FINANCE & INSURANCE

HSBC's exit further shrinks subprime finance ranks

National Automotive Finance Associationís Jack Tracey: Dealers have fewer options.
Auto dealers' options for getting their riskier customers financed continue to shrink, as another major vehicle lender has left the business.

HSBC Finance Corp. stopped writing auto loans Wednesday, Aug. 6. HSBC was among the largest lenders to subprime customers with credit problems, said Jack Tracey, executive director of the National Automotive Finance Association. The trade group serves the nonprime auto finance business.

"HSBC's departure leaves a hole for the dealer community that seeks to finance customers with less-than-perfect credit," Tracey told Automotive News. "That leaves fewer options for dealers in an environment where other lenders who are left are tightening credit."

On Aug. 4, HSBC informed its 7,500 U.S. dealer customers of its departure from the auto finance business, spokeswoman Cindy Savio says.

"The auto finance business has been under strategic review for some time," Savio says. "Our exit from the business will allow HSBC Finance Corp. to focus on its core businesses — credit cards and mortgage lending."

HSBC, the consumer finance arm of British financial giant HSBC Holdings PLC, reported a $12.5 billion U.S. auto loan portfolio. In the first half of 2008, HSBC's auto finance division made a $27 million profit.

The company made auto loans through dealerships, as well as directly to consumers over the Internet and through branch offices. It does not offer auto leases, which have been under increasing pressure as values of large used trucks have plummeted in recent months.

HSBC's market share was just under 1 percent of U.S. auto loan volume in the first half of 2008, according to an analysis by Experian Automotive. Last year, HSBC ranked No. 20 in auto loan volume, down from No. 15 in 2005 and 2006, Experian says.

HSBC entered the auto finance business in 2003 when it acquired Household International, Savio says. Household had written auto loans since 1999.

Another large subprime auto lender, Triad Financial Corp., has stopped making loans through dealers. The company worked with nearly 5,000 U.S. dealerships. 

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