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Dealer or Dinosaur - A Change In The Business As We Know It?

Did you see todays Automotive News? If not here is the Headline:

“Finance giant HSBC exits U.S. auto loan business

HSBC Finance Corp. will stop making new auto loans through U.S. dealerships and direct-to-consumer channels. The announcement came Monday, Aug. 4, in the bank’s report of second-quarter earnings.
HSBC had been shrinking its auto loan business since March. According to the SubPrime Auto Finance News, HSBC Finance CEO Michael Geoghegan said the move was because of returns that were too low to make the business worthwhile.

“Our vehicle finance portfolio actually improved credit quality over the period, but the business does not have sufficient critical mass or the pricing power to provide an acceptable return to the group,” he said.

HSBC does not finance auto leases, which have been under increasing pressure in recent weeks as vehicle residual values have plummeted.

HSBC, the consumer finance arm of English financial giant HSBC Holdings PLC, says it will take about three years for most of its $12.5 billion auto loan portfolio to be eliminated as borrowers pay down their loans.

Automotive News | August 5, 2008“

Now we can all look at this and say… “It’s just another repositioning by a bank in these times of recession” or “this is just a reaction to the housing loan fiasco.” … Well you could say that, but in my opinion you would be taking a big risk.

To paraphrase Winston Churchill – “This is not the end of the New Sales Business as we know it. But it is, perhaps, the beginning of the end”!

Let’s face it, recently we have seen manufacturer based finance companies leave the leasing arena and independents following suit. Residuals are under threat; manufacturer’s profits have been cut.
What does this mean for our business’s and for our offerings to customers? Well, for a start there will probably be an increased demand for lower priced cars which has the potential to increase used car sales, but only to those dealers with a professional Pre-Owned operation that is a business in its own right - funded, managed and prioritized but that’s not as many as the industry believe it is. Those dealers that have largely relied on their New Car business and Manufacturer for terms of trade to make revenues and keep their whole business profitable stand a good chance of going to go the way of the dinosaurs. (more…)

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