Lenders Slowly Increase Used Financing Credit as Consumer Demand Rises

motorcycle-1558795_1920Think about all the wear and tear typically put on cars. They’re driven thousands of miles every year; people spill food and drink all over their interiors; and they’re often exposed to the elements where rain, snow, salt, wind, and dust take their toll.

After 14 years, many cars are going to be pretty beat up, but the same isn’t necessarily true of motorcycles, said Brad Van Horn, owner of Buy Your Motorcycle.

A 2002 car is probably not going to be in the best condition, Van Horn told Powersports Finance. “But a 2002 Harley with 12,000 miles, that’s been kept in a garage, is a pretty nice motorcycle.”

Lenders are beginning to recognize these market differences as credit is slowly moving into the used powersports finance space and “consumer demand is moving away from the bigger, more expensive bikes into cheaper more moderately priced stuff,” he added.

However, even as players, such as Westlake Financial Services, continue a push into used financing, there’s still a lack of knowledge around how powersports vehicles differ from autos. The lack of used-vehicle financing has left a significant hole for someone to fill, said Donal Hummer Jr., president and chief executive of ThunderRoad Financial.

“A lot of lenders, even today, still shy away from [used-vehicle financing],” Hummer said. “It takes a lot more work and training on the finance companies’ side to understand what we’re really financing and what the value is.”

New bikes come with an MSRP and a clear price point, he said, whereas the used market requires an intimate knowledge of the books and the higher risk credit profile for a consumer buying used versus new, which can scare off a lot of lenders.

“In the end, I still think it’s worth it,” Hummer explained. “Dealers have a lot of used bikes. If no one finances them, then they can’t take trade-ins and people can’t buy used bikes. So if you’re in this business, you really should be probably looking at [used].”

Westlake Financial Services has been one of the lenders consistently driving into the powersports space ever since it inked a deal with Kawasaki Heavy Industries back in 2014, and the company says it plans to continue that trend in 2017 — with a push for used vehicles.

“There’s definitely a need in that area and the competition is low, so we feel we can fill a void,” said David Goff, Westlake’s assistant vice president of marketing. “Are we buying in the deep subprime trenches there? No, but we will, with the right structures. We’re really focusing on that near-prime, or high-end of the subprime, spectrum to fill the void that currently exists.”

Goff’s greatest concern is that the deals are not structured properly and said the company is working with dealers to encourage healthy down payments, lower LTVs, and used vehicles that don’t exceed 25,000 miles.

Yet, dealers speaking at PowerSports Finance 2016 said they are pushing for the exact opposite requirements. There are two main reasons for this discrepancy: fear of product quality and fear of depreciation, said Jim Woodruff, chief operating officer at National Powersport Auctions.

“There’s a misconception that once [a motorcycle] rolls off the lot, it’s going to get beat to crap and it’s not going to last,” Woodruff said. “Well, that’s just far from the case. Motorcycles today are well built, or better built than your average car, so the quality and the longevity of a motorcycle is outstanding.”

Powersports values tend to plateau at around five years after the initial sale and will maintain that value for years after, whereas cars decline far more rapidly during the same period, Woodruff explained.

Lenders are certainly concerned with picking the right product to finance on a used loan, Hummer said, but a good dealer relationship helps manage that risk. ThunderRoad Financial frequently checks prices against the books and 99 times out of 100, the dealer is spot-on with NADA pricing, he added.

“You have to not look so much at the age,” Hummer said. “You look at what that bike is worth, versus some arbitrary, ‘Well, we’re going to cut you off at four years and 25,000 miles. The people take really good care of these things. These are their toys, this is their passion.”

Lenders are slowly coming around to the used market, and increased sales prove it, Van Horn said. However, used vehicles could fit the consumers with a 550 to 650 credit range, which is where “a big opportunity” for financing still exists, he added.

“If you’re a powersports dealer and you’re not franchised or you don’t have a captive — which is not common — then you don’t have a whole lot of choices,” Woodruff said. “You’re going to be forming relationships with your local banks and credit unions. More dealerships are selling more used today than before, but the financing options available today just aren’t what they were [before the recession], and I think the industry suffers as a result.”

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