Toyota Finance uses advanced analytics to improve sales and profits

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Customer analysis of a retail bank seems straightforward compared to statistical analysis of an auto finance company. While a bank focuses only on money, Toyota Finance wants to move the metal – sell cars and trucks – in the words of Chelsey Kate Meise, head of credit risk analysis for Southeast Toyota Finance.

Photo by Tom Groenfeldt

She develops models to look at individual credit risk, but that’s only part of what the business analysis team does. They look at origination, loan portfolio, losses, marketing, remarketing (selling end-of-lease cars), securitization, insurance, and even how customers click on the company’s website. company to see where they are having trouble. (It is much cheaper to resolve their issues online than through a call center.)

It’s a tough environment. As Bloomberg Recently reported, more auto loans are going badly, interest rates are rising, and financial institutions are becoming more selective in their auto loans. The combination could mean 175,000 fewer sales this year, according to the National Automobile Dealers Association. Meise and her team would prefer that these reductions not come from Toyota’s numbers.

“We want to get as many contracts as possible while mitigating risk. “

Using SAS data analysis tools, the analysis department transmits its skills to the various departments of the company.

“People think they’re doing it the best way they can because they’ve been doing it that way for a lifetime.” The data may show that this is not always the case. Meise said the group had achieved a big victory in re-marketing – selling cars whose leases were terminated.

“We were able to show that instead of sending them to the nearest auction, they could get better prices by moving cars to Florida for sale in the winter,” she said.

Photo by Tom Groenfeldt

With advanced degrees in mathematics and an ease with statistical analysis that mere mortals can only consider with a mixture of fear and awe, members of the analytical team should be careful to speak their findings in plain English. rather than bombarding other departments with loaded equations. PowerPoints.

“I discuss statistics in a way they can understand; I leave out the technical and mathematical jargon, ”said Meise. “I assure them I’m not trying to take their jobs – I’m trying to help them do it better so they get bigger bonuses.” It is language that anyone in business can understand.

She also works with actuaries on GAP analysis, when the value of the vehicle is less than the loan requested by a person, which can be covered by insurance.

“We use SAS and the actuaries use Excel. They can’t predict the value of the vehicle with Excel, whereas with SAS we can look at millions of vehicles.

She is a huge fan of SAS and its user support. In addition to a lot of online resources, “I can call anytime and ask pretty complex questions and ask doctoral level statisticians to help me with my problems,” she said.

Because Southeast Toyota Finance does not have deposits to fund its loans, its rates are slightly higher than those of a bank.

“But we’re going to put in the money to try to get the sale, move the metal.”

To price its leases, the company uses residual risk modeling to predict the value of a vehicle over the term of a lease. It requires looking at supply and demand at each level of vehicle – Toyota sells everything from Corollas for $ 18,500 to Land Cruisers for over $ 85,000. Analysts therefore look at economic variables such as GDP and unemployment for each vehicle model. They also help determine pricing incentives. With low gas prices, trucks are selling well, but dealerships have to move sedans as well, so the company needs to determine what incentives it should offer for different product lines.

Hiring data scientists in the Southeast is a challenge, Meise said, and the analysis team is looking for people with a master’s degree or higher. She expects the use of analytics to only grow.

“Instead of people making decisions based on feelings, decisions will be based on data. The whole company is behind our group; they help us sell more Toyota.

Meise herself drives a half-ton Tundra pickup that will tow a 7,000-pound Airstream trailer when she and her partner take a vacation westward this summer, she said.


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