The cycle is actually very simple, Car makers makes cars, buyers buy cars, and banks provide loan to buyers to pay the car makers, and banks earn interests from the loans.
Reverse it, add a tinge of twist to it: Vice Versa, and if banks don't earn from loans - You guessed it.
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This is big news from US, following car makers who stopped financing buyers buying their own cars, HSBC today announced that it will no longer provide loans to automobile purchase.
Since March, HSBC has been shrinking it's automotive leasing business, cited HSBC Finance CEO Michael Geoghegan, the business model had became so unprofitable that it wasn't worthwhile for HSBC to continue it.
"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.
With the entire industry struggling to gain foot, this announcement from HSBC, following their report on 2nd quarter earnings; should trigger an unimaginable chain effect, giving another severe blow to the US automotive industry, the largest in the world.
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1 comment:
bankers do say that they do not make much from car loans comparing to other products. I wonder is this true...after all it could be a right move in the business point.
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