The treasury team at Toyota Financial Services (TFS) in Torrance, Calif., is getting a lot of practice at crisis management. They didn’t have much time to relax after their response to the financial meltdown of 2008, which won an Alexander Hamilton gold for liquidity management in 2010, before the largest motor vehicle recall in the company’s history hit in 2009. For TFS, a captive finance company that provides credit for the purchase and leasing of Toyota cars, access to credit at low rates is essential, and the bad publicity and mounting costs of the recall were causing the company’s borrowing costs to increase quickly.
The solution, the project management team decided, was to monetize a good portion of TFS’ balance sheet and use its significant earning asset base to decouple borrowing costs and access to credit from Toyota-specific events and market turbulence. Analysis indicated that unsecured lines of credit wouldn’t truly add liquidity because unsecured credit was finite and adding it for one purpose could limit it for other purposes. And unsecured credit wouldn’t achieve de-linkage from the Toyota name. The solution had to be asset-based.