Toyota Financial Services is going to keep its foot on the gas in leasing, according to CEO George Borst.
Toyota Financial Services more than doubled its market share of leases written by Toyota Motor Sales dealers to around 29 percent in the quarter that ended Sept. 30 vs. the year-ago quarter. Nearly all those leases carried incentives from Toyota Motor Sales U.S.A., according to company reports.
Borst, 62, said the captive finance company and the sales and marketing arm plan to stick to the strategy to take advantage of Toyota's above-average residual values and a general rise in used-vehicle values.
Special Correspondent Jim Henry spoke with Borst at the American Financial Services Association Vehicle Finance Conference here.
Q: It's always said that Toyota's residual values are higher than average. Yet until recently, Toyota's lease penetration was below average. Why were you holding back from leasing? Was it sheer risk-avoidance because residuals aren't always predictable?
A: You have to go back to the 2001 time frame, when the whole industry took charges, big hits, for residual values. Then we made the decision about four years ago to get back into leasing. Then the crisis hit, and we made the decision to stay in leasing and not only to stay in leasing but to expand leasing.
In 2008 and 2009, banks and even other captives were bailing out.
Nobody was leasing, but there was still a lot of interest. We kind of had the field to ourselves.
What allows you to do it when others were getting out? Residuals?
We think it's a great bet. We have been very aggressive in leasing, particularly the last 18 months or so. The outlook for the used-car market is incredibly strong, and the value of the Toyota products.
What's in it for you, other than sales volume?
We get a lift in loyalty for lease customers of 17 to 20 points higher than retail loan customers. That's for the Toyota brand.
Are your leases subvented?
Those decisions are made by the car company divisions. Some models are subvented, but they make those decisions and we support them.
ALG, which publishes ALG Guides, a benchmark for setting the predicted residual values for leased vehicles, agrees with you that residuals are going to continue to be strong.
People tell us, "You guys are crazy," [because our residuals are higher than ALG] but think of it this way: In 2008-2009 the number of cars 0 to 5 years old was 83 million, 84 million. The SAAR's been what, 10 million, 11 million, 13 million, something like that? The projection is that in 2013, the number of cars 0 to 5 years old will be 62 million. So you can see the denominator has dropped dramatically. In the meantime, the 2013 SAAR is expected still to be only around 14 million approximately.
So you're going to stick with the strategy?
Our competitors have not embraced leasing. But the supply of used cars is going to be down, so we feel like these historically high used-car values are going to continue.