🧠 At a Glance:

Toyota’s car sales may run on engines, but its profits? Pure finance.

And now, Toyota Motor Credit Corporation (TMCC) — the silent lender behind those “0% APR” dreams — has filed its FY2025 10-K. Here’s what we found:

• 🔻 Net Income is down
• 📉 Delinquencies are up
• 💸 Loan book is ballooning
• 🏦 Borrowing costs are rising

Basically, TMCC is America’s biggest car dealership dressed up as a bank — and 2025 might be the year the gears start grinding.

🏢 About Toyota Motor Credit Corporation (TMCC)

• Subsidiary of Toyota Financial Services, operating in the U.S.
• Provides:
  • Vehicle loans and leases to retail customers
  • Dealer financing for Toyota and Lexus
  • Securitization of auto receivables (because debt = magic 🪄)
• Based in Plano, Texas (yeehaw meets yen)

💼 Who Runs the Money Engine?

These aren’t your average car dealership managers. These are quant-laced finance pros running a multi-billion dollar auto-finance empire.

💰 FY2025 Financial Highlights

Yes, the profits are down, but the real shocker? Delinquencies are up 57% YoY.

That’s not a red flag. That’s a Toyota-sized airbag warning light.

📉 Why Did Profits Shrink?

• 🧾 Higher Cost of Funds: TMCC relies on short- and medium-term borrowing. With the Fed refusing to cut rates, their funding cost jumped.
• 🏚️ More Delinquencies: Inflation-hit Americans are struggling to pay for their over-financed SUVs. Who knew a $56,000 Camry wasn’t affordable?
• 📊 Residual Value Woes: Used car prices have cooled, hurting lease returns and resale profits.
• ⚖️ Provisioning for Credit Losses: They’re bracing for defaults, especially from Tier 3 borrowers (aka “just trust me” credit scores).

🔮 Forward Valuation & Risk Profile

TMCC is not a stock, but we can still calculate a rough EduFair™ Value Estimate for its securitized bonds and overall business risk exposure:

• Cost of Borrowing: ~4.7%
• ROA: 0.9% (down from 1.2%)
• ROE: 12.8% (decent, but falling)
• Auto Loan Yield: ~6.3% average
• Fair Value Range (based on bond yields, loan spreads):
  👉 Debt book’s quality now commands ~BBB+ equivalent
  👉 Estimated Yield Spread: 180–240 bps over Treasuries (↑ YoY)

This means TMCC’s borrowing costs are up, and if the U.S. economy slows, so does their whole business model.

📦 Business Segments

🛞 Industry Context: The Great Auto Bubble?

Let’s zoom out:

• 🧠 Auto loan debt in the U.S. hit $1.61 trillion in 2025
• 💳 Average new car loan: $40,366
• 📉 Used car values dropped ~10–15% YoY
• 🏚️ Repossession rates are climbing
• 🧾 Borrowers taking 7-year loans for depreciating assets

TMCC is deeply tied to this mess. They are the credit card behind the wheel.

🚨 EduInvesting Take

Toyota Motor Credit isn’t just a finance company. It’s the scaffolding holding up the entire Toyota U.S. sales strategy.

And guess what?

When Americans stop paying car loans, TMCC starts sweating more than a Corolla without A/C.

The scary part?

• Rising delinquencies + declining net income = a serious margin squeeze
• Their entire model depends on:
  • Stable interest rates
  • Strong used car resale values
  • Americans not defaulting en masse

So if the U.S. slips into recession (or just keeps running on vibes and credit)… this “boring” finance arm becomes a front-row seat to the next subprime storm.

🧯 Risks & Red Flags

• 📛 Exposure to Tier B/C credit borrowers
• 🔺 Securitization market dependence
• 💥 Residual value risk on leased vehicles
• 📉 Profitability slipping despite larger asset base

🎯 Final Thoughts

Toyota Motor Credit is quietly showing the first cracks in the shiny facade of U.S. auto lending. It’s still solid. But it’s not invincible.

So next time you see a 0% financing deal for 84 months?

Just remember: somewhere in Plano, a TMCC analyst is whispering,

“Please God, let them not default…”

Author: Prashant Marathe
Date: June 4, 2025
Tags: Toyota Motor Credit, Auto Loans, Delinquency Rates, 10-K 2025, TMCC, Toyota Financial Services, Car Loan Crisis