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Fundamental View
AS OF 17 Mar 2023Toyota Motor Credit Corp.’s (TMCC) delinquency rate rose above pre-pandemic levels, while charge-off rates also increased to normalized levels. The company expects higher credit losses in the retail loan portfolio due to higher average amounts financed and a higher percentage of used vehicles financed. These factors, coupled with the increase in the size of the retail loan portfolio, led TMCC to increase its provisioning for credit losses.
For additional information on Toyota Motor Corporation see Toyota.
Business Description
AS OF 17 Mar 2023- Toyota Motor Corp. (TMC) engages in the manufacture and sale of motor vehicles and parts. The Financial Services segment offers purchase or lease financing to Toyota vehicle dealers and customers. It also provides retail leasing through lease contracts purchased by dealers. The company was founded by Kiichiro Toyoda on August 28, 1937 and is headquartered in Toyota, Japan. In July 2000, the company established Toyota Financial Services Corporation (TFSC), a wholly owned subsidiary, to oversee the management of its finance companies worldwide.
- Toyota Financial Services Corporation (TFSC), a wholly owned subsidiary of TMC, oversees the management of Toyota's finance companies worldwide. Toyota Motor Credit Corporation (TMCC) is the company’s principal financial services subsidiary in the United States and is an indirect wholly owned subsidiary. Under terms of the credit support agreement between TFSC and TMCC, TFSC agrees to: (1) maintain 100% ownership of TMCC; (2) cause TMCC and its subsidiaries to have a tangible net worth of at least $100,000; (3) make sufficient funds available to TMCC so that it will be able to service the obligations arising out of its own bonds, debentures, notes and other investment securities and commercial paper. The terms of the credit support agreement between TMC and TFSC are very similar to the terms of the TFSC and TMCC credit support agreement.
Risk & Catalysts
AS OF 17 Mar 2023The company expects higher credit losses in the retail loan portfolio due to higher average amounts financed and a higher percentage of used vehicles financed. These factors combined with the increase in the size of the retail loan portfolio have led to TMCC’s increase in the provisioning for credit losses.
Future changes in the economy that impact the consumer and consumer confidence such as increasing interest rates and a rise in the unemployment rate as well as higher debt balances, coupled with deterioration in actual and expected used vehicle values, could result in further increases to the allowance for credit losses.
Key Metrics
AS OF 17 Mar 2023| ¥ bn | FY19 | FY20 | FY21 | FY22 | F3Q23 |
|---|---|---|---|---|---|
| Total Company Earning Assets | 109,063 | 110,621 | 116,546 | 117,659 | 119,941 |
| Cash and Investments | 2,198 | 6,790 | 8,195 | 7,670 | 6,454 |
| Total Liquidity | 27,698 | 31,390 | 35,895 | 36,070 | 35,154 |
| Unsecured Debt | 80,521 | 83,172 | 85,513 | 82,288 | 78,589 |
| Secured Debt | 12,401 | 14,568 | 24,212 | 26,864 | 31,510 |
| Total Debt | 92,922 | 97,740 | 109,725 | 109,152 | 110,099 |
| Allowance % Retail Rece. | 0.56% | 0.85% | 1.60% | 1.63% | 1.81% |
| Allowance / Net Charge-offs | 1.09x | 1.58x | 4.50x | 6.68x | 3.77x |
| Net Charge-offs % Avg. Receivable | 0.52% | 0.55% | 0.39% | 0.26% | 0.49% |
| Delinquency Rate | 1.7% | 1.8% | 1.2% | 1.8% | 2.6% |
CreditSights View
AS OF 15 May 2023Our Underperform recommendation on Toyota Motor Co. (TMC) and Toyota Motor Credit Corporation (TMCC) notes is based on relative value as tight trading levels offer little opportunity for outperformance. Toyota is the highest-rated global automaker that benefits from being the largest global automotive manufacturer, balanced geographic diversification, strong liquidity, consistent free cash flow generation, and solid credit metrics. The company has been hampered by supply chain challenges the past fiscal year, causing management to lower its production targets and dampening wholesale volumes and revenue. We expect global wholesale volumes to increase in 2023 as supply chain challenges ease and production schedules improve.
Recommendation Reviewed: May 15, 2023
Recommendation Changed: January 13, 2023
Who We Recommend
Bank Rakyat Indonesia
Mitsubishi UFJ Financial Group
State Bank of India
