Shared-risk recourse financing — when the dealership guarantees the paper, and essentially co-signs the loan — between dealerships and lenders could reemerge in powersports if subprime lending options falter, Chris Clovis, dealer principle of Freedom EuroCycle Las Vegas and BMW Motorcycles of Las Vegas, told Powersports Finance.
This risk sharing option was more common in the early 1990s, when interest rates were high, Clovis explained.
“Now, we have ‘cheap money,’ meaning there are more subprime options with punitive rates available,” he said. “But I would like to see the emergence of more recourse options for local buy-here, pay-here type of customers.” Sharing the risk is a “big opportunity” that Clovis is “absolutely open” to offering, with the right lender partner, he said.
ThunderRoad Financial, one of few lenders who offer a shared-risk option, discourages dealers from recourse deals, Donal Hummer Jr., chief executive and founder of ThunderRoad Financial told Powersports Finance.
“If we are looking at a deal that we don’t think merits us investing money in, then it’s probably not a good deal for the dealer. So when we offer that recourse, we try to say: ‘Look, do you really want to do this?’ and really make sure they understand.” After assessing an application, if the lender doesn’t think it’s a good idea to share the risk on a certain deal, the the dealer should feel the same, he added.
That being said, some — but not many — dealers still want to share the risk, Hummer said. “We have specific circumstances that makes them feel comfortable in recoursing the whole or partial deal, so we will allow that to happen. But we do that on a case-by-case basis.”
Scottsdale, Ariz.-based GO AZ Motorcycles and Lufkin, Texas-based Ross Motorsports have no interest in sharing the risk. “We don’t do anything like that, and to be honest with you, we probably never would,” Ryan Williams, general manager at Ross Motorsports, told Powersports Finance.
While shared-risk recourse is an intriguing option for Freedom EuroCycle and BMW Motorcycles of Las Vegas, there are enough subprime lenders that it’s not necessary at this point, Clovis said. “Even if I participate, the down payment is always a barrier for a subprime consumer,” he added. “When doing shared-risk, it’s all about down payment, it’s all about how much you recoup if you repossess.”