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In the run-up to the financial collapse, Toyota Financial Services in Torrance, Calif., was experiencing a common problem–a modest but worrisome increase in losses on loans originated between 2004 and 2007. Then the crisis put the umbrella Toyota Financial Services (TFS) lending operation on the hot seat. Credit risk shot up. Other lenders fled the auto lending market, and TFS had to find a way to continue to finance the sale of Toyota automobiles at a time when Toyota was increasing market share while other automakers faltered. It had to simultaneously fund active lending and reduce loan losses. “The worst economic climate since the Great Depression,” says Reddy Pakanati, chief risk officer, “put extraordinary pressure on our sales and profitability. Banks retrenched, abandoning dealers on higher risk loans. Our mission to enable auto sales through financing became critical.”

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