Captives Offer ‘Competitive Advantage,’ Analyst Says

motorcycles racing competitionCaptive finance arms offer a “pretty big competitive advantage” for powersports OEMs, particularly in an environment where independent finance companies are “coming and going,” James Hardiman, managing director of equity research at Wedbush Securities Inc., told Powersports Finance.

For example, Speed Leasing LLC began underwriting leases on April 1. Speed Leasing’s entrance into the market comes just seven months after Chrome Capital stopped accepting lease applications because of a halt in its investment funding.

A captive allows a manufacturer, in a lot of ways, to control its fate, Hardiman said. Independent financial institutions are coming in and out of the space, and if an OEM is reliant on those companies and how they are feeling about the business, that could affect their ability to sell motorcycles.

It is a “head scratcher” why there are not more captives in the space, especially given the value proposition a finance arm provides an OEM and its dealer partners, Hardiman added.

Polaris Industries Inc., for example, teamed up with FreedomRoad Financial last September to create Performance Finance because “what they are seeing is a lot of what Harley-Davidson Inc. has been seeing over the years — that [a captive] is a competitive advantage, not only with customers, but with attracting dealers, to have that significant amount of financing support that’s available for the brand,” he said. “It really helps to grow the brand and provides some stability and it expands the target customer, ultimately, by doing that.”

Polaris management believed that the company was at a “competitive disadvantage” against Harley-Davidson Financial Services by not having a captive or “captive-like” structure, Wedbush Securities Inc. analyzed in a report late last year. Performance Finance gives Polaris the ability “to target a wider audience and more effectively compete for core customers,” according to the report.

If you are the recommended lender at that point of sale, “that is a huge advantage,” Hardiman told Powersports Finance. “Consumers are generally comfortable shopping their auto loans [with different lenders], but when it comes to powersports, I think people really don’t know — they don’t have a whole lot of expectations as to what the rates should be. So, to the extent that you can have those dealers recommending a particular lender, I think that goes a long way. It allows lenders to charge healthy interest rates.”

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