Toyota uses analytics to build customer goodwill and get auto loans paid

Toyota Financial Services uses a data-driven, scientific, and customer-centric approach to collections. Here's what your business can learn from the program.

A fourth generation Toyota Prius
Image: Wayne Cunningham/CNET

US car loans topped $1 billion in 2015. Even with a 0.25% bump upwards in the federal interest rate, car companies remain undeterred in offering 0.0% to 1.9% loans to buyers on a number of car models.

During the same period of time, attractive vehicle financing options have contributed to rising rates of auto loan delinquencies and missed payments.

The US Office of Comptroller of Currency, which regulates the largest banks, says that it has seen a trend toward relaxed standards and riskier behavior in auto loans. "We're putting banks on notice that we have concerns," the Office's deputy comptroller of supervision risk management told The Wall Street Journal. "It's definitely an area that warrants some attention."

Most major auto companies aren't addressing this potentially troubling trend. Toyota is an exception.

Toyota's data-driven approach to collections

Toyota Financial Services worked out a program that integrated decision management, reporting, and advanced analytics to provide a data-driven, scientific, and customer-centric approach to collections for delinquent auto loans.

"Debt defaults and collections are not a rapidly growing area for us today, but we still remember when it was a major crisis in 2009 during the economic downturn," said Jim Bander, Toyota Financial Services's national manager of decision science. "We decided then that we needed a data-driven, scientific approach to the crisis, and decided then to make an investment into data-driven analytics."

Bander said that Toyota had three objectives in mind: 1) to reduce bad credit losses; 2) to reduce operating expenses; and 3) to increase market share by lowering the amount of debt collections.

There was also a customer-centric element to the strategy: If Toyota could avoid taking customers through the collections process and instead find new ways for customers to afford to stay in their cars, everybody would feel better in the process.

"The approach was a change from how we had been handling missed car payments before," said Bander. "In the former process, the collections department would contact customers and move through the collections process as customers moved from initial stages of missing a payment or two to moving into a state of total nonpayment. In the first page of a missed payment or two, an automatic dialer would contact customers. If the stage of collection became more severe, human agents would get involved."

SEE: Ford taps IBM for data analytics to win the connected car race

What other businesses can learn from Toyota's program

The change in approach now has Toyota working directly with customers who have troubled car loans earlier in the process. Both parties work together to find a more feasible financing plan for the loan that the car owner can meet, while also keeping the loan from going bad.

"We are still in the process of quantifying the impact of our program, but we do know this," said Bander. "Customers are happier when they see that the company is willing to work with them so they can find ways to meet their loan obligations, and our customer service agents are happier when they are placed in positions where they can be helping these customers instead of entering into adversarial conversations. We believe that this is a win-win program for everyone, and what I can tell you so far is that more of our customers are being able to stay in their cars, and from the company side, we are making millions of dollars from the effort."

Just as significantly, Toyota has found a way to work together with customers on troubled loans, thanks to new insights that it is deriving from analytics that tell it these customers will be able to handle their debts if they can get a little help. Adverse relationships are replaced with a team effort towards solving a problem, and goodwill is built for the brand -- good lessons for more companies to consider.

Also see