4. Most automobile companies have their own internal finance subsidiaries which provide loans or underwrite leases...

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4. Most automobile companies have their own internal finance subsidiaries which provide loans or underwrite leases for their customers. Why haven't automobile companies outsourced this activity? That is, why don't they leave it to customers to arrange for their own financing through independent financial institutions? By having internal finance subsidiaries, auto companies are able to compete not only on price but also on finance interest rates - large auto companies may have a cost advantage in raising funds to support finance activities and thus create an advantage in pricing strategies Source of product differentiation for larger companies that can create their own finance subsidiaries Automobile companies collect information on prospective customers O ○ Better able to evaluate credit risks than independent financial institutions - room to work with customers who fall in arrears Able to make offers before a lease expires or loan is fully paid off to keep another means for competing, possibility to create switching costs customers for customers Data can be used to identify customers most susceptible to buying more options or more expensive vehicles in the future 4. Most automobile companies have their own internal finance subsidiaries which provide loans or underwrite leases for their customers. Why haven't automobile companies outsourced this activity? That is, why don't they leave it to customers to arrange for their own financing through independent financial institutions? By having internal finance subsidiaries, auto companies are able to compete not only on price but also on finance interest rates - large auto companies may have a cost advantage in raising funds to support finance activities and thus create an advantage in pricing strategies Source of product differentiation for larger companies that can create their own finance subsidiaries Automobile companies collect information on prospective customers O ○ Better able to evaluate credit risks than independent financial institutions - room to work with customers who fall in arrears Able to make offers before a lease expires or loan is fully paid off to keep another means for competing, possibility to create switching costs customers for customers Data can be used to identify customers most susceptible to buying more options or more expensive vehicles in the future

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Automobile companies choose to have their own internal finance subsidiaries for several reasons rather than outsourcing this activity to independent f... View the full answer