Toyota Is Ready To Lend Money

Toyota ready to loan money

DAN STRUMPF | Sunday, October 5, 2008 at 12:30 am

NEW YORK – Toyota Motor Corp.’s unprecedented offer of zero-percent financing on nearly a dozen models is trying to make the point that tight credit is no excuse for buyers – in fact, it’s literally giving credit away for free.

But after the top Japanese automaker posted a 32 percent drop in September sales that only domestic competitors had experienced until now, the question is: Is it enough to get people to buy?

“I don’t think it’s going to just open the floodgates,” said Jessica Caldwell, an analyst at the auto Web site Edmunds.com. “But it’s going to help a lot of people who want a quality car, who don’t want to worry about it, and are now going to be able to afford it because of this deal.”

Toyota’s U.S. division said Thursday night that it will offer the free financing on 11 models with terms ranging from 36 to 60 months. The incentive expires Nov. 3.

Toyota is offering the deal on a wide variety of vehicles, including the Matrix, Corolla, Camry, RAV 4, Highlander, FJ Cruiser, 4Runner, Sequoia, Sienna, Tacoma and Tundra. The automaker’s hybrids, along with some better-selling models like the Yaris subcompact, are excluded.

Although Toyota has cut financing rates and offered other deals in the past, zero-percent financing on such a wide scale is an unprecedented move for an automaker that has prided itself on its restraint with incentives. Its U.S. counterparts, meanwhile, have aggressively used cut-rate financing and big cash-back offers as a way to bolster sales in the flagging auto market.

Nearly all automakers said tighter credit standards knocked buyers from the market last month, when sales industrywide fell 27 percent from a year earlier, hitting fewer than 1 million for the first time in 15 years.

“What this is a response to is the misconception that getting a loan or leasing a car is difficult to do,” Toyota spokesman Xavier Dominicis said Friday. “At Toyota it’s not. Our finance arm … it’s in a position to loan money.”

Richard Howse, senior director of auto finance for J.D. Power and Associates, said Toyota’s offer is likely an attempt to kick-start its sales considering September’s disappointing results.

“I don’t want to read their minds, but I think they realize they need to move the cars they have now,” Howse said. “It’ll be interesting to see how many people are able to take it given today’s credit environment.”

Credit score

Kerry Rivera, spokeswoman for Toyota’s finance arm, Toyota Financial Services, said the requirements to qualify for the offer include a FICO credit score of at least 650. The median FICO score is 720 on the scale that ranges from 300 to 850, according to a spokesman for Fair Isaac Corp.

“This is similar to how we’ve priced zero-percent deals in the past,” Rivera said.

Toyota’s incentives come at a time when banks are curtailing lending because of widespread mortgage defaults that have brought down investment banks and a major insurance company.

Automakers’ finance arms often raise capital by bundling auto loans and selling them as securities, and more of those loans have defaulted as the economy has deteriorated. Now that any collateralized debts like mortgages have fallen out of favor, the securities are more difficult to sell, making it harder for the finance companies to raise more money to lend.

However, Toyota is likely in a better position than its domestic competitors to offer zero-percent loans to a greater number of consumers, owing to its AAA credit ratings and strong cash flow, Edmunds.com’s Caldwell said.

“They have such deep pockets they’re able to weather the storm a little bit better. … I think Toyota will be able to offer more customers zero-percent APR financing than Chrysler or GM, where they have to be more picky with the customers that can receive,” she said.

Rivera said Toyota hasn’t been lending to subprime customers, which has insulated it from some of the credit troubles that other companies have experienced. She declined to release Toyota’s loan approval rates but said the automaker’s year-over-year rate “hasn’t dropped significantly.”

Other automakers

David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich., said Toyota may be among the best-positioned automakers to weather the credit storm.

“Toyota has absolutely gold-plated credit,” Cole said. “They’ve got $30 billion-plus in the bank. So whatever happens from a financial standpoint, they’re not going to be impacted too severely.”

That doesn’t mean other automakers aren’t offering zero-percent financing as well.

General Motors Corp. on Wednesday launched zero-percent financing on several models for up to 72 months, after more than a month of offering all buyers employee discounts, which generally knock 10 percent off the purchase price of a vehicle.

Chrysler LLC, meanwhile, has been offering 72-month zero-percent financing on a range of trucks and SUVs. Ford Motor Co. also offers zero-percent financing for up to 72 months on several models.

“There seems to be a feeling that people can’t get financing, but our credit criteria hasn’t changed in years,” said Meredith Libbey, spokeswoman for Ford Motor Credit. “We have financing available and we have money available to finance your contract and put you behind the wheel.”

At the same time, Libbey said, that doesn’t mean people’s credit scores haven’t dropped because of their economic troubles, making it harder for them to get loans. Ford doesn’t disclose its criteria for loan approval, she said.