EagleRider Pushes Pre-Owned Subprime

70990_1190_Adventure_MY_2015EagleRider has throttled up its presence in the powersports industry this year, and the motorcycle dealership’s success is attributable to capitalizing on the lack of competition in the subprime and pre-owned markets, said Chris Clovis, EagleRider’s vice president of operations.

The lack of lenders in the subprime market provides EagleRider with “a blue ocean to play in and has created huge opportunity for other lenders,” Clovis said. About 80% of buyers in the market are tier three [subprime] or below on the credit spectrum. “Those lenders are ignoring 80% of buyers in the market,” he said. “Not only have we been able to partner with lenders who worked well for us, but we saw an opportunity for EagleRider Finance.”

While the Hawthorne, Calif.-based dealership group has its own in-house financial provider, EagleRider Finance — which provides wholesale and retail financing — EagleRider hopes to cast a wider net around its third-party finance partnerships, Clovis said. The company is always looking for partners to add to its current roster of six lenders — particularly in subprime, he added.

That’s because EagleRider considers itself an expert in the subprime end of the spectrum. In fact, nearly 50% of EagleRider’s CPO sales are subprime, and the other 50% is split between prime, mid-tier, and cash buyers, according to Clovis.

“There are a lot of lenders out there, but they are always fighting for that same narrow ledge of tier one credit,” he said. “What they do is run around and cut each other’s throats, and have all kinds of promotions for tier one, or maybe tier two credit,” so many lenders are missing the mark. Still, other banks in the powersports industry can be “borderline predatory,” Clovis said.

“When you look at what some of these banks are getting away with — clearly there is a huge opportunity and not enough competition.” – Chris Clovis, Vice President of Operations, EagleRider

Financial providers are able to be EagleRider logo for 2Q16EagleRiderpicky about their credit because they have so few competitors, according to EagleRider. “They are able to charge huge participation figures, crazy high interest rates, and a massive amount of stipulations from customers because they are the only game in town,” Clovis said.

“About 25 million Americans rode a motorcycle last year — 10 million motorcycles were registered, and 2 to 3 million were purchased.” Clovis said. There is a huge opportunity with those motorcycle consumers, “and that’s where EagleRider tapped into that business,” he added.

EagleRider also saw opportunity — and deficient competition — in the pre-owned market. “Typically the market will move three used motorcycles for every [one] new,” he added. If 2 million motorcycles are sold this year, about 600,000 will be new and 1.4 million will be used, Clovis estimated. However, selling pre-owned vehicles is a “tough business,” he stipulated, “which is why most dealerships stay away from it.”

The three main challenges a dealer faces in the pre-owned market are supply, floorplan financing, and retail financing. So, the used bike business is great in theory, but in reality is pretty “tough.” First, dealers have to obtain the motorcycles one at a time via auctions, trade-ins, Craigslist, etc., he said. Second, they have to worry about how to pay for those bikes, and finally, how to turn around and sell them to the consumers.

EagleRider’s solution for the challenges in the pre-owned and subprime space is to focus on a niche market of late-model, premium brand motorcycles, Clovis said. “Not all motorcycles are created equal,” he said. “We don’t sell plastic bikes or anything that would be considered disposable. We focus on heavy-weight touring bikes and premium bikes only. We found that their [the premium brands’] default rate is much lower, when you look at motorcycles as a whole.”

EagleRider also plans to roll out a lifetime powertrain warranty program on its CPO motorcycles by the end of April, Clovis said. “It’s never been done in the motorcycle business, to my knowledge,” he added.

The program, provided through an EFG Companies platform, will offer consumers the ability to upgrade CPO motorcycles to a lifetime warranty from the original complimentary 90-day warranty, he said. Consumers can then bring their CPO motorcycle into any same-brand dealership for complimentary repairs. “We’ll also have promos where it [the lifetime upgrade] will be included for free, but on a limited basis,” Clovis said.

The company also clicked up a gear after announcing its partnership with private equity firm Main Post Partners to pursue a significant global expansion plan, Clovis said.

San Francisco-based Main Post Partners has “expertise in turning a company from what’s essentially a midsize American ‘mom-and-pop’ into a full-on global brand and corporation, that’s ultimately where we want to go,” he said. The partnership, which took effect mid-February, will allow EagleRider “to jump from a small pond into the ocean.”

EagleRider specializes in the sale, tour, and rental of new and used Indian, Harley-Davidson, BMW, Triumph, and Honda motorcycles.

This story originally appeared in the second quarterly Powersports Finance magazine. For access to this issue, subscribe here.

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