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With first-quarter powersports sales volume hamstrung by winter weather, loan approval rates inched higher from January to March, according to the inaugural Powersports Finance Data survey.
The Data survey collects monthly data from a sampling of powersports lenders on origination trends and loan performance in the on-highway, ATV, and UTV vehicle segments.
Lenders started the year approving 60.1% of loans across all segments. By February, the approval rate rose to 60.8%, and by March, it was up to 62.3%. One possible explanation for the steady rise is that lenders were increasingly approving loans to offset lower application volume received during the winter months.
Based on seasonality trends, originations typically fall off in January and February as snow and colder weather keep powersports customers indoors. Warmer temperatures in March and April kick off the spring buying season.
In the early part of the year, some lenders expanded their product offerings to spur originations. In February, Fuel Capital Group and Speed Leasing added Indian Motorcycle models to their leasing programs, while subprime lender American Cycle Finance prepped a limited off-road vehicle program.
ThunderRoad Financial created a 24-to-48-month program in response to dealers looking for shorter terms than those being marketed by OEMs. That new offering, combined with an effort to train dealers on ThunderRoad’s financing program, pushed up the lender’s first-quarter approvals to 54%, compared with 15% in the prior-year period.
Subprime loans steadily lost share through the quarter, accounting for 55% of originations in January and 53% in February. By March, the prime-subprime split was 50-50.
That ratio might head in the opposite direction in the second quarter, as financiers like MotoLease implement new scoring algorithms to identify subprime customers with the greatest propensity to repay their loans.
Meanwhile, the ratio of new-to-used originations flip-flopped in the quarter. New-vehicle originations hovered around the 47% mark in January and March but increased to 55.8% in February. The increase was likely influenced, at least to a degree, by off-road vehicles.
Specifically, 85.8% of UTV originations and 73.0% of ATV originations in February were made on new vehicles. In the on-highway segment, the ratio of new originations hovered around 30% through the quarter.
The average dollar amount financed rose across all segments, reflecting higher new-model vehicle prices. The average amount financed was $10,243 in January and increased to $10,655 in March.
Portfolio performance improved through the quarter. Delinquencies across all segments averaged 5.9% in January, then dropped to 4.8% in February and to 4.3% in March.
Ordinarily, delinquencies increase in the winter. However, relief programs from lenders during the government shutdown in December 2018 may explain some of the improved performance. At the time, 800,000 government workers went without pay for 35 days, and several powersports lenders offered deferrals for affected borrowers. The extra time provided to make monthly payments may have softened the seasonal rise in delinquency rates.
A lower unemployment rate may also have played a factor, as more consumers had discretionary cash to spend. The consumer unemployment rate was 4.0% in January; it declined to 3.8% in February and March.
In short, the first quarter acted within seasonal trends as lenders attempted to counterbalance lower volume by approving more loans. As the powersports market heads into the heart of the spring season, the volume will likely increase, potentially pushing down approval rates and subprime volume.