:
Beginning balance
Charge-offs
Recoveries
Provision for credit losses
Other
Ending balance
2011
$120
—
(85)
2
(8)
$29
2010
$192
(1)
(122)
51
—
$120
Financial Services Sector
The allowance for credit losses represents Ford Credit's estimate of the probable loss on the collection of finance
receivables and operating leases as of the balance sheet date. The adequacy of the allowance for credit losses is
assessed quarterly and the assumptions and models used in establishing the allowance are evaluated regularly. Because
credit losses may vary substantially over time, estimating credit losses requires a number of assumptions about matters
that are uncertain. The majority of credit losses are attributable to Ford Credit's consumer receivables segment.
Additions to the allowance for credit losses are made by recording charges to Provision for credit and insurance
losses on the sector statement of operations. The uncollectible portion of finance receivables and investments in
operating leases are charged to the allowance for credit losses at the earlier of when an account is deemed to be
uncollectible or when an account is 120 days delinquent, taking into consideration the financial condition of the customer,
borrower or lessee, the value of the collateral, recourse to guarantors and other factors. In the event we repossess the
collateral, the receivable is written off and we record the collateral at its estimated fair value less costs to sell and report it
in Other assets on the balance sheet. Recoveries on finance receivables and investment in operating leases previously
charged-off as uncollectible are credited to the allowance for credit losses.
Consumer Receivables
Ford Credit estimates the allowance for credit losses on its consumer receivables segment and on its investments in
operating leases using a combination of measurement models and management judgment. The models consider factors
such as historical trends in credit losses and recoveries (including key metrics such as delinquencies, repossessions and
bankruptcies), the composition of the present portfolio (including vehicle brand, term, risk evaluation and new/used
vehicles), trends in historical and projected used vehicle values, and economic conditions. Estimates from these models
rely on historical information and may not fully reflect losses inherent in the present portfolio. Therefore, Ford Credit may
adjust the estimate to reflect management judgment regarding justifiable changes in recent economic trends and
conditions, portfolio composition, and other relevant factors.
Ford Credit makes projections of two key assumptions to assist in estimating the consumer allowance for credit
losses:
• Frequency - number of finance receivables that are expected to default over the loss emergence period,
measured as repossessions
• Loss severity - expected difference between the amount a customer owes when the finance contract is charged
off and the amount received, net of expenses from selling the repossessed vehicle, including any recoveries from
the customer