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Toyota Financial growing -- and moving

Groff: Toyota Financial wrote more insurance contracts than loans and leases last year.

Toyota Financial Services is issuing more contracts for protection products than financing as it tries to both extend its lead as the top U.S. auto lender and complete its corporate move from California to Plano, Texas.

"Our insurance business has grown quickly in recent years," Mike Groff, CEO of Toyota Financial Services, said in a phone interview. "We actually wrote more insurance contracts than loans and leases last year."

In calendar year 2016, the captive finance company issued 2,031,000 insurance contracts and 1,469,315 retail loans and leases on new and used vehicles, he said, although financing still accounts for the bulk of the lender's revenue. Total assets reached $117.6 billion in 2016, up 2 percent from $115.3 billion in 2015.

Groff, 62, acknowledged that other auto lenders are altering lending practices as interest rates rise. But Toyota Financial Services' solid credit rating and relatively upscale customer base enables it to stick to its growth strategy without significant changes, at least for now, he noted.

He expects continued revenue growth in 2017 even as Toyota Financial Services will complete moving its U.S. headquarters from Torrance, Calif., to suburban Dallas. Most of the company's staff is housed in temporary offices in Plano but will move the final mile into the new Toyota complex in mid-July.

Groff has been working on the relocation since 2014, shortly after he took over as head of Toyota Financial Services in 2013. About two-thirds of the company's employees decided to make the move from southern California to northern Texas. It will end up hiring about 1,500 new employees, he said.

More than half the new employees are in place now and Groff hopes to be up to full strength of 4,000 by year end.

Groff credited "employee pride in our brand," Texas housing affordability and great cooperation from local communities for making the relocation move more quickly than expected.

"We decided it would be better to start moving from California earlier than planned" and so Toyota Financial Services located and leased short-term office space in Plano, he said. Most of the captive's Texas employees are on two floors of a building near the new Toyota complex and others share temporary space with Toyota Motor Sales workers nearby. "The locals have been terrific" in welcoming Toyota and its employees, he added.

Ambitious plans

Despite the distractions of the move, Toyota Financial Services has ambitious plans for 2017, building on existing marketing programs and initiating new ones.

That includes continuing to move toward full electronic contracting and shifting incentives from national programs to more tailored and regional efforts, expanding its portfolio of branded F&I products, building certified pre-owned volume and launching experiments with mobility partners, Groff said.

Toyota Financial Services has grown e-contracting to about 85 percent after reaching 78 percent in 2016, he said. Groff expects to eventually write all loans and leases electronically, but says the company has no deadline to eliminate written contracts. "We'll chip away at it, but dealers and customers are already finding it faster and easier," he said. "We really try to give customers what they want."

In a similar vein, Groff said Toyota Financial is evolving to offer more regional incentives to meet the specific needs of customers and dealers in individual markets and using fewer nationwide spiffs.

"Some markets are more lease-oriented and some more ownership-oriented," he said. California, for example, has more customers likely to lease, so the company tunes local incentives to appeal to customers who want to change their rides more often.

Toyota Motor Sales U.S.A. was a pioneer in the certified pre-owned arena, and Groff said TFS has made CPO financing a priority growth niche, writing 180,000 financing contracts in 2016.

"The demographics of CPO customers are in between new and used buyers," he said. "The credit quality is close to that of new buyers."

Groff wants to keep adding captive-branded F&I products. After successfully rolling out wheel-and-tire and excess wear and usage products over the past year, in July the captive lender will add a key-replacement policy.

Mobility push

As U.S. consumers' tastes change, Groff sees opportunities for growth in the emerging mobility services sector. In recent months, Toyota Financial Services started pilot programs with both ride- and vehicle-sharing partners.

Last fall, Toyota Motor Corp. and Uber launched a pilot program that enables Uber drivers to lease Toyota and Lexus vehicles. Toyota Financial Services offers leases to Uber drivers with weekly payment terms.

Another joint venture between Toyota Motor Corp. and U.S. vehicle-sharing startup Getaround launched a pilot program in San Francisco in January. The program enables owners or lessees of Toyota vehicles to rent their vehicles to Getaround clients on a short-term basis. The typical transaction matches commuters not using their vehicles during business hours and renters needing a vehicle for a few hours. The process includes the use of a Toyota-developed Smart Key Box operated by a smartphone. Toyota Financial Services has modified loan and lease contract terms to permit renting to third parties.

How are those pilots going? It's still too early to tell if the pilot lending criteria work as expected, Groff said. "We simply haven't had enough experience. We don't have any vehicles back yet," he said.

Continued growth has helped Toyota Financial Services become the auto lending leader, with a market share of 10.33 percent based on total number of loans and leases for new and used vehicles in 2016. Ally was second with a 9.04 percent share, according to Experian Automotive. 

But while Toyota Financial is closely monitoring changes in the U.S. marketplace as interest rates rise and used-vehicle values decline, Groff said his company hasn't significantly altered lending criteria or its mix of customers. "We know the business and what we buy," he said.

Toyota Financial Services financed 63 percent of Toyota Motor Sales' U.S. vehicle sales in 2016. Groff doesn't expect that to change this year. He plans to keep subprime customers at their customary 5 to 6 percent of the captive's lending mix.

He also expects leasing to continue to be about 40 percent of the company's new-vehicle financing deals this year, even though several other banks have tightened credit criteria or reduced subprime lending.

"Dealers can count on us for leasing, and not just for the good times," Groff said. "We didn't back off [leasing] in the Great Recession but got stronger and we've stayed stronger."

Auto lending leaders
Toyota Financial Services led auto lenders in market share in 2016 based on total number of loans and leases for new and used vehicles. Here are the rest of the top 10.
  MARKET SHARE
Toyota Financial Svcs. 10.33%
Ally 9.04%
Wells Fargo Dealer Svcs. 9%
Chase Auto Finance 8.9%
Capital One Auto Finance 7.76%
Ford Motor Credit 7.7%
American Honda Finance 7.67%
Nissan Infiniti Financial Svcs. 6.43%
GM Financial (via Wells Fargo) 4.29%
Hyundai Capital America 3.52%
Source: Experian Automotive

You can reach Jesse Snyder at jsnyder@crain.com -- Follow Jesse on Twitter: https://twitter.com/spartyjesse

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