Why do automakers need captive finance companies? We posed that question to George Borst, CEO of Toyota Financial Services. His answer:
"You have to look at long-term consistency. In 2008 and 2009, when suddenly banks didn't have funding, dealers were looking for wholesale. That's a little bit scary. The beauty of any captive is consistency, in good times and bad times. You need banks in bad times, and that isn't the primary part of the business. It all boils down to loyalty. We exist to help Toyota and our dealers sell more cars. We have about 100 people in a Cedar Rapids [Iowa] call center who do nothing but call off-lease customers and try to get them back to the dealership. It's part of a strategic process.
… "Our cost of funds is our raw material, like the cost of steel is to the factory. Six or seven years ago, we decided to upgrade our treasury department. We now do commercial paper in-house. They have been able to fund us and get us through the liquidity crisis. It has become an incredible asset for us. Not only do we have the lowest cost of funds because of our credit rating, but also a group that leverages that and gets better margins."
-- With reporting by Mark Rechtin
For more Q&A with Borst, see the Sept. 10 print edition of Automotive News.