Six years ago, Toyota Motor Corp., the Japanese auto giant, split off its sales finance companies from the various sales divisions and realigned them into a newly formed global financial services holding company. With the restructuring, Toyota executives also raised their performance expectations of the financial services operations, and judging from the growth at its largest subsidiary, U.S.-based
Toyota Financial Services (TFS), the move has more than paid off. Based in Torrance, Calif., TFS has responsibility for financial and insurance services for Toyota's North, South and Latin American operations, as well as, increasingly, other parts of Toyota's global operations. With assets under management nearly doubling to $57.7 billion since 2002, TFS now ranks as the third largest captive finance company in the U.S. In fact, the financing arm has been so successful in recent years that it contributes 75% of the operating income of Toyota's worldwide financial services operations.
It helps, of course, to be attached to one of the world's most successful brands at a time of acceleration. Nobody gives it a second thought anymore that Toyota will likely soon become the world's leading auto manufacturer, up from third place less than five years ago. But underneath the hood at Toyota Financial Services are a series of innovations that have moved the company to the top
Recommended For You
ranks of financial management excellence. That includes a willingness to radically change its approach to its core functions in an effort to drive down costs and make efficient use of asset holdings. To vice president and CFO John Stillo, that gives TFS's 26-person treasury a unique role in shaping the company's strategic direction. "Treasury's role is to ensure balanced, diversified and liquid access to the global debt capital markets," says Stillo. "Our goal is to lower funding costs by issuing timely, innovative structures sold into investor demand. At the same time, we seek to improve our decision-making capabilities through market, finance and risk activities that increase the transparency between asset- and liability-producing operations." Stillo was brought in as CFO in 2001 from leading finance company Associates First Capital Corp., now part of Citigroup. One of his first moves was to organize finance resources along a business partner model, aligning analytic resources and business line leaders, including treasury.
The focus on improving the transparency between asset- and liability-based operations runs throughout Toyota's AHA-winning entries. Its risk adjusted return on capital (RAROC) application, a program that took gold awards in both the technology and credit risk categories, involved an overhaul of the way the organization makes decisions on which retail auto finance contracts are purchased from dealers, and at what rates. "Should we buy a consumer loan that has the highest credit quality, or should we buy one with a lower FICO score and a higher risk and how do I price the two?" asks Stillo. "RAROC helps us create more transparency so the business can understand the risk and rewards." The RAROC system replaced an overly centralized "pricing committee" structure that had been used to make such decisions in the past. The process was seen as inefficient and a competitive hindrance since it could not incorporate valuable regional and local area information in its pricing decisions. A new tool was created to distribute corporate-level data to field staff who could run their own models and best determine which loans should be bought, and at what terms. "The question was how do you use information efficiently in an organization where information is widely disbursed?" says Christopher Ballinger, vice president and treasurer. "Our insight was that it was easier to get our information to the field than it was to get theirs to us."
Ballinger joined TFS in 2003, following a 15-year career at Bank of America's treasury department, where he worked on a sophisticated derivatives hedging program and ultimately ran the program. Ballinger brought a wealth of capital markets know-how, which has been another key driver at TFS's innovations. "Chris brings the analytic side to help us truly drive and understand the cost component around funding our organization," says Stillo. Case in point: the company's aggressive move into the structured finance market in late 2004 as a source of leveraging its AAA credit rating while lowering its overall cost of capital. Ballinger was surprised that TFS hadn't entered the market already, but expanding its presence in a new debt market took considerable finesse to avoid the derivatives accounting pitfalls that had ensnared Fannie Mae and other participants. Under Ballinger, the treasury team successfully expanded its structured debt offerings, lowered its overall cost of funds and added millions to shareholder added value.
An AHA award winner three years in a row, Ballinger clearly has his eyes fixed on future innovations, especially in straight through processing and aligning risk management and forecasting with access to transactional information. The goal is to achieve advances in treasury functionality through better corporate data. "That's driving change at all treasuries, ours included."
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to asset-and-logo-licensing@alm.com. For more information visit Asset & Logo Licensing.
