Toyota Makes More Financing Vehicles Than Selling Them

By Bill Visnic November 5, 2010

Toyota Motor Corp. today announced financial results for the first half of the company's fiscal year that ended in September, saying it logged a net income of nearly $3.6 billion in a first half that saw the company's image of peerless quality drubbed by an unprecedented string of worldwide recalls and a scare about unintended acceleration in the U.S. and abroad.

Lexus LS 600h L trunk and badge 2010.jpgPerhaps forebodingly, however, Toyota's operating income from financing new vehicles - as well as gains the financing unit made via loan spreads and used-vehicle residual values - was nearly double the profit it made from actually selling new vehicles.

The company also increased global sales in the first half by 585,000 vehicles compared with like-2009, when the global auto industry sales were experiencing depths not seen for decades.

Yen Worries, Threatens Export Strategy

The escalating strength of the Japanense yen, which for months has been causing tensions in Japan and in the global currency markets, is causing worry inside Toyota and discussion around the industry about Japanese automakers' export strategies, when every vehicle exported from Japan and sold in foreign currency returns markedly fewer yen. Not long ago, every dollar paid for a vehicle sold in the U.S. returned 110-120 yen; the figure now is hovering near 80 yen to the dollar.

Executive vice president Satoshi Ozawa said in a statement, "We currently find ourselves in a very tough business environment, characterized by the radically and seriously appreciated Yen in recent months, the risk of slowdown in demand recovery in the United States and Europe and falling demand following the end of the eco-car subsidies in Japan.

Toyota financial services financials 11-2010.jpg"Nevertheless," he continued, "we will do our utmost in order to deliver as many vehicles as possible to our customers while continuing to improve our profit structure through further fixed-cost and variable-cost reduction activities."

Nor did the first half appear to hold much in the way of upbeat developments in Toyota's home market: despite a sales surge in Japan that was fueled by a national incentive program to stimulate new-vehicle purchases, the company still lost 5.2 billion yen, or slightly less than $650 million.

Toyota PHEV Prius demonstration car - 2010 NAIAS.jpgAnd in North America, where Toyota's operating income of about $1.8 billion was five times that of its first-half 2009 profit, the company attributed all of the gain to "improved earnings from the financial-services segment." This not surprising since Toyota sold 67,000 fewer vehicles in North America compared with first-half 2009.

Toyota's sales and earnings in Asia, Africa, Central and South America and the Oceania region all improved, but the company also recorded an operating loss in Europe.

Forecast: Improved Sales, Improved Profit

Toyota's guidance going forward was a global sales increase of 30,000 vehicles from the 7.38 million it forecast in August - and a subsequent projection of operating income increasing from the first half's 323 billion yen ($3.6 billion) to approximately 380 billion yen ($4.7 billion).

Photos courtesy of Toyota

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zanardi10 says: 11:48 AM, 11.06.10

This is indeed troubling info... good catch spotting this imbalance. I remember for how many years GMAC carried GM earnings... and worse than that, much of GMAC's income was from mortgages rather than car loans. And we know how that turned out. One more point: Toyota Credit can hardly even receive "credit" for achieving these results, given that the company is borrowing money at virtually 0% (so that even 2% financing makes money), and used car residuals are so high not because of anything Toyota Motor is doing, but because in a recession used car prices are always bid up (as many new buyers shift to late-model used). So while the profit is huge I surely hope Toyota is pouring this near-windfall into product fixes and upgrades, because the financing income cannot last forever....

1487 says: 12:27 PM, 11.08.10

I was just going to say that for years GM and Ford made money from financing arms and not vehicles. As far as I can tell Toyota is doing whatever it can to maintain share including boosting incentives and inflating residuals for leasing purposes. Its sparing them from worse losses right now but in the long term its not a solid strategy. They are already losing their edge in resale value and I read before that the lease subsidizing may come back to bite them later when all these cars are returned in 3 years.


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