Toyota Financial's risky lease strategy pays off at dealerships
Toyota Financial says 24 percent of all the off-lease units being returned now in the industry are a Toyota or a Lexus.
In the past few years, Toyota Financial Services CEO George Borst has outlined in speeches and interviews the benefits of sticking with leasing during the downturn when most other auto lenders cut back or even fled the business.
This month Borst explained to Automotive News Special Correspondent Jim Henry in greater detail what the move has meant to dealers in terms of increased off-lease inventory and customer loyalty.
One outcome of your staying with leasing is that you have lots of cars coming back from leases. Most other brands won't see those numbers increase until next year or the year after.
The number we have put out there is that because of all this, 24 percent of all the off-lease units being returned now in the industry are a Toyota or a Lexus. That's about 433,000 units for us, over an 18-month span.
Are those all actual returns to Toyota Financial Services, or are those scheduled terminations?
That's scheduled terminations. The Manheim Index [for used-car values] is not quite at historic highs, but it's very high. As a result, the actual return rate to us is still extremely low. Dealers, and in some cases customers, tend to buy those units as soon as they come back, and the dealers sell them.
Do the dealers keep most of those customers?
Lease loyalty is by far the biggest -- bigger than retail [loans] and bigger than cash.
It's 24 percent greater than cash and about 15 percent greater than retail. Our loyalty is high to begin with, it's roughly 62 percent overall.
Is lease loyalty just sort of a natural outcome, or do you work at it, too?
We have three call centers and one of their key focuses is customer loyalty. Our value story is that we create loyalty for the divisions [Toyota and Scion, and Lexus] and for the dealers.
We have about 100 associates in our call center in Cedar Rapids [Iowa] -- and in Phoenix there are some, too -- we've got them calling those lease customers well in advance of their scheduled terminations.
We ask them, "Would you like a dealer to call you?" We feed those leads to the dealers.
Borst: "Those leads are two-and-a-half times better than any other leads in the industry."
How are dealers following up on those?
The dealer response has been great. Those leads are two-and-a-half times better than any other leads in the industry. We study all sort of metrics as you might expect, and dealers follow up those leads, on the average, within one hour and 48 minutes. We call this our Enterprise Lead System.
What's your lease penetration?
For Toyota, for new retail volume, it's consistently in the 20 to 25 percent range. For Lexus, it's 40 to 45 percent. It actually went up some in 2009 and 2010, but it's settled back in those ranges.
You've said before that betting on leasing was a risk during the recession, but a calculated risk.
We said, "It's not going to be 10 or 11 million [annual U.S. light-vehicle sales] for long." By the time these cars come back, we thought the market could be 13, 14, 15 million units.
Not only that, but if you go back to 2009, if you look at cars up to 5 years old -- because that's what we consider to be the relevant range of ages -- there were about 85 million units in operation. We knew because the SAAR [seasonally adjusted annual rate of sales] was expected to come down, that three years later these cars would come back in a market that we estimated would be about 65 million.
So the numbers panned out.
It's one of those times where I'd like to be able to say we knew it all along from the beginning, but that wouldn't be true. People always say, "It's better to be lucky than smart," but I like to think in this case it was some of both.
You can reach Jim Henry at email@example.com.