Buy A Toyota, Get A Mortgage

The auto giant is setting up a bank and eyeing the consumer credit markets

Japan's No. 1 auto maker isn't known in business circles as the "Bank of Toyota" for nothing. With a war chest of $30 billion and ample access to cheap bank loans and bond capital, Toyota Motor Corp. (TM ) has plenty of money to spend on developing exotic new technologies, from hybrid engines to resins derived from sweet potatoes. But for all its money -- much of it parked in low-interest-bearing accounts in Japan -- Toyota hasn't moved aggressively into financial services, which account for less than 10% of its profits. One reason: carbuyers in Japan typically pay cash instead of financing their purchases.

In the U.S., however, Toyota is starting to flex its financial muscles. It already provides lots of plain-vanilla car loans through its U.S. financial arm, Torrance (Calif.)-based Toyota Financial Services. That unit has grown in step with the company's record vehicle sales growth and has quietly become the third-largest "captive" loan operation in America after General Motors Acceptance Corp. (GM ) and Ford Motor Credit Co. (F ). Its assets have doubled in the past five years to $45.9 billion, making it the U.S.'s eighth-largest speciality financing company. For the year ended in March, TFS had record profits of $729 million, up 43%, on revenues of $2.7 billion. Toyota, content before to let dealers choose their banks, has made a big push over the past five years to bring showrooms into the TFS fold.

But Toyota's finance engine is just revving up. Now the auto maker is looking to leverage its industry-leading credit ratings into a wider range of financial products. "We're in a very fortunate situation," says TFS President George Borst. "We represent a company that is the only triple-A borrower in the [auto] business."


As a first step, the carmaker received approval from the Federal Deposit Insurance Corp. in August to set up a full-fledged bank in the U.S. under the name Toyota Financial Savings Bank. Capitalized at $10 million, the Nevada-headquartered bank was established on Aug. 16. It's starting small, with a pilot program that provides cash management services to a few Toyota dealers on the West Coast. If that goes smoothly, the company gradually plans to roll out a range of services, including credit cards and unsecured loans. The goal is to offer one-stop shopping for financial services: Imagine, for example, getting one statement a month from Toyota tracking your car, mortgage, and credit-card payments.

Is Toyota angling to create the equivalent of GMAC, which does everything from issue mortgages to invest in Japanese nonperforming loan workouts? Not yet. The chief goal is to enhance brand loyalty among its existing 2.3 million auto loan and enhanced-warranty customers with a convenient way to manage their finances. There may be further incentives. In Japan, users of Toyota credit cards earn points for discounts on future car purchases and vehicle inspection fees. "We want to lock them in," says Borst, a 19-year Toyota veteran who formerly ran the Lexus (TM ) luxury car division.

After years of fast growth, Toyota is nipping at Ford Motor Co.'s (F ) heels for the No. 2 spot in vehicle sales. But its rapid growth in the auto market can't last forever. Once that matures, loyalty to the Toyota bank will be a valuable asset. A stretch? Maybe. But with $30 billion in the till and a gilt-edged credit rating, Toyota now looks stronger than most traditional banks. Watch for those mortgage offers at a dealership near you.

By Chester Dawson in New York

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