UBC Theses and Dissertations
An analysis of the Canadian consumer credit market and of the competition facing sales finance companies Frizzell, Dennis Lester
A brief survey of the supply of and the demand for consumer credit in Canada discloses a dynamic situation. The increasing income of the Canadian population, among other factors, has brought about changing conditions in this market. One of the most significant changes may be the increased sensitivity of the consumer to finance rates and interest charges. This increase in consumer sensitivity to finance rates may explain the past changes in shares of the consumer credit market that are serviced by the various financial intermediaries. The most significant share of consumer credit market changes have been the gains by the chartered banks and credit unions and the loss experienced by the sales finance companies. This may represent a consumer borrower switch from a higher cost lender (the sales finance companies) to lower cost lenders (the chartered banks and credit unions). This switch may be explained by an increase in consumer sensitivity to finance rates. A model developed by F. Thomas Juster and Robert P. Shay, predicting increased consumer sensitivity to finance rates, is used to forecast future possible share of consumer credit market that may be serviced by sales finance companies. The results are a forecasted decline in the share of a particular segment of the consumer credit market that may be serviced by the sales finance companies. This forecast is the basis for a discussion of strategy and policy decisions that must be made by the management of sales finance companies. Some of the alternative strategies are explored. The conclusion reached is that the sales finance companies will have a difficult time forestalling a loss in share of the consumer credit market. Their most productive competition strategy may be to concentrate their resources in particular segments of the consumer credit market that are not immediately accessible to the lower cost lenders. Sales finance companies may also find that a strategy of diversification, within and without the consumer credit area, is productive.