Kawasaki Motors Finance Corp. removed curtailment charges during the colder weather months to help its dealer partners through the slower selling season, said Steven Chavez, the wholesale captive’s senior manager of credit services.
Curtailments are the action of requiring a portion of the floorplan loan to be repaid after a period of time, a practice often utilized by wholesale financiers to manage the risk of lending against older collateral.
“We don’t charge curtailment from September through March to make it easier for our dealers so that they are not having to pay for aged units during a non-selling season,” he told attendees at PowerSports Finance 2016. Additionally, the captive provides its dealers flooring lines right as the selling season starts to “taper off,” which helps dealers through — what is traditionally considered — a slow selling season, he added.
However, Kawasaki Motors Finance also needs to ensure its dealer partners have sufficient working capital to repay flooring lines, which is why the captive spends a lot of time communicating and meeting with dealers, he said. “We have two rules as a wholesale captive: The first rule is don’t lose money, and the second rule is don’t forget rule number one,” Chavez said.
As a result, the captive is opening up more conversations with its dealers during the “off season” about how the business is doing, how much working capital they have, and what issues or challenges the dealership is facing, Chavez said.
One issue, for example, is that it can take a long time to receive funding from the lender for subprime consumers, he said. As a floorplan provider, Kawasaki doesn’t “feed the dealer an infinite line of credit,” Chavez said, so if the retail lender takes a while to fund the deal, dealers need to make sure they have enough working capital in the meantime to fund the retail lender.
If the dealership operates more in the nonprime or subprime space, “then it’s kind of incumbent on the OEM to make sure these dealers have sufficient working capital, because it can really become an issue for them if the flooring company is pounding on the door and asking for payment when the dealer is saying he hasn’t been funded yet on the transaction,” Chavez said. “It becomes a complex issue that we try to manage very carefully.”