Times have changed in the powersports finance market, as several new lending companies have entered the space. From captives to independent finance companies to startup leasing providers, competition is ramping up.
“When we looked at this market five years ago, there was really a void of financing in this space,” Vijay Patil, chief risk and strategy officer at Yamaha Motor Finance Corp. USA, told Powersports Finance earlier this year. “A lot of consumers wanted to buy the product, but could not find the financing. Now, after four or five years, things have turned around quite a bit, and it seems there is more of a supply of credit than the demand that exists out there.”
To that end, existing players in the space will need to focus on finding volume growth — whether that be through new alliances, expanding into different credit buckets, or extending hours.
To hear more on this topic, attend the third annual PowerSports Finance 2017 conference, which is slated for Oct. 24-25 at the Wynn Las Vegas. The panel “Finding Loan Growth Amid Increasing Competition” will dive into discipline in the face of percolating competition, how to manage margin compression, identifying new products and growth opportunities, and best practices for loss mitigation.
Here are 8 ways lenders are finding growth in a crowded market:
1. Focusing on New Riders
As baby boomers continue to age out and millennials enter the buying cycle, lenders will need to strategize to cater to a new market. Harley-Davidson Financial Services, for example, is continuing to support Harley-Davidson Inc.’s first-time buyers program in an effort to help new and millennial riders qualify for financing.
As worldwide sales slip for the manufacturer — down 6.7% year over year in the second quarter — Harley-Davidson has been focused on bringing new riders into the buying cycle, according to a published report.
Harley-Davidson’s first-time buyers program is for customers financing a Harley motorcycle through Eaglemark Savings Bank for the first time with “limited credit,” according to the OEM’s website. The program provides “competitive options” for new and used motorcycles as well as additional rate breaks for consumers with larger down payments.
Additionally, Harley-Davidson Inc. is focused on encouraging more dealers to participate in the national rental program the OEM secured with EagleRider in May. “Every dealer should be in this program,” the motorcycle maker’s Vice President and Managing Director Mike Kennedy said at its annual dealer meeting in Los Angeles on Tuesday.
2. Opening a New Office to Meet Dealer Demand
Yamaha Motor Finance opened an office in Atlanta earlier this month — with seven new team members — in an effort to serve its “heavy dealer concentration” across the Eastern Seaboard, Lyndon Elam, vice president of retail sales, marketing, and operations, previously told Powersports Finance.
“The feedback we heard from our dealer base is that having personal service and personal touch is really critical to success when structuring loans and closing deals,” he said. “We recognized early on that we wanted to have a regional presence on the East Coast.”
The Atlanta space is the company’s second office joining the Cypress, Calif. headquarters. The new office reflects Yamaha’s investment in the powersports business, Elam said.
3. Expanding Your Credit Band
Although subprime has always been MotoLease LLC‘s sweet spot, the leasing provider plans to expand its concentration into the prime and near-prime markets in the remainder of 2017, said Managing Partner Emre Ucer.
Subprime borrowers account for 70% of the company’s leasing portfolio, as MotoLease’s mentality is to help “even the most credit-challenged riders,” Ucer said. “We are always dedicated to our subprime borrowers; in the meantime, we want to attract more prime and near-prime borrowers in our business.”
Founded in 2010, MotoLease continues to see portfolio growth for the seventh year in a row. Currently, the Los Angeles-based company makes leases for 1,000 dealers across 31 states, and aims to expand its dealer network to at least another seven states by the end of 2017.
4. Recruiting and Retaining Top Talent
It’s no secret that recruiting top talent is essential to any lender’s success, whether they have been in the space for one year or a decade.
For example, Speed Leasing LLC, which launched April 25, has already originated more than $1 million in leases and is nearing its goal of having 100 dealers in its network, thanks — in part — to the team’s prior experience working for Chrome Capital.
Chrome Capital stopped accepting lease applications in September 2016. Since launching in April, Speed Leasing Partner Hasham Malik recruited five of Chrome’s former employees for the startup, including Director of Sales Frank Dionisi, who was the former dealer development manager at Chrome.
The startup also recruited Brian Cramer, director of operations, who was formerly Chrome Capital’s vice president of dealer development and underwriting. “I think that our time in the retail space allowed us, and continues to allow us, to develop products that meet dealer needs,” Cramer said.
The Pompano Beach, Fla.-based startup exclusively leases pre-owned Harley-Davidson bikes.
5. Expanding Geographic Footprint
Another way to target loan growth, is by expanding geographic reach. Huntington Bancshares Inc., for example, expanded its subsidiary FirstMerit Corp.’s recreational vehicle and marine business into 34 states this year, up from its prior 17-state footprint.
“We believe there is an opportunity to expand FirstMerit’s attractive recreational vehicle and marine finance business,” Mac McCullough, Huntington’s chief financial officer, said on the second-quarter earnings call in late July. “Nick Stanutz, who is the head of our highly successful auto finance business, runs RV and marine finance with the same discipline, risk management protocols, and — in some cases — technology that he applies to our super-prime auto finance business.”
Huntington has expanded the RV and marine business “and the early results are already exceeding our business plan,” he added. The expansion into new states was primarily in the Southeast. The parent bank tightened underwriting at FirstMerit this year to align with Huntington’s origination standards and risk appetite. The company is also leveraging Huntington Auto Finance’s existing infrastructure and standards to grow the portfolio, according to the report.
6. Extending Service Hours
Since Dealer Direct extended its dealer and customer service hours, the company has seen a significant rise in business, Jon Vestal, national sales director for Dealer Direct, told Powersports Finance last month.
The lender is now open from 8 a.m. to 6 p.m. Central Time, Monday through Saturday. Previously, Dealer Direct was only available from 9 a.m. to 5 p.m. during the week, and to 1 p.m. on the weekends.
“We’ve seen definitely seen some growth [with extended hours], and we are still working with dealers to make sure we get into their traffic pattern to remind them that we are in fact open,” Vestal said. “We’ve seen an uptick in business because our hours reflect more of the hours the dealers that we are working with are asking for, and that’s very important to us.”
Dealer Direct — the powersports lending subsidiary of First Community Bank — funded $73 million in powersports loans in 2016, with a goal of reaching $150 million in volume for 2017. The company makes loans for more than 1,800 dealers in 48 states.
7. Launching or Upgrading Your Loan Origination System
ThunderRoad Financial launched a “major upgrade” to its loan origination system in May, in an effort to grow its dealer base, said Founder and Chief Executive Donal Hummer Jr.
The system upgrade — TCI’s DecisionLender 4 — will allow a “host of enhancements specifically targeting the dealer interface and portal,” Hummer previously said. Some of the enhancements include: quicker decisioning, real-time chat with the dealers, e-signature, simplified loan structure modifications, and real-time NADA bike valuations, Hummer said. Also included are online video tutorials and web-based training, improved integration with backend products, and comprehensive dealer and financial analytics.
“We are making this investment so that we can continue to provide, and exceed, the level of service the dealers expect,” Hummer said. “At the end of the day, we are providing a service to the dealers as they are our primary customers. For us to succeed, we need to continuously improve our processes to retain our current dealers and to grow our dealer base.”
As a powersports finance institution, “you are either driving forward and constantly striving to improve your processes and the relationship with your dealers, or you are just rolling backwards,” he said.
8. Reducing Fees
For credit unions, finding additional loan growth can involve reducing member fees. For example, Royal Credit Union’s originations have increased 9% year over year as of July, thanks, in part, to the reduction of 69 different fees, Jesse Smith, vice president of consumer lending and servicing, said last month.
The credit union started to eliminate punitive fees in 2012, and today none remain, he said. “As a credit union, we don’t want to exert extra, unnecessary financial burdens on our members, so Royal Credit Union has eliminated these miscellaneous fees to maximize members’ benefits,” Smith said. Lower loan and deposit rates have also contributed to the uptick in originations, he said.
The Eau Claire, Wis.-based credit union operates in 42 counties in Minnesota and Wisconsin; it makes loans for about 50 powersports dealers.
Don’t forget to register for the third annual PowerSports Finance 2017 conference, which is slated for Oct. 24-25 at the Wynn Las Vegas. The full agenda can be viewed here. To learn more — or to register — for this year’s event, visit the PowerSports Finance 2017 homepage here.