HorsePower Financial Services relocated its corporate headquarters Feb. 1 to a larger space in Lebanon, Ohio, thanks to the growth of its dealer network and an increase in consumer demand, Ray Phipps, HorsePower’s chief executive and founder, told Powersports Finance in February.
While many financial institutions are attempting to offer more subprime financing options, HorsePower targets the prime market with lease options for more than 30 models of pre-owned Harley-Davidson motorcycles, Phipps said.
“The Lifestyle Lease is directed at well-qualified Harley-Davidson customers, and what we are finding –essentially our business plan — is that the higher Fico Harley-Davidson customer is looking for flexibility,” Phipps said. “And the demand for that flexibility required us to almost quadruple the number of square feet that we are using.”
Powersports Finance spoke with Phipps about the company’s growth, outlook, and initiatives in 2016. The following are edited excerpts.
PF: You offer the only “true automotive lease” on pre-owned Harley-Davidson motorcycles with the LifeStyle Lease. How does LifeStyle Lease work?
RP: The high-end luxury auto brands, years ago, figured out that if they treated customers fairly and gave them a reasonable finance tool, those customers would automatically choose the flexibility in leasing. We reward good credit. Our product is geared towards your well-qualified buyers, and for those buyers we can return a very competitive low-lease payment, but also flexibilities to change motorcycles on a regular basis.
PF: How does credit performance affect your lease approvals?
RP: Our business is more like a traditional bank in that our profile is geared more to the well-qualified customer. We use an experienced Fico rating program, so the profile of our customers is an average 685 credit score.
PF: Why does HorsePower target a prime market?
RP: I’m always prime because that’s the ideal candidate for a Harley-Davidson dealer. Harley-Davidson dealers want customers with solid, disposable income. We allow them to attract that customer. It’s certainly easier to lend money in subprime than it is in prime — that’s a given — but those customers don’t always have disposable income that a Harley-Davidson dealer is looking for.
PF: How many dealers do you work with currently, and do you expect that number to grow in 2016?
RP: We only work with about 40 dealers. One of the nice things about what we do, is that we are a relationship company, and there are over 700 Harley-Davidson dealers, plus all the independent dealers, but it is never going to be our goal to work with every dealer. We are willing to work and create a familiar environment for the dealer. Our onboarding process is unique in the industry. We take the dealers offsite, away from the dealerships, and we have this onboarding process.
PF: How are you changing in response to consumer demand?
RP: Our LifeStyle Lease is very consumer-oriented, it gives them tremendous options, rather than obligations. For example, the customer chooses their own term. They can choose any term they want between 12 and 48 months, instead of having predetermined terms. That’s the kind of thing the market is asking for. For millennials, they expect options. They expect to do things on their own terms, and LifeStyle Lease gives them that flexibility. The Baby Boomers expect value, and the lease gives them value.
PF: What is your outlook for 2016 in regards to offers and incentives?
RP: We expect to grow our lease originations by more than 100% in 2016, and that’s on top of our 200% growth in 2015. The outlook is very strong. Obviously, that’s reflected in the move of our corporate headquarters. As far as offers and incentives, our products — our LifeStyle Lease — stands on its own.
What we are doing is we are taking an existing auto lease and — when we create this relationship with the dealership — we work with them, we build strategies with them, and we help them understand how leasing benefits them. Once you take the time to do that, there is no need to incentivize the product because the dealer needs it.
This story originally appeared in the inaugural Powersports Finance Quarterly. To get access this issue, subscribe here.