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(a)	Includes impacts of share-based compensation.

(b)	Dividends and dividend equivalents declared for Common and Class B Stock.

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For purposes of this report, “Ford,” the “Company,” “we,” “our,” “us,” or similar references mean Ford Motor Company, our consolidated subsidiaries, and our consolidated VIEs of which we are the primary beneficiary, unless the context requires otherwise. We also make reference to Ford Motor Credit Company LLC, herein referenced to as Ford Credit. Our consolidated financial statements are presented in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information, instructions to the Quarterly Report on Form 10-Q, and Rule 10-01 of Regulation S-X.

In the opinion of management, these unaudited financial statements reflect a fair statement of our results of operations and financial condition for the periods, and at the dates, presented.  The results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year.  Reference should be made to the financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2019 (“2019 Form 10-K Report”).

Global Pandemic

On March 11, 2020, the World Health Organization characterized the outbreak of COVID-19 as a global pandemic and recommended containment and mitigation measures.  As a result, extraordinary actions were taken by international, federal, state, and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19 in regions throughout the world. These actions included travel bans, quarantines, “stay-at-home” orders, and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations. Although restrictions have been eased in many locations, some areas that had previously eased restrictions have reverted to more stringent limitations on daily activities.

Consistent with the actions taken by governmental authorities, by late March 2020, we had idled all of our significant manufacturing operations in regions around the world. By May 2020, we restarted manufacturing operations in a phased manner at locations around the world. We have since returned to pre-COVID-19 production levels in several major markets.

Our results include adjustments to our assets and liabilities made due to the impact of COVID-19, the most significant of which were a valuation allowance on certain deferred tax assets of $228 million and $1.1 billion for the second quarter and first half of 2020, respectively (see Note 5), and a charge to the provision for credit losses on Ford Credit’s finance receivables of $46 million and $532 million during the second quarter and first half of 2020, respectively (see Note 8). Our assessments of the effect of COVID-19 on our financial statements, including estimates, are based on a variety of factors and are subject to many uncertainties.

The impact of the COVID-19 pandemic on our full year financial results will depend on future developments, such as the ultimate duration and scope of the outbreak, its impact on our operations, customers, dealers, and suppliers, and the rate at which economic conditions return to pre-COVID-19 levels.

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Adoption of New Accounting Standards

Accounting Standards Update (“ASU”) 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments. On January 1, 2020, we adopted the new credit loss standard and all of the related amendments, which replaced the incurred loss impairment method with a method that reflects lifetime expected credit losses. We adopted the changes in accounting for credit losses by recognizing the cumulative effect of initially applying the new credit loss standard as an adjustment to the opening balance of Retained earnings. The comparative information has not been restated and continues to be reported under the accounting standard in effect for those periods.

The cumulative effect of the changes made to our consolidated balance sheet at January 1, 2020, for the adoption of ASU 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments, was as follows (in millions):

		Balance at December 31, 2019				Adjustments due to ASU 2016-13				Balance at January 1, 2020
Assets
Ford Credit finance receivables, net, current		$	53,651			$	(69	)		$	53,582
Trade and other receivables, net		9,237				(3		)		9,234
Ford Credit finance receivables, net, non-current		53,703				(183		)		53,520
Equity in net assets of affiliated companies		2,519				(7		)		2,512
Deferred income taxes		11,863				2				11,865
Liabilities
Deferred income taxes		490				(58		)		432
Equity
Retained earnings		20,320				(202		)		20,118

ASU 2020-04, Reference Rate Reform:  Facilitation of the Effects of Reference Rate Reform on Financial Reporting.  On April 1, 2020, we adopted the new standard, which provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform (e.g., discontinuation of LIBOR) if certain criteria are met.  As of June 30, 2020, we have not yet elected any optional expedients provided in the standard.  We will apply the accounting relief as relevant contract and hedge accounting relationship modifications are made during the reference rate reform transition period. We do not expect the standard to have a material impact on our consolidated financial statements.

We also adopted the following ASUs during 2020, none of which had a material impact to our consolidated financial statements or financial statement disclosures:

ASU			Effective Date
2020-01	Clarifying the Interaction between Equity Securities, Equity Method and Joint Ventures, and Derivatives and Hedging		January 1, 2020
2018-18	Clarifying the Interaction between Collaborative Arrangements and Revenue from Contracts with Customers		January 1, 2020
2018-15	Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract		January 1, 2020

Accounting Standards Issued But Not Yet Adopted

The Company considers the applicability and impact of all ASUs.  ASUs were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial statements.

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The following table disaggregates our revenue by major source for the periods ended June 30 (in millions):

	Second Quarter 2019
	Automotive				Mobility				Ford Credit				Consolidated
Vehicles, parts, and accessories	$	34,235			$	—			$	—			$	34,235
Used vehicles	842				—				—				842
Extended service contracts	348				—				—				348
Other revenue	219				6				55				280
Revenues from sales and services	35,644				6				55				35,705
Leasing income	114				—				1,472				1,586
Financing income	—				—				1,521				1,521
Insurance income	—				—				41				41
Total revenues	$	35,758			$	6			$	3,089			$	38,853
	Second Quarter 2020
	Automotive				Mobility				Ford Credit				Consolidated
Vehicles, parts, and accessories	$	15,406			$	—			$	—			$	15,406
Used vehicles	533				—				—				533
Extended service contracts	346				—				—				346
Other revenue	252				10				44				306
Revenues from sales and services	16,537				10				44				16,591
Leasing income	85				—				1,401				1,486
Financing income	—				—				1,261				1,261
Insurance income	—				—				33				33
Total revenues	$	16,622			$	10			$	2,739			$	19,371
	First Half 2019
	Automotive				Mobility				Ford Credit				Consolidated
Vehicles, parts, and accessories	$	69,811			$	—			$	—			$	69,811
Used vehicles	1,862				—				—				1,862
Extended service contracts	681				—				—				681
Other revenue	432				12				106				550
Revenues from sales and services	72,786				12				106				72,904
Leasing income	211				—				2,949				3,160
Financing income	—				—				3,049				3,049
Insurance income	—				—				82				82
Total revenues	$	72,997			$	12			$	6,186			$	79,195
	First Half 2020
	Automotive				Mobility				Ford Credit				Consolidated
Vehicles, parts, and accessories	$	45,247			$	—			$	—			$	45,247
Used vehicles	1,464				—				—				1,464
Extended service contracts	710				—				—				710
Other revenue	398				23				85				506
Revenues from sales and services	47,819				23				85				47,927
Leasing income	143				—				2,860				3,003
Financing income	—				—				2,686				2,686
Insurance income	—				—				75				75
Total revenues	$	47,962			$	23			$	5,706			$	53,691

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NOTE 3. REVENUE (Continued)

The amount of consideration we receive and revenue we recognize on our vehicles, parts, and accessories varies with changes in return rights and marketing incentives we offer to our customers and their customers. Estimates of marketing incentives are based on expected retail and fleet sales volumes, mix of products to be sold, and incentive programs to be offered. Customer acceptance of products and programs, as well as other market conditions, will impact these estimates. As a result of changes in our estimate of marketing incentives, we recorded a decrease in revenue of $350 million in the second quarter of 2019 and an increase in revenue of $48 million in the second quarter of 2020 related to revenue recognized in prior periods.

We sell separately-priced service contracts that extend mechanical and maintenance coverages beyond our base warranty agreements to vehicle owners (“extended service contracts”). We had a balance of $4.2 billion and $4 billion of unearned revenue associated with outstanding contracts reported in Other liabilities and deferred revenue at December 31, 2019 and June 30, 2020, respectively. We expect to recognize approximately $600 million of the unearned amount in the remainder of 2020, $1.1 billion in 2021, and $2.3 billion thereafter. We recognized $285 million and $276 million of unearned amounts as revenue during the second quarter of 2019 and 2020, respectively, and $590 million and $606 million in the first half of 2019 and 2020, respectively.

Amounts paid to dealers to obtain these contracts are deferred and recorded as Other assets. We had a balance of $270 million and $276 million in deferred costs as of December 31, 2019 and June 30, 2020, respectively. We recognized $20 million and $19 million of amortization during the second quarter of 2019 and 2020, respectively, and $39 million in the first half of both 2019 and 2020.

The amounts included in Other income/(loss), net for the periods ended June 30 were as follows (in millions):

	Second Quarter								First Half
	2019				2020				2019				2020
Net periodic pension and OPEB income/(cost), excluding service cost	$	111			$	544			$	383			$	995
Investment-related interest income	207				122				410				284
Interest income/(expense) on income taxes	(1		)		12				(21		)		(11		)
Realized and unrealized gains/(losses) on cash equivalents, marketable securities, and other investments	(187		)		47				(120		)		15
Gains/(Losses) on changes in investments in affiliates (a)	(1		)		3,465				2				3,480
Gains/(Losses) on extinguishment of debt	(53		)		(1		)		(53		)		(1		)
Royalty income	108				94				192				183
Other	88				35				107				53
Total	$	272			$	4,318			$	900			$	4,998

__________

(a)	See Note 17 for additional information relating to our Argo AI, LLC (“Argo AI”) and Volkswagen AG (“VW”) transaction.

For interim tax reporting, we estimate one single effective tax rate for tax jurisdictions not subject to a valuation allowance, which is applied to the year-to-date ordinary income/(loss). Tax effects of significant unusual or infrequently occurring items are excluded from the estimated annual effective tax rate calculation and recognized in the interim period in which they occur.

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Earnings Per Share Attributable to Ford Motor Company Common and Class B Stock

Basic and diluted income/(loss) per share were calculated using the following (in millions):

	Second Quarter								First Half
	2019				2020				2019				2020
Basic and Diluted Income/(Loss) Attributable to Ford Motor Company
Basic income/(loss)	$	148			$	1,117			$	1,294			$	(876	)
Diluted income/(loss)	148				1,117				1,294				(876		)
Basic and Diluted Shares
Basic shares (average shares outstanding)	3,984				3,975				3,979				3,969
Net dilutive options, unvested restricted stock units, and unvested restricted stock shares (a)	29				17				26				—
Diluted shares	4,013				3,992				4,005				3,969

__________

(a)	Not included in the calculation of diluted earnings per share, due to their antidilutive effect, are 25 million shares for the first half of 2020.

Cash Equivalents

Cash and cash equivalents are highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of change in value due to interest rate, quoted price, or penalty on withdrawal. A debt security is classified as a cash equivalent if it meets these criteria and if it has a remaining time to maturity of three months or less from the date of acquisition. Amounts on deposit and available upon demand, or negotiated to provide for daily liquidity without penalty, are classified as cash and cash equivalents. Time deposits, certificates of deposit, and money market accounts that meet the above criteria are reported at par value on our consolidated balance sheets.

Marketable Securities

Investments in securities with a maturity date greater than three months at the date of purchase, and other securities for which there is more than an insignificant risk of change in value due to interest rate, quoted price, or penalty on withdrawal, are classified as marketable securities.

Realized gains and losses and interest income on all of our marketable securities and unrealized gains and losses on securities not classified as available for sale are recorded in Other income/(loss), net. Unrealized gains and losses on available-for-sale securities are recognized in Unrealized gains and losses on securities, a component of Other comprehensive income/(loss), net of tax. Realized gains and losses and reclassifications of accumulated other comprehensive income into net income are measured using the specific identification method.

On a quarterly basis, we review our available-for-sale debt securities for credit losses. We compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis of the security, we determine if a credit loss allowance is necessary. If a credit loss allowance is necessary, we will record an allowance, limited by the amount that fair value is less than the amortized cost basis, and recognize the corresponding charge in Other income/(loss), net. Factors we consider include the severity of the impairment, the reason for the decline in value, interest rate changes, and counterparty long-term ratings.

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NOTE 7. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES (Continued)

The fair values of cash, cash equivalents, and marketable securities measured at fair value on a recurring basis were as follows (in millions):

			December 31, 2019
	Fair Value Level		Automotive				Mobility				Ford Credit				Consolidated
Cash and cash equivalents
U.S. government	1		$	520			$	—			$	—			$	520
U.S. government agencies	2		125				—				—				125
Non-U.S. government and agencies	2		601				—				350				951
Corporate debt	2		642				—				604				1,246
Total marketable securities classified as cash equivalents			1,888				—				954				2,842
Cash, time deposits, and money market funds			6,432				117				8,113				14,662
Total cash and cash equivalents			$	8,320			$	117			$	9,067			$	17,504
Marketable securities
U.S. government	1		$	2,930			$	—			$	195			$	3,125
U.S. government agencies	2		1,548				—				210				1,758
Non-U.S. government and agencies	2		4,217				—				2,408				6,625
Corporate debt	2		4,802				—				193				4,995
Equities (a)	1		81				—				—				81
Other marketable securities	2		273				—				290				563
Total marketable securities			$	13,851			$	—			$	3,296			$	17,147
Restricted cash			$	15			$	21			$	139			$	175
Cash, cash equivalents, and restricted cash in held-for-sale assets			$	—			$	—			$	62			$	62
			June 30, 2020
	Fair Value Level		Automotive				Mobility				Ford Credit				Consolidated
Cash and cash equivalents
U.S. government	1		$	4,307			$	—			$	1,568			$	5,875
U.S. government agencies	2		1,950				—				825				2,775
Non-U.S. government and agencies	2		1,578				—				1,352				2,930
Corporate debt	2		719				—				992				1,711
Total marketable securities classified as cash equivalents			8,554				—				4,737				13,291
Cash, time deposits, and money market funds			9,540				57				8,101				17,698
Total cash and cash equivalents			$	18,094			$	57			$	12,838			$	30,989
Marketable securities
U.S. government	1		$	6,879			$	—			$	1,924			$	8,803
U.S. government agencies	2		5,118				—				410				5,528
Non-U.S. government and agencies	2		3,451				—				2,215				5,666
Corporate debt	2		5,358				—				223				5,581
Equities (a)	1		49				—				—				49
Other marketable securities	2		250				—				264				514
Total marketable securities			$	21,105			$	—			$	5,036			$	26,141
Restricted cash			$	21			$	6			$	165			$	192
Cash, cash equivalents, and restricted cash in held-for-sale assets			$	—			$	—			$	—			$	—

__________

(a) Net unrealized gains/losses incurred during the reporting periods on equity securities still held at December 31, 2019 and June 30, 2020 were a $44 million loss and a $29 million loss, respectively.

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NOTE 7. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES (Continued)

The cash equivalents and marketable securities accounted for as available-for-sale (“AFS”) securities were as follows (in millions):

	December 31, 2019
																	Fair Value of Securities with Contractual Maturities
	Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value				Within 1 Year				After 1 Year through 5 Years				After 5 Years
Automotive
U.S. government	$	2,839			$	11			$	(1	)		$	2,849			$	1,028			$	1,772			$	49
U.S. government agencies	1,445				2				(1		)		1,446				830				589				27
Non-U.S. government and agencies	3,925				20				(1		)		3,944				1,546				2,398				—
Corporate debt	5,029				53				—				5,082				1,837				3,245				—
Other marketable securities	230				1				—				231				—				149				82
Total	$	13,468			$	87			$	(3	)		$	13,552			$	5,241			$	8,153			$	158
	June 30, 2020
																	Fair Value of Securities with Contractual Maturities
	Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value				Within 1 Year				After 1 Year through 5 Years				After 5 Years
Automotive
U.S. government	$	2,978			$	64			$	—			$	3,042			$	1,072			$	1,935			$	35
U.S. government agencies	1,938				15				—				1,953				704				1,126				123
Non-U.S. government and agencies	2,849				48				—				2,897				1,192				1,704				1
Corporate debt	5,751				106				(5		)		5,852				2,157				3,668				27
Other marketable securities	212				3				—				215				—				144				71
Total	$	13,728			$	236			$	(5	)		$	13,959			$	5,125			$	8,577			$	257

Sales proceeds and gross realized gains/losses from the sale of AFS securities for the periods ended June 30 were as follows (in millions):

	Second Quarter								First Half
	2019				2020				2019				2020
Automotive
Sales proceeds	$	1,858			$	2,452			$	3,000			$	4,317
Gross realized gains	3				21				5				28
Gross realized losses	5				3				10				10

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NOTE 7. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES (Continued)

The present fair values and gross unrealized losses for cash equivalents and marketable securities accounted for as AFS securities that were in an unrealized loss position, aggregated by investment category and the length of time that individual securities have been in a continuous loss position, were as follows (in millions):

	December 31, 2019
	Less than 1 Year								1 Year or Greater								Total
	Fair Value				Unrealized Losses				Fair Value				Unrealized Losses				Fair Value				Unrealized Losses
Automotive
U.S. government	$	183			$	(1	)		$	50			$	—			$	233			$	(1	)
U.S. government agencies	370				(1		)		344				—				714				(1		)
Non-U.S. government and agencies	463				—				390				(1		)		853				(1		)
Corporate debt	29				—				53				—				82				—
Other marketable securities	59				—				17				—				76				—
Total	$	1,104			$	(2	)		$	854			$	(1	)		$	1,958			$	(3	)
	June 30, 2020
	Less than 1 Year								1 Year or Greater								Total
	Fair Value				Unrealized Losses				Fair Value				Unrealized Losses				Fair Value				Unrealized Losses
Automotive
U.S. government	$	357			$	—			$	—			$	—			$	357			$	—
U.S. government agencies	25				—				42				—				67				—
Non-U.S. government and agencies	319				—				36				—				355				—
Corporate debt	783				(4		)		11				(1		)		794				(5		)
Other marketable securities	7				—				16				—				23				—
Total	$	1,491			$	(4	)		$	105			$	(1	)		$	1,596			$	(5	)

We determine credit losses on available-for-sale debt securities using the specific identification method. During the first half of 2020, we did not recognize any credit loss. The unrealized losses on securities are due to changes in interest rates and market liquidity.

Cash, Cash Equivalents, and Restricted Cash

Cash, cash equivalents, and restricted cash, as reported in the consolidated statements of cash flows, were as follows (in millions):

	December 31, 2019				June 30, 2020
Cash and cash equivalents (a)	$	17,504			$	30,989
Restricted cash (b)	175				192
Cash, cash equivalents, and restricted cash in held-for-sale assets	62				—
Total cash, cash equivalents, and restricted cash	$	17,741			$	31,181

__________

(a)	Includes a $290 million cash compensating balance at June 30, 2020 in an interest-bearing savings account related to a $498 million debt obligation.

(b)	Included in Other assets in the non-current assets section of our consolidated balance sheets.

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Ford Credit manages finance receivables as “consumer” and “non-consumer” portfolios.  The receivables are generally secured by the vehicles, inventory, or other property being financed.

Finance receivables are recorded at the time of origination or purchase at fair value and are subsequently reported at amortized cost, net of any allowance for credit losses.

For all finance receivables, Ford Credit defines "past due" as any payment, including principal and interest, that is at least 31 days past the contractual due date.

Ford Credit finance receivables, net were as follows (in millions):

	December 31, 2019				June 30, 2020
Consumer
Retail installment contracts, gross	$	68,905			$	70,773
Finance leases, gross	8,566				7,879
Retail financing, gross	77,471				78,652
Unearned interest supplements	(3,589		)		(3,844		)
Consumer finance receivables	73,882				74,808
Non-Consumer
Dealer financing	33,985				23,184
Non-Consumer finance receivables	33,985				23,184
Total recorded investment	$	107,867			$	97,992
Recorded investment in finance receivables	$	107,867			$	97,992
Allowance for credit losses	(513		)		(1,285		)
Total finance receivables, net	$	107,354			$	96,707
Current portion	$	53,651			$	42,720
Non-current portion	53,703				53,987
Total finance receivables, net	$	107,354			$	96,707
Net finance receivables subject to fair value (a)	$	99,168			$	89,207
Fair value (b)	99,297				90,298

__________

(a)	Net finance receivables subject to fair value exclude finance leases.

(b)	The fair value of finance receivables is categorized within Level 3 of the fair value hierarchy.

Ford Credit’s finance leases are comprised of sales-type and direct financing leases. Financing revenue from finance leases for the second quarter of 2019 and 2020 was $97 million and $77 million, respectively, and for the first half of 2019 and 2020 was $189 million and $172 million, respectively, and is included in Ford Credit revenues on our consolidated income statements.

At December 31, 2019 and June 30, 2020, accrued interest was $251 million and $215 million, respectively, which we report in Other assets in the current assets section of our consolidated balance sheets.

Included in the recorded investment in finance receivables at December 31, 2019 and June 30, 2020, were consumer receivables of $38.3 billion and $42.1 billion, respectively, and non-consumer receivables of $26.8 billion and $17.8 billion, respectively, that have been sold for legal purposes in securitization transactions but continue to be reported in our consolidated financial statements. The receivables are available only for payment of the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions; they are not available to pay the other obligations or the claims of Ford Credit’s other creditors. Ford Credit holds the right to receive the excess cash flows not needed to pay the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions.

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NOTE 8. FORD CREDIT FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (Continued)

The value of finance receivables considered held for sale at December 31, 2019 was $1.5 billion, primarily made up of $1.2 billion of Forso Nordic AB (“Forso”) related finance receivables. At June 30, 2020, there were $50 million of certain wholesale finance receivables specifically identified as held for sale. These held-for-sale values are reported in Assets held for sale on our consolidated balance sheets. See Note 17 for additional information.

Credit Quality

Consumer Portfolio. Credit quality ratings for consumer receivables are based on aging. Consumer receivables credit quality ratings are as follows:

•	Pass – current to 60 days past due;

•	Special Mention – 61 to 120 days past due and in intensified collection status; and

•	Substandard – greater than 120 days past due and for which the uncollectible portion of the receivables has already been charged off, as measured using the fair value of collateral less costs to sell.

The credit quality analysis of consumer receivables at December 31, 2019 was as follows (in millions):

		Total
Consumer
31 - 60 days past due		$	839
61 - 120 days past due		166
Greater than 120 days past due		35
Total past due		1,040
Current		72,842
Total		$	73,882

The credit quality analysis of consumer receivables at June 30, 2020 was as follows (in millions):

		Amortized Cost Basis by Origination Year
		Prior to 2016				2016				2017				2018				2019				2020				Total
Consumer
31 - 60 days past due		$	45			$	60			$	98			$	135			$	124			$	31			$	493
61 - 120 days past due		9				17				33				44				40				10				153
Greater than 120 days past due		14				7				8				9				6				—				44
Total past due		68				84				139				188				170				41				690
Current		1,631				4,199				9,581				17,452				24,396				16,859				74,118
Total		$	1,699			$	4,283			$	9,720			$	17,640			$	24,566			$	16,900			$	74,808

Non-Consumer Portfolio. Ford Credit uses a proprietary model to assign each dealer a risk rating. This model uses historical dealer performance data to identify key factors about a dealer that are considered most significant in predicting a dealer’s ability to meet its financial obligations. Ford Credit also considers numerous other financial and qualitative factors of the dealer’s operations, including capitalization and leverage, liquidity and cash flow, profitability, and credit history with Ford Credit and other creditors. The credit quality of dealer financing receivables is evaluated based on an internal dealer risk rating analysis.

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NOTE 8. FORD CREDIT FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (Continued)

Dealers are assigned to one of four groups according to risk ratings as follows:

•	Group I – strong to superior financial metrics;

•	Group II – fair to favorable financial metrics;

•	Group III – marginal to weak financial metrics; and

•	Group IV – poor financial metrics, including dealers classified as uncollectible.

The credit quality analysis of dealer financing receivables at December 31, 2019 was as follows (in millions):

		Total
Dealer financing
Group I		$	26,281
Group II		5,407
Group III		2,108
Group IV		189
Total (a)		$	33,985

__________

(a)	Total past due dealer financing receivables at December 31, 2019 were $62 million.

The credit quality analysis of dealer financing receivables at June 30, 2020 was as follows (in millions):

		Amortized Cost Basis by Origination Year																												Wholesale Loans
		Dealer Loans
		Prior to 2016				2016				2017				2018				2019				2020				Total								Total
Group I		$	608			$	132			$	159			$	221			$	98			$	237			$	1,455			$	14,102			$	15,557
Group II		38				32				17				18				7				72				184				5,317				5,501
Group III		9				—				4				17				6				28				64				1,908				1,972
Group IV		2				3				—				—				2				4				11				143				154
Total (a)		$	657			$	167			$	180			$	256			$	113			$	341			$	1,714			$	21,470			$	23,184

__________

(a)	Total past due dealer financing receivables at June 30, 2020 were $143 million.

Non-Accrual of Revenue. The accrual of financing revenue is discontinued at the time a receivable is determined to be uncollectible or when it is 90 days past due. Accounts may be restored to accrual status only when a customer settles all past-due deficiency balances and future payments are reasonably assured. For receivables in non-accrual status, subsequent financing revenue is recognized only to the extent a payment is received. Payments are generally applied first to outstanding interest and then to the unpaid principal balance.

Troubled Debt Restructuring (“TDR”). A restructuring of debt constitutes a TDR if a concession is granted to a debtor for economic or legal reasons related to the debtor’s financial difficulties that Ford Credit otherwise would not consider. Consumer and non-consumer receivables that have a modified interest rate below market rate or that were modified in reorganization proceedings pursuant to the U.S. Bankruptcy Code, except non-consumer receivables that are current with minimal risk of loss, are considered to be TDRs. Ford Credit does not grant concessions on the principal balance of the receivables. If a receivable is modified in a reorganization proceeding, all payment requirements of the reorganization plan need to be met before remaining balances are forgiven.

Ford Credit has offered various programs to provide relief to customers and dealers impacted by COVID-19.  These programs, which were broadly available to customers and dealers, included payment extensions.  Ford Credit concluded that these programs did not meet TDR criteria. As of June 30, 2020, in the United States, Ford Credit has received payments on 88% of the pandemic extensions offered to its customers, and no dealers are delinquent on their payments.

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NOTE 8. FORD CREDIT FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (Continued)

Allowance for Credit Losses

The allowance for credit losses represents an estimate of the lifetime expected credit losses inherent in finance receivables as of the balance sheet date.

Additions to the allowance for credit losses are made by recording charges to Ford Credit interest, operating, and other expenses on our consolidated income statements. The uncollectible portion of a finance receivable is 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 or borrower, the value of the collateral, recourse to guarantors, and other factors.

Charge-offs on finance receivables include uncollected amounts related to principal, interest, late fees, and other allowable charges. Recoveries on finance receivables previously charged off as uncollectible are credited to the allowance for credit losses. In the event Ford Credit repossesses the collateral, the receivable is charged off and the collateral is recorded at its estimated fair value less costs to sell and reported in Other assets on our consolidated balance sheets.

Consumer Portfolio

Receivables in this portfolio include products offered to individuals and businesses that finance the acquisition of Ford and Lincoln vehicles from dealers for personal or commercial use. Retail financing includes retail installment contracts for new and used vehicles and finance leases with retail customers, government entities, daily rental companies, and fleet customers.

For consumer receivables that share similar risk characteristics such as product type, initial credit risk, term, vintage, geography, and other relevant factors, Ford Credit estimates the lifetime expected credit loss allowance based on a collective assessment using measurement models and management judgment. The lifetime expected credit losses for the receivables is determined by applying probability of default and loss given default models to monthly expected exposures, then discounting these cash flows to present value using the receivable’s original effective interest rate or the current effective interest rate for a variable rate receivable. Probability of default models are developed from internal risk scoring models taking into account the expected probability of payment and time to default, adjusted for macroeconomic outlook and recent performance. The models consider factors such as risk evaluation at the time of origination, historical trends in credit losses (which include the impact of TDRs), and the composition and recent performance of the present portfolio (including vehicle brand, term, risk evaluation, and new / used vehicles). The loss given default is the percentage of the expected balance due at default that is not recoverable, taking into account the expected collateral value and trends in recoveries (including key metrics such as delinquencies, repossessions, and bankruptcies). Monthly exposures are equal to the receivables’ expected outstanding principal and interest balance.

The loss allowance incorporates forward-looking macroeconomic conditions for baseline, upturn, and downturn scenarios. Three separate credit loss allowances are calculated from these scenarios. They are then probability-weighted to determine the credit loss allowance recognized in the financial statements. Ford Credit uses forecasts from a third party that revert to a long-term historical average after a reasonable and supportable forecasting period, which is specific to the particular macroeconomic variable and which varies by market. Ford Credit updates the forward-looking macroeconomic forecasts quarterly.

If management does not believe these models reflect lifetime expected credit losses for the portfolio, an adjustment is made to reflect management judgment regarding observable changes in recent or expected economic trends and conditions, portfolio composition, and other relevant factors.

On an ongoing basis, Ford Credit reviews its models, including macroeconomic factors, the selection of macroeconomic scenarios, and their weighting, to ensure they reflect the risk of the portfolio.

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NOTE 8. FORD CREDIT FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (Continued)

Non-Consumer Portfolio

Dealer financing includes wholesale loans to dealers to finance vehicle inventory, also known as floorplan financing, as well as loans to dealers to finance working capital, improvements to dealership facilities, the purchase of dealership real estate, and other dealer programs.

Dealer financing is evaluated on an individual dealer basis by segmenting dealers by risk characteristics (such as the amount of the loans, the nature of the collateral, the financial status of the dealer, and any TDR modifications) to determine if an individual dealer requires a specific allowance for credit loss. If required, the allowance is based on the present value of the expected future cash flows of the dealer’s receivables discounted at the loans’ original effective interest rate or the fair value of the collateral adjusted for estimated costs to sell.

For the remaining dealer financing, Ford Credit estimates an allowance for credit losses on a collective basis.

Wholesale Loans. Ford Credit estimates the allowance for credit losses for wholesale loans based on historical loss-to-receivable (LTR) ratios, expected future cash flows, and the fair value of collateral. For wholesale loans with similar risk characteristics, the allowance for credit losses is estimated on a collective basis using the LTR model and management judgment. The LTR model is based on the most recent years of history. An LTR is calculated by dividing credit losses (i.e., charge-offs net of recoveries) by average net finance receivables, excluding unearned interest supplements and allowance for credit losses. The average LTR is multiplied by the end-of-period balances, representing the lifetime expected credit loss reserve.

Dealer Loans. Ford Credit uses a weighted-average remaining maturity method to estimate the lifetime expected credit loss reserve for dealer loans. The loss model is based on the industry-wide commercial real estate credit losses, adjusted to factor in the historical credit losses for the dealer loans portfolio. The expected credit loss is calculated under different economic scenarios that are weighted to provide the total lifetime expected credit loss. 

After establishing the collective and specific allowance for credit losses, if management believes the allowance does not reflect all losses inherent in the portfolio due to changes in recent economic trends and conditions, or other relevant forward-looking economic factors, an adjustment is made based on management judgment.

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NOTE 8. FORD CREDIT FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (Continued)

An analysis of the allowance for credit losses related to finance receivables for the periods ended June 30 was as follows (in millions):

	Second Quarter 2019 (a)												First Half 2019 (a)
	Consumer				Non-Consumer				Total				Consumer				Non-Consumer				Total
Allowance for credit losses
Beginning balance	$	496			$	17			$	513			$	566			$	23			$	589
Charge-offs	(117		)		—				(117		)		(254		)		(17		)		(271		)
Recoveries	45				6				51				88				8				96
Provision for credit losses	70				(7		)		63				94				2				96
Other (c)	2				1				3				2				1				3
Ending balance	$	496			$	17			$	513			$	496			$	17			$	513

	Second Quarter 2020												First Half 2020
	Consumer				Non-Consumer				Total				Consumer				Non-Consumer				Total
Allowance for credit losses
Beginning balance	$	1,157			$	74			$	1,231			$	496			$	17			$	513
Adoption of ASU 2016-13 (b)	—				—				—				247				5				252
Charge-offs (c)	(80		)		—				(80		)		(225		)		(1		)		(226		)
Recoveries (c)	33				1				34				76				3				79
Provision for credit losses	94				(1		)		93				628				51				679
Other (d)	7				—				7				(11		)		(1		)		(12		)
Ending balance	$	1,211			$	74			$	1,285			$	1,211			$	74			$	1,285

__________

(a)	The comparative information has not been restated and continues to be reported under the accounting standard in effect during 2019.

(b)	Cumulative pre-tax adjustments recorded to retained earnings as of January 1, 2020. See Note 2 for additional information.

(c)	Charge-offs and recoveries were lower in the second quarter of 2020 reflecting program extensions and decision to temporarily suspend involuntary repossessions due to COVID-19.

(d)	Primarily represents amounts related to translation adjustments.

During the second quarter and first half of 2020, the allowance for credit losses increased $54 million and $772 million, respectively. The change in the second quarter reflects an increase of $46 million, primarily attributable to COVID-19, and an increase for translation adjustments. The change in the first half reflects an increase to the reserve of $252 million related to the adoption of ASU 2016-13 and an increase of $532 million, primarily attributable to COVID-19, offset by a decrease for translation adjustments. The first half change to the reserve reflects economic uncertainty which, along with the expectation of continued higher unemployment, is expected to increase the probability of default and loss given default rates in our consumer portfolio, especially in the United States.  These economic trends and conditions are also expected to negatively impact the dealers.  The relatively moderate reserve increase in the second quarter reflects Ford Credit's view that future economic conditions are largely unchanged from its assumptions at March 31.  Although net charge-offs during the second quarter and first half of 2020 remained low, reflecting government relief programs, customer payment deferral programs, and Ford Credit's decision to temporarily suspend involuntary repossessions, the future impact of COVID-19 on credit losses is expected to be adverse.

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Inventories were as follows (in millions):

	December 31, 2019				June 30, 2020
Raw materials, work-in-process, and supplies	$	4,402			$	4,367
Finished products	6,384				5,853
Total inventories	$	10,786			$	10,220

We have investments in entities not accounted for under the equity method for which fair values are not readily available. We record these investments at cost (less impairment, if any), adjusted for observable price changes in orderly transactions for the identical or a similar investment of the same issuer. We report the carrying value of these investments in Other assets in the non-current assets section of our consolidated balance sheets. These investments were $1.2 billion and $1.6 billion at December 31, 2019 and June 30, 2020, respectively. The increase from December 31, 2019 primarily reflects our preferred security investment in Argo AI. See Note 17 for additional information relating to our Argo AI and VW transaction. In the second quarter of 2020, there were no material adjustments to the fair values of these investments held at June 30, 2020.

Other liabilities and deferred revenue were as follows (in millions):

	December 31, 2019				June 30, 2020
Current
Dealer and dealers’ customer allowances and claims	$	13,113			$	11,632
Deferred revenue	2,091				2,021
Employee benefit plans	1,857				1,483
Accrued interest	1,128				1,117
OPEB (a)	332				327
Pension (a)	185				184
Operating lease liabilities	367				339
Other	3,914				3,689
Total current other liabilities and deferred revenue	$	22,987			$	20,792
Non-current
Pension (a)	$	9,878			$	9,487
OPEB (a)	5,740				5,661
Dealer and dealers’ customer allowances and claims	1,921				2,464
Deferred revenue	4,191				4,257
Operating lease liabilities	1,047				914
Employee benefit plans	1,104				1,105
Other	1,443				1,503
Total non-current other liabilities and deferred revenue	$	25,324			$	25,391

__________

(a)

Balances at June 30, 2020 reflect pension and OPEB liabilities at December 31, 2019, updated for service and interest cost, expected return on assets, curtailment and settlement gains and associated interim remeasurement (where applicable), separation expense, actual benefit payments, and cash contributions. For plans without interim remeasurement, the discount rate and rate of expected return assumptions are unchanged from year-end 2019. Included in Other assets are pension assets of $3.2 billion and $3.8 billion at December 31, 2019 and June 30, 2020, respectively.

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Defined Benefit Plans - Expense

The pre-tax net periodic benefit cost/(income) for our defined benefit pension and OPEB plans for the periods ended June 30 were as follows (in millions):

	Second Quarter
	Pension Benefits
	U.S. Plans								Non-U.S. Plans								Worldwide OPEB
	2019				2020				2019				2020				2019				2020
Service cost	$	114			$	130			$	127			$	127			$	11			$	11
Interest cost	409				323				173				130				52				41
Expected return on assets	(649		)		(699		)		(281		)		(254		)		—				—
Amortization of prior service costs/(credits)	21				1				9				8				(17		)		(4		)
Net remeasurement (gain)/loss	(10		)		4				—				(152		)		—				—
Separation programs/other	—				3				232				33				—				1
Settlements and curtailments	(50		)		4				—				17				—				—
Net periodic benefit cost/(income)	$	(165	)		$	(234	)		$	260			$	(91	)		$	46			$	49
	First Half
	Pension Benefits
	U.S. Plans								Non-U.S. Plans								Worldwide OPEB
	2019				2020				2019				2020				2019				2020
Service cost	$	228			$	260			$	256			$	258			$	22			$	23
Interest cost	818				646				349				263				105				84
Expected return on assets	(1,298		)		(1,398		)		(567		)		(521		)		—				—
Amortization of prior service costs/(credits)	43				2				17				17				(35		)		(8		)
Net remeasurement (gain)/loss	(10		)		4				—				(232		)		—				58
Separation programs/other	1				13				244				57				—				—
Settlements and curtailments	(50		)		4				—				18				—				(2		)
Net periodic benefit cost/(income)	$	(268	)		$	(469	)		$	299			$	(140	)		$	92			$	155

The service cost component is included in Cost of sales and Selling, administrative, and other expenses. Other components of net periodic benefit cost/(income) are included in Other income/(loss), net on our consolidated income statements.

As part of our ongoing global redesign activities, we recognized additional expense of $232 million and $51 million in the second quarter of 2019 and 2020, respectively, and $245 million and $75 million in the first half of 2019 and 2020, respectively, related to separation programs. 

In addition, in the second quarter, we recognized settlements and curtailments, which required plan remeasurements at current discount rates, asset returns, and economic conditions.  This resulted in remeasurement gains of $148 million and $170 million in the second quarter and first half of 2020, respectively. Until our global redesign actions are completed, we anticipate further adjustments to our plans in subsequent periods.

Pension Plan Contributions

During 2020, we expect to contribute between $500 million and $700 million of cash to our global funded pension plans. We also expect to make about $350 million of benefit payments to participants in unfunded plans. In the first half of 2020, we contributed $282 million to our worldwide funded pension plans and made $176 million of benefit payments to participants in unfunded plans.

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The carrying value of Automotive, Ford Credit, and Other debt was as follows (in millions):

	December 31, 2019				June 30, 2020
Automotive
Debt payable within one year
Short-term	$	315			$	1,172
Long-term payable within one year
Credit facilities (a)	—				292
U.S. Department of Energy Advanced Technology Vehicles Manufacturing (“DOE ATVM”) Incentive Program (b)	591				148
Other debt	540				472
Unamortized (discount)/premium	(1		)		—
Total debt payable within one year	1,445				2,084
Long-term debt payable after one year
Public unsecured debt securities (c)	10,583				18,583
Credit facilities (a)	—				15,068
Delayed draw term loan	1,500				1,500
DOE ATVM Incentive Program (b)	880				1,138
Other debt (d)	547				1,559
Unamortized (discount)/premium	(161		)		(242		)
Unamortized issuance costs	(116		)		(197		)
Total long-term debt payable after one year	13,233				37,409
Total Automotive	$	14,678			$	39,493
Fair value of Automotive debt (e)	$	15,606			$	38,280
Ford Credit
Debt payable within one year
Short-term	$	13,717			$	11,681
Long-term payable within one year
Unsecured debt	15,062				18,567
Asset-backed debt	23,609				22,997
Unamortized (discount)/premium	1				1
Unamortized issuance costs	(17		)		(19		)
Fair value adjustments (f)	(1		)		33
Total debt payable within one year	52,371				53,260
Long-term debt payable after one year
Unsecured debt	55,148				49,711
Asset-backed debt	32,162				30,794
Unamortized (discount)/premium	6				4
Unamortized issuance costs	(197		)		(186		)
Fair value adjustments (f)	539				1,684
Total long-term debt payable after one year	87,658				82,007
Total Ford Credit	$	140,029			$	135,267
Fair value of Ford Credit debt (e)	$	141,678			$	132,836
Other
Long-term debt payable within one year	$	130			$	—
Long-term debt payable after one year
Unsecured debt	474				474
Unamortized (discount)/premium and issuance costs	(4		)		(4		)
Total long-term debt payable after one year	470				470
Total Other	$	600			$	470
Fair value of Other debt	$	720			$	534

__________

(a)	We drew $15.4 billion under our corporate credit facility and supplemental revolving credit facility in the first quarter of 2020. On July 27, 2020, we repaid $5.7 billion of our corporate credit facility and the full $2 billion outstanding under our supplemental revolving credit facility.

(b)	In June 2020, our DOE ATVM loan was modified, reducing quarterly principal payments from $148 million to $37 million. The deferred portion of the principal payments will be due upon original maturity in June 2022.

(c)	Public unsecured debt securities increased by $8 billion reflecting our unsecured debt issuance in April 2020.

(d)	Includes a £625 million five-year term loan entered into by Ford Motor Company Limited in June 2020 pursuant to U.K. Export Finance program.

(e)	The fair value of debt includes $315 million and $1.2 billion of Automotive short-term debt and $12.8 billion and $10.9 billion of Ford Credit short-term debt at December 31, 2019 and June 30, 2020, respectively, carried at cost, which approximates fair value. All debt is categorized within Level 2 of the fair value hierarchy.

(f)	These adjustments relate to fair value hedges. The carrying value of hedged debt was $39.4 billion and $42.5 billion at December 31, 2019 and June 30, 2020, respectively.

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In the normal course of business, our operations are exposed to global market risks, including the effect of changes in foreign currency exchange rates, certain commodity prices, and interest rates. To manage these risks, we enter into highly effective derivative contracts. We have elected to apply hedge accounting to certain derivatives. Derivatives that are designated in hedging relationships are evaluated for effectiveness using regression analysis at the time they are designated and throughout the hedge period. Some derivatives do not qualify for hedge accounting; for others, we elect not to apply hedge accounting.

Income Effect of Derivative Financial Instruments

The gains/(losses), by hedge designation, reported in income for the periods ended June 30 were as follows (in millions):

	Second Quarter								First Half
Cash flow hedges (a)	2019				2020				2019				2020
Reclassified from AOCI to Cost of sales
Foreign currency exchange contracts	$	44			$	(4	)		$	98			$	(74	)
Commodity contracts	(6		)		(14		)		(11		)		(28		)
Fair value hedges
Interest rate contracts
Net interest settlements and accruals on hedging instruments	(12		)		68				(32		)		96
Fair value changes on hedging instruments	474				112				724				1,222
Fair value changes on hedged debt	(463		)		(98		)		(716		)		(1,191		)
Derivatives not designated as hedging instruments
Foreign currency exchange contracts (b)	5				(274		)		(23		)		312
Cross-currency interest rate swap contracts	141				154				(4		)		3
Interest rate contracts	(3		)		(12		)		(30		)		(86		)
Commodity contracts	(12		)		12				(1		)		(31		)
Total	$	168			$	(56	)		$	5			$	223

__________

(a)

For the second quarter and first half of 2019, a $205 million gain and a $316 million loss, respectively, were reported in Other comprehensive income/(loss), net of tax related to foreign currency exchange contracts. For the second quarter and first half of 2020, an $81 million loss and an $816 million gain, respectively, were reported in Other comprehensive income/(loss), net of tax related to foreign currency exchange contracts. For the second quarter and first half of 2019, a $37 million loss and a $26 million loss, respectively, were reported in Other comprehensive income/(loss), net of tax related to commodity contracts. For the second quarter and first half of 2020, a $17 million gain and an $84 million loss, respectively, were reported in Other comprehensive income/(loss), net of tax related to commodity contracts.

(b)

For the second quarter and first half of 2019, a $35 million loss and a $57 million loss were reported in Cost of sales, respectively, and a $40 million gain and a $34 million gain were reported in Other income/(loss), net, respectively. For the second quarter and first half of 2020, a $231 million loss and a $145 million gain were reported in Cost of sales, respectively, and a $43 million loss and a $167 million gain were reported in Other income/(loss), net, respectively.

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NOTE 15. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)

Balance Sheet Effect of Derivative Financial Instruments

Derivative assets and liabilities are reported on our consolidated balance sheets at fair value and are presented on a gross basis. The notional amounts of the derivative instruments do not necessarily represent amounts exchanged by the parties and are not a direct measure of our financial exposure. We also enter into master agreements with counterparties that may allow for netting of exposures in the event of default or breach of the counterparty agreement. Collateral represents cash received or paid under reciprocal arrangements that we have entered into with our derivative counterparties, which we do not use to offset our derivative assets and liabilities.

The fair value of our derivative instruments and the associated notional amounts were as follows (in millions):

	December 31, 2019												June 30, 2020
	Notional				Fair Value of Assets				Fair Value of Liabilities				Notional				Fair Value of Assets				Fair Value of Liabilities
Cash flow hedges
Foreign currency exchange contracts	$	15,349			$	47			$	493			$	12,966			$	371			$	55
Commodity contracts	673				5				29				617				2				69
Fair value hedges
Interest rate contracts	26,577				702				19				24,434				1,682				—
Derivatives not designated as hedging instruments
Foreign currency exchange contracts	19,350				58				270				20,075				225				238
Cross-currency interest rate swap contracts	5,849				134				67				5,611				163				53
Interest rate contracts	68,914				275				191				71,075				752				573
Commodity contracts	467				9				9				450				12				29
Total derivative financial instruments, gross (a) (b)	$	137,179			$	1,230			$	1,078			$	135,228			$	3,207			$	1,017
Current portion					$	390			$	772							$	1,239			$	683
Non-current portion					840				306								1,968				334
Total derivative financial instruments, gross					$	1,230			$	1,078							$	3,207			$	1,017

__________

(a)	At December 31, 2019 and June 30, 2020, we held collateral of $18 million and $20 million, and we posted collateral of $78 million and $91 million, respectively.

(b)	At December 31, 2019 and June 30, 2020, the fair value of assets and liabilities available for counterparty netting was $269 million and $600 million, respectively. All derivatives are categorized within Level 2 of the fair value hierarchy.

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We record costs associated with voluntary separations at the time of employee acceptance, unless the acceptance requires explicit approval by the Company. We record costs associated with involuntary separation programs when management has approved the plan for separation, the affected employees are identified, and it is unlikely that actions required to complete the separation plan will change significantly. Costs associated with benefits that are contingent on the employee continuing to provide service are accrued over the required service period.

Automotive Segment

Global Redesign

As previously announced, we are executing a global redesign of our business. Redesign-related activities, including employee separation costs, payments to dealers and suppliers, and other charges, are recorded in Cost of sales and Selling, administrative, and other expenses. Below are actions we have initiated as part of the redesign.

Brazil. In February 2019, Ford Motor Company Brasil Ltda. (“Ford Brazil”), our subsidiary in Brazil, committed to a plan to exit the commercial heavy truck business in South America.  As a result, Ford Brazil ceased production at the São Bernardo do Campo plant in Brazil during 2019.

Russia. In March 2019, Ford Sollers Netherlands B.V. (“Ford Sollers”), a joint venture between Ford and Sollers PJSC (“Sollers”) in which Ford had control, announced its plan to restructure its business in Russia to focus exclusively on commercial vehicles and to exit the passenger car segment. As a result of these actions, Ford acquired 100% ownership of Ford Sollers and ceased production at the Naberezhnye Chelny and St. Petersburg vehicle assembly plants and the Elabuga engine plant during the second quarter of 2019.

Subsequent to completion of the restructuring actions, in July 2019, Ford sold a 51% controlling interest in the restructured entity to Sollers, which resulted in deconsolidation of the Ford Sollers subsidiary. Our continued involvement in Ford Sollers is accounted for as an equity method investment.

United Kingdom. In June 2019, Ford Motor Company Limited (“Ford of Britain”), a subsidiary of Ford, announced its plan to exit the Ford Bridgend plant in South Wales in 2020.

India. In the third quarter of 2019, Ford committed to a plan to sell specific net assets in our India Automotive operations. See Note 17 for additional information concerning this plan.

Other Global Redesign Actions. In 2018, we announced our plan to end production at the Ford Aquitaine Industries plant in Bordeaux, France, and in March 2019, we announced our plan to phase-out the production of the C-Max at the Saarlouis Body and Assembly Plant in Germany. Furthermore, we are reducing our global workforce and taking other restructuring actions.

The following table summarizes the redesign-related activities for the periods ended June 30, which are recorded in Other liabilities and deferred revenue (in millions):

	Second Quarter								First Half
	2019				2020				2019				2020
Beginning balance	$	414			$	601			$	291			$	734
Changes in accruals (a)	741				26				1,008				94
Payments	(222		)		(99		)		(358		)		(271		)
Foreign currency translation	(4		)		(4		)		(12		)		(33		)
Ending balance	$	929			$	524			$	929			$	524

__________

(a)    Excludes pension costs of $182 million and $51 million in the second quarter of 2019 and 2020, respectively, and $195 million and $75 million in the first half of 2019 and 2020, respectively.

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NOTE 16. EMPLOYEE SEPARATION ACTIONS AND EXIT AND DISPOSAL ACTIVITIES (Continued)

We also recorded $291 million and $36 million in the second quarter of 2019 and 2020, respectively, and $542 million and $50 million in the first half of 2019 and 2020, respectively, for accelerated depreciation and other non-cash items. We estimate that we will incur total charges in 2020 that range between $700 million and $1.2 billion related to the actions above, primarily attributable to employee separations, accelerated depreciation, and dealer and supplier settlements.

Other Actions

United Automobile, Aerospace and Agricultural Implement Workers of America (“UAW”) Voluntary Separation Packages. As agreed in the collective bargaining agreement ratified in November 2019, during the first quarter of 2020, we offered voluntary separation packages to our UAW hourly workforce who were eligible for normal or early retirement, and recorded associated costs of $201 million in Cost of sales. All separations are expected to occur before the end of the year.

Automotive Segment

In the third quarter of 2019, we committed to a plan to sell specific net assets in our India Automotive operations. We entered into a definitive agreement to form a joint venture with Mahindra & Mahindra Limited (“Mahindra”), with Mahindra owning a 51% controlling stake and Ford owning a 49% stake. Under the terms of the transaction, which is expected to close in 2020, we will sell certain India Automotive operations to the joint venture. Accordingly, we have reported the assets and liabilities of these operations as held for sale and ceased depreciation and amortization of those assets.

The assets and liabilities of our India Automotive operations classified as held for sale were as follows (in millions):

	December 31, 2019				June 30, 2020
Assets
Trade and other receivables, net	$	269			$	101
Inventories	208				244
Other assets, current	147				108
Net property	279				263
Other assets, non-current	10				8
Total assets of held-for-sale operations	913				724
Less: Intercompany asset balances	(228		)		(54		)
Automotive segment total assets of held-for-sale operations (a)	$	685			$	670
Liabilities
Payables	$	461			$	263
Other liabilities and deferred revenue, current	71				53
Automotive debt payable within one year	90				83
Other liabilities and deferred revenue, non-current	28				25
Total liabilities of held-for-sale operations	650				424
Less: Intercompany liability balances	(169		)		(140		)
Automotive segment total liabilities of held-for-sale operations (a)	$	481			$	284

__________

(a)	As of December 31, 2019 and June 30, 2020, intercompany items and transactions have been eliminated on the consolidated balance sheets. Upon closing, the buyer will assume the intercompany assets and liabilities. Accordingly, we have presented those balances in the table for informational purposes.

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NOTE 17. HELD-FOR-SALE OPERATIONS AND CHANGES IN INVESTMENTS IN AFFILIATES (Continued)

We recognized pre-tax impairment charges of $804 million in 2019, and $15 million and $18 million in the second quarter and first half of 2020, respectively, to adjust the carrying value of the held-for-sale assets to fair value less cost to sell. These charges are reported in Cost of sales. The value is measured on a nonrecurring basis and categorized within Level 3 of the fair value hierarchy. We determined fair value using a market approach, estimated based on expected proceeds to be received, which we conclude is most representative of the value of the assets given the current market conditions, the characteristics of viable market participants, and the pending sales transaction. The transaction is subject to regulatory approvals and satisfaction of other closing conditions that may impact the final proceeds received.

Mobility Segment

On June 1, 2020, we completed a transaction with VW that reduced our ownership interest in the autonomous vehicle technology company Argo AI and resulted in Ford and VW holding equal interests in Argo AI, with the remaining interest consisting of incentive units and founders’ equity. The transaction involved us selling a portion of our Argo AI equity to VW for $500 million and VW making additional investments in Argo AI, including contributing its Autonomous Intelligent Driving company. As a result of the transaction, we deconsolidated Argo AI, remeasured our retained investment in Argo AI at fair value, and recognized a $3.5 billion gain in Other income/(loss), of which $2.9 billion related to our retained investment in Argo AI. We measured the fair value of Argo AI using the income approach. The significant assumptions used in the valuation included Argo AI’s projected long-term cash flows and related terminal value, discounted at a rate typically used for a company at Argo AI’s stage of development.

Our retained investment in Argo AI consists of an equity method investment of $2.4 billion and a preferred equity security investment of $400 million, reflected on our consolidated balance sheets in Equity in net assets of affiliated companies and Other assets, respectively. The difference between the fair value of our equity method investment and the carrying value of Argo AI’s net assets is primarily related to indefinite-lived assets. We also have agreed to future funding of Argo AI of $600 million, subject to capital calls, which will increase our preferred equity investment.

Argo AI is a variable interest entity of which we are not the primary beneficiary. As of June 30, 2020, our maximum exposure to any potential losses associated with Argo AI is limited to our $2.8 billion of investments.

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NOTE 17. HELD-FOR-SALE OPERATIONS AND CHANGES IN INVESTMENTS IN AFFILIATES (Continued)

Ford Credit Segment

In the fourth quarter of 2019, Ford Credit committed to a plan to sell its operations in Forso, a wholly owned subsidiary of Ford Credit, which provides retail and dealer financing in Denmark, Finland, Norway, and Sweden. As a result, we classified the assets and liabilities of these operations as held for sale and recognized a pre-tax fair value impairment charge of $20 million, reported in Other income/(loss), net, in the fourth quarter of 2019.

The assets and liabilities of the Forso operations classified as held for sale at December 31, 2019 were as follows (in millions):

	December 31, 2019
Assets
Cash and cash equivalents	$	61
Ford Credit finance receivables, net, current	516
Trade and other receivables, net	8
Other assets, current	106
Ford Credit finance receivables, net, non-current	715
Net property	2
Deferred income taxes	9
Other assets, non-current	1
Total assets of held-for-sale operations	1,418
Less: Intercompany asset balances	(2		)
Ford Credit segment total assets of held-for-sale operations (a)	$	1,416
Liabilities
Payables	$	34
Other liabilities and deferred revenue, current	8
Ford Credit long-term debt	1,254
Deferred income taxes	23
Total liabilities of held-for-sale operations	1,319
Less: Intercompany liability balances	(1,274		)
Ford Credit segment total liabilities of held-for-sale operations (a)	$	45

__________

(a)	As of December 31, 2019, intercompany items and transactions have been eliminated on the consolidated balance sheets. Upon closing, the buyer assumed the intercompany assets and liabilities. Accordingly, we have presented those balances in the table for informational purposes.

On February 28, 2020, Ford Credit completed the sale of Forso recognizing a pre-tax loss of $4 million, reported in Other income/(loss), net, and cash proceeds of $1.3 billion.

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The changes in the balances for each component of accumulated other comprehensive income/(loss) attributable to Ford Motor Company for the periods ended June 30 were as follows (in millions):

	Second Quarter								First Half
	2019				2020				2019				2020
Foreign currency translation
Beginning balance	$	(4,557	)		$	(6,079	)		$	(4,800	)		$	(4,626	)
Gains/(Losses) on foreign currency translation	(139		)		(141		)		132				(1,547		)
Less: Tax/(Tax benefit)	(12		)		(50		)		16				(23		)
Net gains/(losses) on foreign currency translation	(127		)		(91		)		116				(1,524		)
(Gains)/Losses reclassified from AOCI to net income (a)	—				(11		)		—				(31		)
Other comprehensive income/(loss), net of tax	(127		)		(102		)		116				(1,555		)
Ending balance	$	(4,684	)		$	(6,181	)		$	(4,684	)		$	(6,181	)
Marketable securities
Beginning balance	$	4			$	85			$	(59	)		$	71
Gains/(Losses) on available for sale securities	74				146				154				165
Less: Tax/(Tax benefit)	17				33				36				38
Net gains/(losses) on available for sale securities	57				113				118				127
(Gains)/Losses reclassified from AOCI to net income	2				(18		)		5				(18		)
Less: Tax/(Tax benefit)	—				(4		)		1				(4		)
Net (gains)/losses reclassified from AOCI to net income	2				(14		)		4				(14		)
Other comprehensive income/(loss), net of tax	59				99				122				113
Ending balance	$	63			$	184			$	63			$	184
Derivative instruments
Beginning balance	$	(245	)		$	204			$	201			$	(488	)
Gains/(Losses) on derivative instruments	168				(64		)		(342		)		732
Less: Tax/(Tax benefit)	24				(23		)		(78		)		150
Net gains/(losses) on derivative instruments	144				(41		)		(264		)		582
(Gains)/Losses reclassified from AOCI to net income	(38		)		18				(87		)		102
Less: Tax/(Tax benefit)	(11		)		1				(22		)		16
Net (gains)/losses reclassified from AOCI to net income (b)	(27		)		17				(65		)		86
Other comprehensive income/(loss), net of tax	117				(24		)		(329		)		668
Ending balance	$	(128	)		$	180			$	(128	)		$	180
Pension and other postretirement benefits
Beginning balance	$	(2,703	)		$	(2,671	)		$	(2,708	)		$	(2,685	)
Amortization and recognition of prior service costs/(credits)	13				22				25				26
Less: Tax/(Tax benefit)	3				3				5				4
Net prior service costs/(credits) reclassified from AOCI to net income	10				19				20				22
Translation impact on non-U.S. plans	6				(2		)		1				9
Other comprehensive income/(loss), net of tax	16				17				21				31
Ending balance	$	(2,687	)		$	(2,654	)		$	(2,687	)		$	(2,654	)
Total AOCI ending balance at June 30	$	(7,436	)		$	(8,471	)		$	(7,436	)		$	(8,471	)

__________

(a)	Reclassified to Other income/(loss), net.

(b)	Reclassified to Cost of sales. During the next twelve months we expect to reclassify existing net gains on cash flow hedges of $165 million. See Note 15 for additional information.

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Commitments and contingencies primarily consist of guarantees and indemnifications, litigation and claims, and warranty and field service actions.

Guarantees and Indemnifications

Financial Guarantees. Financial guarantees and indemnifications are recorded at fair value at their inception. Subsequent to initial recognition, the guarantee liability is adjusted at each reporting period to reflect the current estimate of expected payments resulting from possible default events over the remaining life of the guarantee. The probability of default is applied to the expected exposure at the time of default less recoveries to determine the expected payments. Factors to consider when estimating the probability of default include the obligor’s financial position, forecasted economic environment, historical loss rates, and other communications. The liability recorded represents Ford’s exposure to credit risk. The maximum potential payments for financial guarantees were $162 million and $429 million at December 31, 2019 and June 30, 2020, respectively. The carrying value of recorded liabilities related to financial guarantees was $33 million and $43 million at December 31, 2019 and June 30, 2020, respectively.

Our financial guarantees consist of debt and lease obligations of certain joint ventures, as well as certain financial obligations of outside third parties, including suppliers, to support our business and economic growth. Expiration dates vary through 2033, and guarantees will terminate on payment and/or cancellation of the underlying obligation. A payment by us would be triggered by failure of the joint venture or other third party to fulfill its obligation covered by the guarantee. In some circumstances, we are entitled to recover from a third party amounts paid by us under the guarantee. However, our ability to enforce these rights is sometimes stayed until the guaranteed party is paid in full, and may be limited in the event of insolvency of the third party or other circumstances.

Non-Financial Guarantees. Non-financial guarantees and indemnifications are recorded at fair value at their inception. We regularly review our performance risk under these arrangements, and in the event it becomes probable we will be required to perform under a guarantee or indemnity, the amount of probable payment is recorded. The maximum potential payments for non-financial guarantees were $587 million and $415 million at December 31, 2019 and June 30, 2020, respectively. The carrying value of recorded liabilities related to non-financial guarantees was $200 million and $110 million at December 31, 2019 and June 30, 2020, respectively.

We guarantee the resale value of vehicles sold in certain arrangements to daily rental companies. The maximum potential payment of $410 million as of June 30, 2020 represents the total proceeds we guarantee the rental company will receive on re-sale.  Reflecting our present estimate of proceeds the rental companies will receive on resale from third parties, we have recorded $109 million as our best estimate of the amount we will have to pay under the guarantee.

In the ordinary course of business, we execute contracts involving indemnifications standard in the industry and indemnifications specific to a transaction, such as the sale of a business. These indemnifications might include and are not limited to claims relating to any of the following: environmental, tax, and shareholder matters; intellectual property rights; power generation contracts; governmental regulations and employment-related matters; dealer, supplier, and other commercial contractual relationships; and financial matters, such as securitizations. Performance under these indemnities generally would be triggered by a breach of terms of the contract or a third-party claim. While some of these indemnifications are limited in nature, many of them do not limit potential payment. Therefore, we are unable to estimate a maximum amount of future payments that could result from claims made under these unlimited indemnities.

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NOTE 19. COMMITMENTS AND CONTINGENCIES (Continued)

Litigation and Claims

Various legal actions, proceedings, and claims (generally, “matters”) are pending or may be instituted or asserted against us. These include, but are not limited to, matters arising out of alleged defects in our products; product warranties; governmental regulations relating to safety, emissions, and fuel economy or other matters; government incentives; tax matters; alleged illegal acts resulting in fines or penalties; financial services; employment-related matters; dealer, supplier, and other contractual relationships; intellectual property rights; environmental matters; shareholder or investor matters; and financial reporting matters. Certain of the pending legal actions are, or purport to be, class actions. Some of the matters involve or may involve claims for compensatory, punitive, or antitrust or other treble damages in very large amounts, or demands for field service actions, environmental remediation programs, sanctions, loss of government incentives, assessments, or other relief, which, if granted, would require very large expenditures.

The extent of our financial exposure to these matters is difficult to estimate. Many matters do not specify a dollar amount for damages, and many others specify only a jurisdictional minimum. To the extent an amount is asserted, our historical experience suggests that in most instances the amount asserted is not a reliable indicator of the ultimate outcome.

We accrue for matters when losses are deemed probable and reasonably estimable. In evaluating matters for accrual and disclosure purposes, we take into consideration factors such as our historical experience with matters of a similar nature, the specific facts and circumstances asserted, the likelihood that we will prevail, and the severity of any potential loss. We reevaluate and update our accruals as matters progress over time.

For the majority of matters, which generally arise out of alleged defects in our products, we establish an accrual based on our extensive historical experience with similar matters. We do not believe there is a reasonably possible outcome materially in excess of our accrual for these matters.

For the remaining matters, where our historical experience with similar matters is of more limited value (i.e., “non-pattern matters”), we evaluate the matters primarily based on the individual facts and circumstances. For non-pattern matters, we evaluate whether there is a reasonable possibility of a material loss in excess of any accrual that can be estimated. Our estimate of reasonably possible loss in excess of our accruals for all material matters currently reflects indirect tax and customs matters, for which we estimate the aggregate risk to be a range of up to about $400 million. In addition, we have a reasonably possible risk of loss for an emission certification matter. At this stage, we cannot estimate the risk of loss or predict the outcome, and cannot provide reasonable assurance that it will not have a material adverse effect on us.

As noted, the litigation process is subject to many uncertainties, and the outcome of individual matters is not predictable with assurance. Our assessments are based on our knowledge and experience, but the ultimate outcome of any matter could require payment substantially in excess of the amount that we have accrued and/or disclosed.

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NOTE 19. COMMITMENTS AND CONTINGENCIES (Continued)

Warranty and Field Service Actions

We accrue the estimated cost of both base warranty coverages and field service actions at the time of sale. We establish our estimate of base warranty obligations using a patterned estimation model, using historical information regarding the nature, frequency, and average cost of claims for each vehicle line by model year. We establish our estimates of field service action obligations using a patterned estimation model, using historical information regarding the nature, frequency, severity, and average cost of claims for each model year. In addition, from time to time, we issue extended warranties at our expense, the estimated cost of which is accrued at the time of issuance. Warranty and field service action obligations are reported in Other liabilities and deferred revenue. We reevaluate the adequacy of our accruals on a regular basis.

We recognize the benefit from a recovery of the costs associated with our warranty and field service actions when specifics of the recovery have been agreed with our supplier and the amount of recovery is virtually certain. Recoveries are reported in Trade and other receivables, net and Other assets.

The estimate of our future warranty and field service action costs, net of estimated supplier recoveries, for the periods ended June 30 was as follows (in millions):

	First Half
	2019				2020
Beginning balance	$	5,137			$	5,702
Payments made during the period	(2,192		)		(1,945		)
Changes in accrual related to warranties issued during the period	1,424				1,253
Changes in accrual related to pre-existing warranties	715				1,183
Foreign currency translation and other	23				(112		)
Ending balance	$	5,107			$	6,081

Changes to our estimated costs are reported as changes in accrual related to pre-existing warranties in the table above.

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We report segment information consistent with the way our chief operating decision maker evaluates the operating results and performance of the Company. Accordingly, we analyze the results of our business through the following segments: Automotive, Mobility, and Ford Credit. Below is a description of our reportable segments and other activities.

Automotive Segment

Our Automotive segment primarily includes the sale of Ford and Lincoln vehicles, service parts, and accessories worldwide, together with the associated costs to develop, manufacture, distribute, and service the vehicles, parts, and accessories. This segment includes revenues and costs related to our electrification vehicle programs. The segment includes the following regional business units:  North America, South America, Europe, China (including Taiwan), and

the International Markets Group.

Mobility Segment

Our Mobility segment primarily includes development costs related to our autonomous vehicles and our investment in mobility through Ford Smart Mobility LLC (“FSM”). Autonomous vehicles includes self-driving systems development and vehicle integration, autonomous vehicle research and advanced engineering, autonomous vehicle transportation-as-a-service network development, user experience, and business strategy and business development teams. FSM designs and builds mobility products and subscription services on its own, and collaborates with service providers and technology companies. 

Ford Credit Segment

The Ford Credit segment is comprised of the Ford Credit business on a consolidated basis, which is primarily vehicle-related financing and leasing activities.

Corporate Other

Corporate Other primarily includes corporate governance expenses, interest income (excluding interest earned on our extended service contract portfolio that is included in our Automotive segment) and gains and losses from our cash, cash equivalents, marketable securities, and other investments, and foreign exchange derivatives gains and losses associated with intercompany lending. Corporate governance expenses are primarily administrative, delivering benefit on behalf of the global enterprise, and are not allocated to specific Automotive business units or operating segments. These include expenses related to setting and directing global policy, providing oversight and stewardship, and promoting the Company’s interests. The underlying assets and liabilities associated with these activities remain with the respective Automotive and Mobility segments.

Interest on Debt

Interest on Debt is presented as a separate reconciling item and consists of interest expense on Automotive and Other debt. The underlying liability is reported in the Automotive segment and in Corporate Other.

Special Items

Special Items are presented as a separate reconciling item. They consist of (i) pension and OPEB remeasurement gains and losses, (ii) significant personnel expenses, dealer-related costs, and facility-related charges stemming from our efforts to match production capacity and cost structure to market demand and changing model mix, and (iii) other items that we do not necessarily consider to be indicative of earnings from ongoing operating activities. Our management excludes these items from its review of the results of the operating segments for purposes of measuring segment profitability and allocating resources. We also report these special items separately to help investors track amounts related to these activities and to allow investors analyzing our results to identify certain infrequent significant items that they may wish to exclude when considering the trend of ongoing operating results.

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NOTE 20. SEGMENT INFORMATION (Continued)

Key financial information for the periods ended or at June 30 was as follows (in millions):

	Automotive				Mobility				Ford Credit				Corporate Other				Interest on Debt				Special Items				Adjustments				Total
Second Quarter 2019
Revenues	$	35,758			$	6			$	3,089			$	—			$	—			$	—			$	—			$	38,853
Income/(loss) before income taxes	1,373				(264		)		831				(286		)		(244		)		(1,205		)		—				205
Equity in net income/(loss) of affiliated companies	72				7				8				—				—				—				—				87
Cash, cash equivalents, marketable securities, and restricted cash	23,106				142				14,989				—				—				—				—				38,237
Total assets	102,641				1,153				163,141				—				—				—				(4,751		)	(a)	262,184
Second Quarter 2020
Revenues	$	16,622			$	10			$	2,739			$	—			$	—			$	—			$	—			$	19,371
Income/(loss) before income taxes	(2,089		)		(332		)		543				(68		)		(450		)		3,480				—				1,084
Equity in net income/(loss) of affiliated companies	(9		)		(12		)		2				—				—				(6		)		—				(25		)
Cash, cash equivalents, marketable securities, and restricted cash	39,220				63				18,039				—				—				—				—				57,322
Total assets	114,414				4,112				154,674				—				—				—				(3,834		)	(a)	269,366
	Automotive				Mobility				Ford Credit				Corporate Other				Interest on Debt				Special Items				Adjustments				Total
First Half 2019
Revenues	$	72,997			$	12			$	6,186			$	—			$	—			$	—			$	—			$	79,195
Income/(loss) before income taxes	3,382				(552		)		1,632				(361		)		(489		)		(1,797		)		—				1,815
Equity in net income/(loss) of affiliated companies	89				9				14				—				—				—				—				112
First Half 2020
Revenues	$	47,962			$	23			$	5,706			$	—			$	—			$	—			$	—			$	53,691
Income/(loss) before income taxes	(2,266		)		(666		)		573				(219		)		(677		)		3,193				—				(62		)
Equity in net income/(loss) of affiliated companies	(56		)		(12		)		8				—				—				(6		)		—				(66		)

__________

(a)	Includes eliminations of intersegment transactions occurring in the ordinary course of business and deferred tax netting.

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*	Transit Connect impact of $187 million was accrued in the third quarter of 2019.

**	Includes related tax effect on special items and tax special items.

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*	See Non-GAAP Financial Measure Reconciliations section for reconciliation to GAAP.

*	See Non-GAAP Financial Measure Reconciliations section for reconciliation to GAAP.

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*	Includes Ford brand vehicles produced and sold by our unconsolidated affiliate in Turkey (about 7,000 units in Q2 2019 and 9,000 units in Q2 2020). Revenue does not include these sales.

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*	Includes Ford brand and JMC brand vehicles produced and sold in China by our unconsolidated affiliates. Revenue does not include these sales.

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*	Includes Ford brand vehicles produced and sold by our unconsolidated affiliate in Russia (about 11,000 units in Q2 2019 and 2,000 units in Q2 2020). Revenue after Q2 2019 does not include these sales.

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•	Market Factors (exclude the impact of unconsolidated affiliate wholesale units):

◦	Volume and Mix – primarily measures EBIT variance from changes in wholesale unit volumes (at prior-year average contribution margin per unit) driven by changes in industry volume, market share, and dealer stocks, as well as the EBIT variance resulting from changes in product mix, including mix among vehicle lines and mix of trim levels and options within a vehicle line

◦	Net Pricing – primarily measures EBIT variance driven by changes in wholesale unit prices to dealers and marketing incentive programs such as rebate programs, low-rate financing offers, special lease offers, and stock adjustments on dealer inventory

•	Cost:

◦	Contribution Costs – primarily measures EBIT variance driven by per-unit changes in cost categories that typically vary with volume, such as material costs (including commodity and component costs), warranty expense, and freight and duty costs

◦	Structural Costs – primarily measures EBIT variance driven by absolute change in cost categories that typically do not have a directly proportionate relationship to production volume. Structural costs include the following cost categories:

▪	Manufacturing, Including Volume-Related – consists primarily of costs for hourly and salaried manufacturing personnel, plant overhead (such as utilities and taxes), and new product launch expense. These costs could be affected by volume for operating pattern actions such as overtime, line-speed, and shift schedules

▪	Engineering – consists primarily of costs for engineering personnel, prototype materials, testing, and outside engineering services

▪	Spending-Related – consists primarily of depreciation and amortization of our manufacturing and engineering assets, but also includes asset retirements and operating leases

▪	Advertising and Sales Promotions – includes costs for advertising, marketing programs, brand promotions, customer mailings and promotional events, and auto shows

▪	Administrative and Selling – includes primarily costs for salaried personnel and purchased services related to our staff activities and selling functions, as well as associated information technology costs

▪	Pension and OPEB – consists primarily of past service pension costs and other postretirement employee benefit costs

•

Exchange – primarily measures EBIT variance driven by one or more of the following: (i) transactions denominated in currencies other than the functional currencies of the relevant entities, (ii) effects of converting functional currency income to U.S. dollars, (iii) effects of remeasuring monetary assets and liabilities of the relevant entities in currencies other than their functional currency, or (iv) results of our foreign currency hedging

•	Other – includes a variety of items, such as parts and services earnings, royalties, government incentives, and compensation-related changes

•

Wholesales and Revenue – wholesale unit volumes include all Ford and Lincoln badged units (whether produced by Ford or by an unconsolidated affiliate) that are sold to dealerships, units manufactured by Ford that are sold to other manufacturers, units distributed by Ford for other manufacturers, and local brand units produced by our China joint venture, Jiangling Motors Corporation, Ltd. (“JMC”), that are sold to dealerships. Vehicles sold to daily rental car companies that are subject to a guaranteed repurchase option (i.e., rental repurchase), as well as other sales of finished vehicles for which the recognition of revenue is deferred (e.g., consignments), also are included in wholesale unit volumes. Revenue from certain vehicles in wholesale unit volumes (specifically, Ford badged vehicles produced and distributed by our unconsolidated affiliates, as well as JMC brand vehicles) are not included in our revenue

•	Industry Volume and Market Share – based, in part, on estimated vehicle registrations; includes medium and heavy duty trucks

•	SAAR – seasonally adjusted annual rate

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*	U.S. retail financing only.

**	U.S. 36-month off-lease second quarter auction values at Q2 2020 mix and YTD amounts at 2020 YTD mix.

*	See Non-GAAP Financial Measure Reconciliations section for reconciliation to GAAP.

**	See Liquidity and Capital Resources - Ford Credit Segment section for reconciliation to GAAP.

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•	Volume and Mix:

◦

Volume primarily measures changes in net financing margin driven by changes in average managed receivables at prior period financing margin yield (defined below in financing margin) at prior period exchange rates. Volume changes are primarily driven by the volume of new and used vehicles sold and leased, the extent to which Ford Credit purchases retail financing and operating lease contracts, the extent to which Ford Credit provides wholesale financing, the sales price of the vehicles financed, the level of dealer inventories, Ford-sponsored special financing programs available exclusively through Ford Credit, and the availability of cost-effective funding

◦	Mix primarily measures changes in net financing margin driven by period-over-period changes in the composition of Ford Credit’s average managed receivables by product within each region

◦

Financing margin variance is the period-to-period change in financing margin yield multiplied by the present period average managed receivables at prior period exchange rates. This calculation is performed at the product and country level and then aggregated. Financing margin yield equals revenue, less interest expense and scheduled depreciation for the period, divided by average managed receivables for the same period

◦	Financing margin changes are driven by changes in revenue and interest expense. Changes in revenue are primarily driven by the level of market interest rates, cost assumptions in pricing, mix of business, and competitive environment. Changes in interest expense are primarily driven by the level of market interest rates, borrowing spreads, and asset-liability management

•	Credit Loss:

◦	Credit loss is the change in the provision for credit losses at prior period exchange rates. For analysis purposes, management splits the provision for credit losses into net charge-offs and the change in the allowance for credit losses

◦

Net charge-off changes are primarily driven by the number of repossessions, severity per repossession, and recoveries. Changes in the allowance for credit losses are primarily driven by changes in historical trends in credit losses and recoveries, changes in the composition and size of Ford Credit’s present portfolio, changes in trends in historical used vehicle values, and changes in forward looking macroeconomic conditions. For additional information, refer to the “Critical Accounting Estimates” section

•	Lease Residual:

◦	Lease residual measures changes to residual performance at prior period exchange rates. For analysis purposes, management splits residual performance primarily into residual gains and losses, and the change in accumulated supplemental depreciation

◦

Residual gain and loss changes are primarily driven by the number of vehicles returned to Ford Credit and sold, and the difference between the auction value and the depreciated value (which includes both base and accumulated supplemental depreciation) of the vehicles sold. Changes in accumulated supplemental depreciation are primarily driven by changes in Ford Credit’s estimate of the expected auction value at the end of the lease term and changes in Ford Credit’s estimate of the number of vehicles that will be returned to it and sold. Accumulated depreciation reflects early termination losses on operating leases due to customer default events for all periods presented. For additional information, refer to the “Critical Accounting Estimates - Accumulated Depreciation on Vehicles Subject to Operating Leases” section of Item 7 of Part II of our 2019 Form 10-K Report

•	Exchange:

◦	Reflects changes in EBT driven by the effects of converting functional currency income to U.S. dollars

•	Other:

◦	Primarily includes operating expenses, other revenue, insurance expenses, and other income at prior period exchange rates

◦	Changes in operating expenses are primarily driven by salaried personnel costs, facilities costs, and costs associated with the origination and servicing of customer contracts

◦	In general, other income changes are primarily driven by changes in earnings related to market valuation adjustments to derivatives (primarily related to movements in interest rates) and other miscellaneous items

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•	Cash (as shown in the Funding Structure, Liquidity, and Leverage tables) – Cash, cash equivalents, and marketable securities, excluding amounts related to insurance activities

•

Debt (as shown in the Key Metrics and Leverage tables) – Debt on Ford Credit’s balance sheets. Includes debt issued in securitizations and payable only out of collections on the underlying securitized assets and related enhancements. Ford Credit holds the right to receive the excess cash flows not needed to pay the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions

•	Earnings Before Taxes (EBT) – Reflects Ford Credit’s income before income taxes

•	Return on Equity (ROE) (as shown in the Key Metrics table) – Reflects return on equity calculated by annualizing net income for the period and dividing by monthly average equity for the period

•	Securitization Cash (as shown in the Liquidity table) – Cash held for the benefit of the securitization investors (for example, a reserve fund)

•	Securitizations (as shown in the Public Term Funding Plan table) – Public securitization transactions, Rule 144A offerings sponsored by Ford Credit, and widely distributed offerings by Ford Credit Canada

•	Term Asset-Backed Securities (as shown in the Funding Structure table) – Obligations issued in securitization transactions that are payable only out of collections on the underlying securitized assets and related enhancements

•

Total Net Receivables (as shown in the Key Metrics and Ford Credit Net Receivables Reconciliation To Managed Receivables tables) – Includes finance receivables (retail financing and wholesale) sold for legal purposes and net investment in operating leases included in securitization transactions that do not satisfy the requirements for accounting sale treatment. These receivables and operating leases are reported on Ford Credit’s balance sheets and are available only for payment of the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions; they are not available to pay the other obligations of Ford Credit or the claims of Ford Credit’s other creditors

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*	Includes a $290 million cash compensating balance at June 30, 2020 in an interest-bearing savings account related to a $498 million debt obligation.

**

Balances at June 30, 2020 reflect net underfunded status at December 31, 2019, updated for service and interest cost, expected return on assets, curtailment and settlement gains and associated interim remeasurement (where applicable), separation expense, actual benefit payments, and cash contributions. For plans without interim remeasurement, the discount rate and rate of expected return assumptions are unchanged from year-end 2019.

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*	See Non-GAAP Financial Measure Reconciliations section for reconciliation to GAAP.

*	Note: Numbers may not sum due to rounding.

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•	Maintain strong liquidity; continue to renew and expand committed ABS capacity

•	Prudently access public markets

•	Flexibility to increase ABS mix as needed; preserving assets and committed capacity

•	Target managed leverage of 8:1 to 9:1

•	Maintain self-liquidating balance sheet

*	See Non-GAAP Financial Measure Reconciliations section for reconciliation to GAAP.

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*	See Definitions and Information Regarding Ford Credit Causal Factors section.

*	Note: Numbers may not sum due to rounding.

*	See Definitions and Information Regarding Ford Credit Causal Factors section.

**	Includes asset-backed capacity in excess of eligible receivables and cash related to the Ford Credit Revolving Extended Variable-utilization program (“FordREV”), which can be accessed through future sales of receivables.

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(a)

Includes gross finance receivables less the allowance for credit losses (including certain finance receivables that are reclassified in consolidation to Trade and other receivables), investment in operating leases net of accumulated depreciation, cash and cash equivalents, and marketable securities (excluding amounts related to insurance activities). Amounts shown include the impact of expected prepayments.

(b)	Excludes unamortized debt (discount) / premium, unamortized issuance costs, and fair value adjustments.

•	Prolonged disruption of the debt and securitization markets;

•	Global capital market volatility;

•	Market capacity for Ford- and Ford Credit-sponsored investments;

•	General demand for the type of securities Ford Credit offers;

•	Ford Credit’s ability to continue funding through asset-backed financing structures;

•	Performance of the underlying assets within Ford Credit’s asset-backed financing structures;

•	Inability to obtain hedging instruments;

•	Accounting and regulatory changes (including LIBOR); and

•	Ford Credit’s ability to maintain credit facilities and committed asset-backed facilities.

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*	Related primarily to market valuation adjustments to derivatives due to movements in interest rates. Adjustments to debt are related to designated fair value hedges and adjustments to equity are related to retained earnings.

**	Total shareholder’s interest reported on Ford Credit’s balance sheets.

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*	Calculated as the sum of net operating profit after cash tax from the last four quarters, divided by the average invested capital over the last four quarters.

**	Calculated as the sum of adjusted net operating profit after cash tax from the last four quarters, divided by the average invested capital over the last four quarters.

*	Note: Numbers may not sum due to rounding.

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•	On May 7, 2020, Fitch downgraded the credit ratings for Ford and Ford Credit (to BB+ from BBB-) and maintained a negative outlook.

•	On May 21, 2020, DBRS downgraded the credit ratings for Ford and Ford Credit (to BB (high) from BBB), and maintained a negative outlook.

•	On May 27, 2020, Moody’s concluded its review of Ford and Ford Credit for possible downgrade, confirmed their ratings at Ba2, and revised the outlook to negative from under review for downgrade.

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*	When we provide guidance for Adjusted EBIT we do not provide guidance for net income/(loss), the most comparable GAAP measure, because, as described in more detail below in “Non-GAAP Measures That Supplement GAAP Measures,” it includes items that are difficult to predict with reasonable certainty prior to year-end, including pension and OPEB remeasurement gains and losses.

**	On average compared with full year 2019 at constant mix.

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•	Ford and Ford Credit’s financial condition and results of operations have been and may continue to be adversely affected by public health issues, including epidemics or pandemics such as COVID-19;

•	Ford’s long-term competitiveness depends on the successful execution of global redesign and fitness actions;

•	Ford’s vehicles could be affected by defects that result in delays in new model launches, recall campaigns, or increased warranty costs;

•	Ford may not realize the anticipated benefits of existing or pending strategic alliances, joint ventures, acquisitions, divestitures, or new business strategies;

•	Operational systems, security systems, and vehicles could be affected by cyber incidents;

•	Ford’s production, as well as Ford’s suppliers’ production, could be disrupted by labor issues, natural or man-made disasters, financial distress, production difficulties, or other factors;

•	Ford’s ability to maintain a competitive cost structure could be affected by labor or other constraints;

•	Ford’s ability to attract and retain talented, diverse, and highly skilled employees is critical to its success and competitiveness;

•	Ford’s new and existing products and mobility services are subject to market acceptance;

•	Ford’s results are dependent on sales of larger, more profitable vehicles, particularly in the United States;

•	With a global footprint, Ford’s results could be adversely affected by economic, geopolitical, protectionist trade policies, or other events, including tariffs and Brexit;

•	Industry sales volume in any of our key markets can be volatile and could decline if there is a financial crisis, recession, or significant geopolitical event;

•	Ford may face increased price competition or a reduction in demand for its products resulting from industry excess capacity, currency fluctuations, competitive actions, or other factors;

•	Fluctuations in commodity prices, foreign currency exchange rates, interest rates, and market value of our investments can have a significant effect on results;

•	Ford and Ford Credit’s access to debt, securitization, or derivative markets around the world at competitive rates or in sufficient amounts could be affected by credit rating downgrades, market volatility, market disruption, regulatory requirements, or other factors;

•	Ford’s receipt of government incentives could be subject to reduction, termination, or clawback;

•	Ford Credit could experience higher-than-expected credit losses, lower-than-anticipated residual values, or higher-than-expected return volumes for leased vehicles;

•	Economic and demographic experience for pension and other postretirement benefit plans (e.g., discount rates or investment returns) could be worse than Ford has assumed;

•	Pension and other postretirement liabilities could adversely affect Ford’s liquidity and financial condition;

•	Ford could experience unusual or significant litigation, governmental investigations, or adverse publicity arising out of alleged defects in products, perceived environmental impacts, or otherwise;

•	Ford may need to substantially modify its product plans to comply with safety, emissions, fuel economy, autonomous vehicle, and other regulations that may change in the future;

•	Ford and Ford Credit could be affected by the continued development of more stringent privacy, data use, and data protection laws and regulations as well as consumer expectations for the safeguarding of personal information; and

•	Ford Credit could be subject to new or increased credit regulations, consumer protection regulations, or other regulations.

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•

Company Adjusted EBIT (Most Comparable GAAP Measure: Net Income Attributable to Ford) – Earnings before interest and taxes (EBIT) excludes interest on debt (excl. Ford Credit Debt), taxes and pre-tax special items. This non-GAAP measure is useful to management and investors because it allows users to evaluate our operating results aligned with industry reporting. Pre-tax special items consist of (i) pension and OPEB remeasurement gains and losses, (ii) significant personnel expenses, dealer-related costs, and facility-related charges stemming from our efforts to match production capacity and cost structure to market demand and changing model mix, and (iii) other items that we do not necessarily consider to be indicative of earnings from ongoing operating activities.  When we provide guidance for adjusted EBIT, we do not provide guidance on a net income basis because the GAAP measure will include potentially significant special items that have not yet occurred and are difficult to predict with reasonable certainty prior to year-end, including pension and OPEB remeasurement gains and losses.

•	Company Adjusted EBIT Margin (Most Comparable GAAP Measure: Company Net Income Margin) – Company Adjusted EBIT margin is Company adjusted EBIT divided by Company revenue. This non-GAAP measure is useful to management and investors because it allows users to evaluate our operating results aligned with industry reporting.

•

Adjusted Earnings Per Share (Most Comparable GAAP Measure: Earnings Per Share) – Measure of Company’s diluted net earnings per share adjusted for impact of pre-tax special items (described above), tax special items and restructuring impacts in noncontrolling interests. The measure provides investors with useful information to evaluate performance of our business excluding items not indicative of the underlying run rate of our business. When we provide guidance for adjusted earnings per share, we do not provide guidance on an earnings per share basis because the GAAP measure will include potentially significant special items that have not yet occurred and are difficult to predict with reasonable certainty prior to year-end, including pension and OPEB remeasurement gains and losses.

•

Adjusted Effective Tax Rate (Most Comparable GAAP Measure: Effective Tax Rate) – Measure of Company’s tax rate excluding pre-tax special items (described above) and tax special items. The measure provides an ongoing effective rate which investors find useful for historical comparisons and for forecasting. When we provide guidance for adjusted effective tax rate, we do not provide guidance on an effective tax rate basis because the GAAP measure will include potentially significant special items that have not yet occurred and are difficult to predict with reasonable certainty prior to year-end, including pension and OPEB remeasurement gains and losses.

•

Company Adjusted Free Cash Flow (Most Comparable GAAP Measure: Net Cash Provided By / (Used In) Operating Activities) – Measure of Company’s operating cash flow excluding Ford Credit’s operating cash flows. The measure contains elements management considers operating activities, including Automotive and Mobility capital spending, Ford Credit distributions to its parent, and settlement of derivatives. The measure excludes cash outflows for funded pension contributions, global redesign (including separations), and other items that are considered operating cash flows under U.S. GAAP. This measure is useful to management and investors because it is consistent with management’s assessment of the Company’s operating cash flow performance. When we provide guidance for Company adjusted free cash flow, we do not provide guidance for net cash provided by/(used in) operating activities because the GAAP measure will include items that are difficult to quantify or predict with reasonable certainty, including cash flows related to the Company's exposures to foreign currency exchange rates and certain commodity prices (separate from any related hedges), Ford Credit's operating cash flows, and cash flows related to special items, including separation payments, each of which individually or in the aggregate could have a significant impact to our net cash provided by/(used in) our operating activities.

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Adjusted ROIC – Calculated as the sum of adjusted net operating profit after cash tax from the last four quarters, divided by the average invested capital over the last four quarters. Adjusted Return on Invested Capital (“ROIC”) provides management and investors with useful information to evaluate the Company’s after-cash tax operating return on its invested capital for the period presented. Adjusted net operating profit after cash tax measures operating results less special items, interest on debt (excl. Ford Credit Debt), and certain pension/OPEB costs. Average invested capital is the sum of average balance sheet equity, debt (excl. Ford Credit Debt), and net pension/OPEB liability.

•

Ford Credit Managed Receivables (Most Comparable GAAP Measure: Net Finance Receivables plus Net Investment in Operating Leases) – Measure of Ford Credit’s total net receivables, excluding unearned interest supplements and residual support, allowance for credit losses, and other (primarily accumulated supplemental depreciation). The measure is useful to management and investors as it closely approximates the customer’s outstanding balance on the receivables, which is the basis for earning revenue.

•

Ford Credit Managed Leverage (Most Comparable GAAP Measure: Financial Statement Leverage) – Ford Credit’s debt-to-equity ratio adjusted (i) to exclude cash, cash equivalents, and marketable securities (other than amounts related to insurance activities), and (ii) for derivative accounting. The measure is useful to investors because it reflects the way Ford Credit manages its business. Cash, cash equivalents, and marketable securities are deducted because they generally correspond to excess debt beyond the amount required to support operations and on-balance sheet securitization transactions. Derivative accounting adjustments are made to asset, debt, and equity positions to reflect the impact of interest rate instruments used with Ford Credit’s term-debt issuances and securitization transactions. Ford Credit generally repays its debt obligations as they mature, so the interim effects of changes in market interest rates are excluded in the calculation of managed leverage.

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*

Includes finance receivables (retail and wholesale) sold for legal purposes and net investment in operating leases included in securitization transactions that do not satisfy the requirements for accounting sale treatment. These receivables and operating leases are reported on Ford Credit’s balance sheets and are available only for payment of the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions; they are not available to pay the other obligations of Ford Credit or the claims of Ford Credit’s other creditors.

**	Primarily includes Automotive segment receivables purchased by Ford Credit which are classified to Trade and other receivables on our consolidated balance sheets. Also includes eliminations of intersegment transactions.

*	Note: Numbers may not sum due to rounding.

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(a)	Early adoption for each of the standards is permitted.

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