As baby boomers continue to age out of the industry — replaced with millennial buyers — manufacturers like Harley-Davidson Inc. and Polaris Industries Inc. are brainstorming ways to target these consumers.
But as this age demographic shifts, lenders will also need to be innovative in their underwriting and marketing efforts to cater to this “up and coming” generation, according to panelists at PowerSports Finance 2017.
“Millennials are up and coming,” Donal Hummer Jr., president and chief executive of ThunderRoad Financial told attendees. “They are a driven group of individuals, and they know what they want; they want to have these hobbies. We are not seeing any increased risk in those consumers.”
The powersports industry has yet to rebound new-vehicle sales to the levels they were prior to the great recession, but an influx of millennial buyers may be the boost lenders need, two speakers suggested during separate presentations at PowerSports Finance 2017.
To that end, here are eight ways for lenders to market their products to millennials as sales continue to decline:
1. Focus on Monthly Payments
Dealer Direct is focusing “considerably more” on monthly payments and longer terms, rather than on rate, National Sales Director Jon Vestal told attendees at PowerSports Finance 2017.
The older demographic of buyers are much more “rate sensitive” than millennials, Vestal said. “I think if we continue to focus on payment over rate and payment over term, we can overcome some of the rate sensitivity while trying to capture [that market],” he said.
MotoLease LLC, for example, will roll out a twice-a-month payment structure for subprime lessors, said Chief Executive and co-Founder Maurice Salter.
“All subprime credit customers will be required to have bi-monthly payments, which helps with budgeting for smaller payment amounts,” added Managing Partner Emre Ucer. “We have a manual payment option if the customers want to send in checks. If they chose to participate in recurring ACH billing, we waive the security deposit requirement and the funds are automatically deducted to their bank account via ACH payment method.”
Speed Leasing also offers twice-monthly payment options, as well as the ability for existing lessees to switch to that payment option during the course of their leases.
2. Extend Loan or Lease Terms (Within Reason)
As competition in powersports finance heightens, some lenders are extending terms mirroring a trend in auto finance, Brian Landau, senior vice president and automotive business lead at TransUnion, said at PowerSports Finance 2017.
“On the loan side, lenders are trying to make the monthly payment more digestible for consumer — because just like in motorcycles, auto is where a lot of younger consumers are thinking about monthly payment and using payment as a reference point for what they can buy,” he said. “Interest rates have been at an all-time low, slowly rising, but given the size of the asset relative to a home loan or mortgage, they are not going to necessarily move the needle that much with regards to monthly payment. So term is really the big lever for a lot of finance companies.”
Loan terms can be beneficial if used strategically as a marketing and sales tool, according to Lyndon Elam, vice president of retail sales, marketing, and operations at Yamaha Motor Finance Corp. “We will use terms as an asset to target specific products,” he said, but added the caveat that extending loans terms is “not a big area of focus for us right now.”
3. Consider Using Alternative Data for Credit Scoring
Looking at rates as a way to capture marketshare is only a short-term play, Elam said. To that end, Yamaha has found some success by using alternative credit scoring for thin-file applicants who tend to be younger.
“We’ve been doing this for the past two-and-a-half years, and we’ve developed a portfolio of $6 million,” Elam said.
Additionally, ZestFinance, an artificial intelligence-based underwriting company, is preparing for its entrance into the powersports sector as the company continues its “deep” discussion with one powersports lender, Douglas Merrill, co-founder and chief executive of ZestFinance, told Powersports Finance.
“I think [powersports lending] would be very well served by real machine-learning underwriting,” Merrill said. Powersports should be a “really great place to increase approval rate while reducing risk by underwriting more effectively,” he added.
4. Expand Credit Band to Include Thin-File, Near-Prime Borrowers
While traditional lenders in the space have been reticent to dip down the credit spectrum with competitive interest rates, credit unions are starting to capture the “meat of the market,” said Chris Clovis, owner and operator of Freedom EuroCycle.
“What we’ve seen, particularly in the last year, are credit unions coming in — sometimes kicking and screaming — and starting to dominate that [near-prime] space,” he said.
Credit unions are getting those deals because they offer competitive rates on sportbikes, not because their communication is superior, he added.
“The biggest problem we’ve had with credit unions is their turnaround time is extremely slow, and they take the longest to get the approval,” Clovis said. Despite slower communication, credit unions are capturing near-prime millennial buyers that other lenders are unwilling to underwrite, he added.
“This notion that a millennial has a six-figure income with a 720 Fico is absolutely false,” Clovis said. “Your millennial customer is a thin-file. Your millennial customer has a sub-650 Fico, and we don’t have a good product for them.”
5. Invest in Rider Training Programs
In order to attract more millennials to powersports, the Motorcycle Industry Council is hosting 11 events in seven cities next year under the banner of “RiDE,” in which parents and kids can test drive real vehicles or go through virtual reality demos.
Meanwhile, MotoLease LLC is chasing a partnership with a national training association to provide risk advising and motorcycle safety classes for younger buyers, Ucer previously told Powersports Finance.
“That audience is one of our sweet spots, and a large part of our portfolio is thin-file,” Ucer said. “There is a lot of need for credit education and credit guidance. If you treat them right, guide them, and show them the importance of the credit in the long run, they perform very well.”
Some of that training includes getting borrowers to talk with risk advisors, and MotoLease may soon add a program that pays for riders to take motorcycle safety classes, if they complete a certain number of sessions.
6. Offer a Rewards Program
Another tactic to draw in the younger generation is to reward them for good behavior, much like a Starbucks rewards program.
MotoLease, for example, will introduce a new point-system program in the first quarter of 2018 for lower-credit-tier borrowers that will act “similar to credit card points,” Ucer said. By paying on time, lower-credit-quality customers can reduce their overall payments.
“Each payment will earn a customer 100 points,” Ucer said. Once a certain number of points are accrued, a customer’s payment can be reduced to the equivalent of what someone in the credit tier above would pay, Ucer said.
7. Increase Used-Financing Mix
Millennials are predicted to “overtake the boomers as the primary segment” by 2019, said Tim Buche, president and chief executive of the Motorcycle Industry Council Inc.
However, “when you look at used bikes, millennials are already [the primary consumer],” he added. “Even though the average age is up, the millennials will pull it back down, and millennials are now into their mid 30s, so they are chasing us.”
As such, lenders are already targeting an increase in their used-financing mix. Dealer Direct, for example, continues to increase its concentration on used financing to serve what many dealers consider an underserved market, Senior Vice President Steve Wilcoxon told Powersports Finance.
About 30% of what Dealer Direct finances is used vehicles, Wilcoxon said. “That percentage has grown over the past year,” he added.
8. Invest in Technology for Simpler Consumer Finance Process
Technology continues to be a driving factor for direct and indirect loans in powersports and auto finance. To that end, several powersports lenders are focusing their investment dollars this year, on advancing technology and innovating both inside and outside the business.
MotoLease, for example, is preparing to launch a new live-inventory, real-time financing website for motorcycles called UsedMotorcycles.com. The website is a “nationwide classifieds website for MotoLease dealers for new and used motorcycles,” Mitch Palm, MotoLease’s marketing coordinator, said during the leasing provider’s dealer training seminars in early October.
Additionally, FreedomRoad Financial debuted a new website, aimed at making it easier for borrowers to access their account. “Our new website features a single sign-on account management platform, so you can manage your loan account with only one username and password,” the website reads.