CFO on risk management: plan do check act.

• Author: Heffes, Ellen M.
• Position: Cover Story - Interview

The past few years have caused economic havoc on the nation and the automobile industry, among many others, has suffered considerably, since autos are mostly a discretionary purchase. The Toyota Motor Corp. was not immune, due to the limited corporate liquidity generally, as well as its own technical and public relations problems triggered by product recalls that threatened its sales and the company's once-pristine reputation for quality.

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In 2009, auto sales in the United States dropped from their peak years of 16-17 million units a year to about 10 million. Credit played a big part in that, as a large number of cars are financed. In the same year, Toyota sales dropped from 2.6 million in 2007 to 1.8 million, with more than 50 percent of its U.S. sales financed by Toyota Financial Services Corp., or TFS, U.S., the captive financing subsidiary of the global automaker.

Yet, with all of the difficulties, TFS recently completed its best year ever and is on track for another banner year. In the following interview, Chris Ballinger, group vice president, chief financial officer and global treasurer of TFS, shares his insights on risk management and how the contributions of his division helped and continues to help its parent weather the storm.

Talk generally about the economy and the industry over the past few years.

The recession was global, and the most severe recession since the 1930s. It impacted the auto sector particularly, and captives were especially hard hit because captives are not banks, generally, and didn't have the lender-of-last-resort access to the Federal Reserve window.

Some of the captives--TFS included--were well prepared, and it turned out to be a source of strength for us. But some captives had to get out of markets entirely, get out of leasing and stop lending to their dealers or stop making certain types of loans. Not having a viable captive proved to be a huge competitive disadvantage during the crisis.

What have the past few years been like for TFS--the economy, the technical issues, as well as the financial risk?

A few years ago, for some companies, there were a range of options for support. There were special government funding programs and guaranteed loans, when most banks--and even some companies that were not banks but deemed critically important to the economy--were able to issue debt that was government guaranteed for a fairly low fee.

Some of those companies went into bankruptcy and got bailed out, received discharged liabilities and special-treatment bankruptcies; some got additional government-guaranteed loans. Some were banks to begin with and got public capital infusions.

In light of this, one of the things I'm very proud of is that we are one of the largest, or maybe the largest financial services company, that didn't receive any support and had to do it on our own and actually compete with the U.S. government indirectly.

Describe the business issues related to the multiple crises, which created a public relations nightmare. How did the company handle these situations?

We've had one crisis after another: a market crisis, a funding crisis, a sales crisis, a recall crisis. We had two crises back-to-back and each one was extremely serious, making it probably the toughest two-year period in our history. The recalls came just as we were beginning to recover from the other crises. Just as funding was beginning to come more easily again and we re-established our competitive...