Financial institutions have always played a vital role in any country’s economy. Commercial banks have a significant role in the growth of businesses and industries by acting not only as the overseer of the wealth of a given nation but also as possessions of the state (Kalpana " Rao, 2017). In particular, banks collaborate with individuals and businesses to provide financial services, resulting in productive economic outcomes and sustainable growth of the economy (Kalpana " Rao, 2017). As such, this paper will examine how CNC Motors Inc., a local car dealer in the U.S. partners with financial institutions to ensure desirable economic outcomes.
The Details of the Business
CNC Motors Inc. is a local car dealer situated in Ontario, California, USA (CNC Motors Inc., 2018). The business was founded in 2006 by Craig Thom and his eldest son Clayton to offer high quality pre-owned exotic vehicles (CNC Motors Inc., 2018). The company, which has been in operation since 2006, is a full-service vehicle dealer that offers sales, financing, and service of any brand or model. The firm uses its showroom and online platform as its only channels of distribution. As such, interested customers can view over 200 exotic vehicles that the company has in stock by visiting the showroom in Ontario or browsing the inventory online (CNC Motors Inc., 2018).
How the Business Started To Collaborate With Financial Institutions
Commercial banks offer businesses a variety of services that not only benefit them financially but also make it easier to trade and to grow (Kalpana " Rao, 2017). The most common functions of banks mainly include the collection of deposits, making loans and advances, and investment services (Kalpana " Rao, 2017). Therefore, a partnership between a financial institution and a business usually revolves around the need to provide such services. In particular, CNC Motors Inc. started to collaborate with banks as a means through which the company could access capital funding, and more importantly as a way through which the car dealer could help its customers get car loans (CNC Motors Inc., 2018).
In most cases, customers can be interested in a particular product, but they do not have adequate finances to fund their needs. Banks have played a crucial role in such instances by allowing individuals to borrow money and charge interest on the loans (Kalpana " Rao, 2017). However, the advances offered by financial institutions are not always accessible due to specific requirements that a business or an individual must meet. Because of the hurdles that consumers face when seeking car financing, CNC Motors Inc. collaborates with banks so that the company could help customers access car loans through a network of many well-known financial institutions and banks as well as to negotiate the best interest rates (CNC Motors Inc., 2018).
In a sum, CNC Motor Inc. started to collaborate with commercial banks by seeking loans and advances to fund their operations and to help their customers to access car finance. In this way, both the company and the financial institutions involved have been able to benefit in various ways (CNC Motors Inc., 2018). For instance, CNC Motors have benefitted by increasing or maintaining their cars sales throughout the year (CNC Motors Inc., 2018). In contrast, banks make profits by charging interest on the advance given to customers to finance their car needs. At the same time, the partnership is a way through which both firms market their products. For instance, the process through which CNC Motors Inc. introduces the customer to their network of financial institutions and negotiating interest rates can be termed as personal selling, an act that benefits the banks. The same can be said to banks that recommends CNC Motors Inc. to the customers who seek loans but are not yet acquainted to the car dealer.
Risks That Exist Among Financial Institutions When They Choose To Collaborate With a Local Business
Financial institutions are faced with a significant amount of risk due to their partnership with local businesses. Among the major risks faced by banks are credit risks, market uncertainty, and operational risk (Apătăchioae, 2014). Credit risk, for instance, is the possibility that a counterparty will fail to honor commitments per established terms (Apătăchioae, 2014). Such a loss is most likely caused by advances issued by banks, interbank transactions, business financing, equities, foreign exchange transactions, swaps, and other forms of agreements (Apătăchioae, 2014). For example, in a case whereby CNC Motors Inc. or the car dealer’s customers is financed by the bank and is not in a position to repay the credit due to low earnings, business loss, demise, or other reasons, the financial institution faces credit risk. The danger is further exacerbated by the fact that many local businesses such as CNC Motor Inc. have lower levels of capital reserves compared to multinationals, thereby reducing their ability to intervene in case of a loss or inadequate finance (Apătăchioae, 2014).
In contrast, market risk is the possibility that a bank might suffer losses in its trading books because of the changes in aspects such as equity prices, commodity prices, interest charges, exchange rates, and other economic pointers whose values are determined in the public marketplace (Apătăchioae, 2014). In most cases, market risk affects banks that offer investment services because they are active in capital markets. For instance, in this case, factors such as changes in interest rates might affect banks that collaborate with CNC Motor Inc. by altering the amount paid by customers who are given car finances (Apătăchioae, 2014). Such a scenario might negatively impact a bank if it leads to losses. Operational risks, on the contrary, are losses that financial institutions might suffer due to inadequate internal process, people, and structures or from outside events (Apătăchioae, 2014). For instance, in the case of a partnership with local business such as CNC Motor Inc., operational risk can widely occur in a bank due to personnel error such as incorrect information filled by the involved parties. At the same time, there is a chance that partnering with local businesses might lead to security breaches, a situation that can expose a bank to operational risk (Apătăchioae, 2014).
Conclusion
In conclusion, there is no doubt that commercial banks play an essential role in the modern economy and dynamic financial system. The paper has discussed how CNC Motors Inc., a local car dealer based in Ontario, California has collaborated with financial institutions to enhance customer satisfaction, and more importantly to increase car sales by helping individuals to access credit. Based on the above discussion, both parties mostly benefit from the agreement as illustrated in the appendix. However, as much as the partnership between local businesses and banks is associated with desirable economic effects, it can also expose financial institutions to risk. As mentioned above, a situation that might negate the benefits if not properly managed.
References
Apătăchioae, A. (2014). New challenges in the management of banking risks. Procedia Economics and Finance, 15, 1364-1373. doi:10.1016/s2212-5671(14)00600-5
CNC Motors Inc. (2018). CNC Motors Inc. serving Upland, CA, new, used cars -. Retrieved from http://www.cncexotics.com/about.aspx#
Kalpana, B., " Rao, T. V. (2017). Role of commercial banks in the economic development of India. International Journal of Management and Applied Science, 3(4), 1-4. Retrieved from http://www.iraj.in/journal/journal_file/journal_pdf/14-358-14982087631-4.pdf
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