Toyota grows a financial giant from $100,000 in seed money
Yale Gieszl: Pleading with dealers for floorplanning business
Photo credit: 1992 photo
He had to show the conservative Japanese executives of Toyota Motor Corp. that a captive finance company in the United States deserved a big investment. He had to recruit employees from such established captives as General Motors Acceptance Corp. and Ford Motor Credit Co.
And he had to convince dealers they needed another lending source. Most Toyota dealers relied on GMAC, Ford Credit and Chrysler Financial for financing. There also was intense competition from banks, credit unions and other independent lenders, Pitts recalls.
"I was on the road quite a bit," says Pitts, now group vice president of administrative services for Toyota Motor Sales U.S.A. "I had to do a lot of hand-holding. I had to build trust."
High interest rates during the administration of President Jimmy Carter provided the impetus for the Toyota captive.
"Rates went through the roof," recalls Yale Gieszl, then vice president of Toyota Motor. "Our dealers were getting killed."
Toyota's national dealer advisory council sought a finance company that would provide funding at better rates, Gieszl says.
Dealers also faced the threat of losing finance sources. Ford Credit stopped financing non-Ford vehicles in the early 1980s, Pitts says. And as the country endured an oil shock and a recession, many banks withdrew from auto finance.
"We were concerned about what were to happen if dealers were left with no choices," Pitts says.
At the same time, he says, a captive could boost the Toyota brand and provide sales incentives that other lenders couldn't match.
One of the first dealers to sign with Toyota Motor Credit was Roger Hogan, then a Toyota and Ford dealer in Claremont, Calif.
"My Toyota customers would get a payment book from Ford Credit," says Hogan, who still operates the Toyota franchise. "That comes to 48 to 60 brand impressions" on monthly loan payment vouchers.
"Toyota figured that out," Hogan says.
In the 1970s, Pitts led a Toyota research team that spent seven years investigating the feasibility of a captive finance company. It hired the Booz Allen Hamilton consulting firm, which concluded that Toyota didn't need a captive.
"We overruled them," Pitts says.
Pitts asked Toyota's leaders for $1 million in startup money. He got $100,000. The executives wanted to see evidence of finance volume more quickly than Pitts and his staff could develop it.
"Toyota was, and is to this day, conservative," he says.
As Toyota provided capital, Finance America, then a subsidiary of Bank of America, supplied the new company with systems and field personnel. But Pitts also hired employees with an entrepreneurial bent. Many of them remain with the captive today, he says.
One of them is Mike Groff, who joined Toyota Motor Credit in 1983 after spending seven years with GMAC. Groff is now the Toyota captive's vice president of planning and operations.
"It was an exciting ground-floor opportunity," recalls Groff, 52. "It was very flexible and entrepreneurial. We built the foundation for what is now a very large company."
STAFF FIT AT 1 TABLE
In the early days, though, the company's entire work force could meet around a conference table.
"In May 1983, we celebrated our first 10 finance contracts with cakes," Pitts says. "We celebrated like heck."
Those first contracts didn't come easily. Toyota Motor Credit initially had rigid lending standards, Groff says. And the captive offered uncompetitive interest rates.
"Dealers didn't exactly roll out the red carpet for us," Groff says.
Its strict policy on inventory finance didn't go over well, either, Groff says. Dealers had to floorplan with Toyota Motor Credit before it would finance retail vehicle sales.
"Bob Pitts and I would call on dealers and plead with them," recalls Gieszl, 65. "I don't think I ever questioned that it was going to work, because I was going to make it work. It was just a matter of convincing the dealers."
3 KEY FACTORS
Ultimately, three factors led to a breakthrough with retailers: Toyota Motor Credit stopped tying retail finance to wholesale finance. In 1986, it introduced attractive leasing programs. Finally, large, respected dealers such as Lloyd Chavez Sr., who owns Burt Automotive Network in Denver, took a chance on the upstart captive.
"Our relationship with Toyota was so good and we thought so much of them," Chavez says. "I think we were instrumental in getting Toyota dealers in Colorado to sign up with Toyota Motor Credit."
Pitts, now 59, left the captive for a different job with Toyota in 1993. At that time, the captive had 2,200 employees and $10 billion in assets.
Over the past decade, CEO George Borst has led the company, now called Toyota Financial Services, to dramatic growth. The captive includes credit and insurance units.
"Because of the previous job I had as division manager of Lexus, and two years before in strategic planning and product planning, I had insight into Toyota's growth plans in the United States," says Borst, 59. "We had to at least grow in lockstep with the sales side, and perhaps even quicker."
In the fiscal year that ended March 31, Toyota Financial Services reported $69.36 billion in assets. In that time, the company financed 1.3 million vehicle loans and leases. It has more than 3,000 employees, three regional headquarters, three call centers for retail customers, and 30 dealer sales and service offices.
In 2002, Borst streamlined Toyota Financial's field offices. Then the company had 625 retail accounts per employee. Today it has 1,050.
At the same time, Borst expanded the staff that works directly with dealers. "We needed to focus on building a relationship with the dealer," he says.
In 2004, the company created Toyota Financial Savings Bank, in a move Borst calls a "loyalty strategy."
Although the bank offers a credit card to Lexus owners, its primary mission is broadening business with dealers, Borst says. This year the bank has 275 accounts with dealers for such things as mortgages on homes, vacation property and yachts, and personal lines of credit.
"The last 10 years have been about growth," Borst says. "We recognize our business comes through the dealership. We need to be essential to the dealers. We can become irrelevant very quickly."-