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Down and Dirty: Competition Gets Messy as New Lenders Crowd the Market

Finding Financial Backing

The greatest key factor for success in the market is having sufficient financial strength, MotoLease’s Ucer said. “In general terms, I think some of these startups underestimate, or don’t pay enough attention to, how important it is to have financial backing to be a long-term player,” he said. “They may find a couple million dollars here and there and start a program, then they are out in two months. Then they come back into the market for a month, then get out again.”

MotoLease is privately owned; Ucer and President and Chief Executive Maurice Salter are the majority stakeholders, he explained. “We have multiple $100 million-plus credit facilities in place that allow us to grow our business 30% to 40% per year, without worrying about origination capacity,” Ucer said. “For us, one of the most important things is to make sure that our dealers never have to worry about longevity and funding capacity.”

There are other avenues to secure capital, as well. For example, in April 2016, ThunderRoad became the second powersports lender in the industry to issue a securitization backed by motorcycle retail installment loans — previously only done by Harley-Davidson Financial Services.

“We welcome competition, but my humble opinion is if somebody is considering coming into the market, they need to understand it takes a lot more than just being able to write paper for a few months,” MotoLease’s Ucer said.

Industry Consolidation

When the economy performs well, lenders jump into the space, but it would not be surprising if two or three years down the line half of the new players are eventually consolidated with bigger players, Yamaha’s Patil said.

“There are times when lenders expand their credit program, and there are times when consolidation happens in the marketplace, and now we see the signs that losses are creeping up in the powersports segment,” he said. That’s reason No. 1 why the market isn’t stable enough for new entrants. Reason No. 2: The market isn’t as big as some new entrepreneurs might be thinking, he said.

Lenders likely will not have enough time to build a portfolio so fast in an oversaturated market, Patil said. “And by that I mean the right portfolio, in terms of right credit quality, right kind of customers that you need to be putting on the books,” he said. “If someone is coming into the market now, in my mind it’s a little late in the game.”

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This article originally appears in the second quarter issue of Powersports Finance. To view the full digital magazine, click here.

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