There are many “holes and gaps” in the powersports finance industry, particularly when it comes to used-powersports vehicle financing where lending programs are scarce, said Jim Woodruff, chief operating officer at National Powersport Auctions. The lack of competition in the used-vehicle space can open the door for lenders to take advantage of a growing marketshare, he added.
Despite increased interest from powersports lenders to offer lower-credit financing for pre-owned vehicles, the availability of financing “pales in comparison” to the choices available in the auto industry, Woodruff said. “In powersports, dealers today are still reporting to us that they have creditworthy customers walking out their door because they can’t get a loan.”
Used off-road products “are the hardest to finance, despite their solid residual performance,” he said, which is due — in part — to a perceived higher risk due to“heavy use.” Pre-owned vehicles, in general, are “less attractive or less understood by banks” because they are not covered as well as they could be, Woodruff added. Many lenders stay away “out of fear of uncertainty and doubt,” or they price the loan to where it’s too expensive for consumers to purchase, he said.
Lower-credit consumers “have the fewest choices,” because most lenders who offer used-vehicle financing are in the prime space, Woodruff said. However, some powersports lenders are beginning to catch wind of the demand for lower-credit financing for used vehicles, such as Yamaha Motor Finance Corp. USA. The Cypress, Calif.-based full-spectrum captive piloted a pre-owned vehicle program at the end of the third quarter in 2015.
Lenders often think that off-road categories or other pre-owned powersports vehicles “aren’t the best candidates,” an incorrect assumption, Woodruff said. “If [the used vehicles] are in good condition, that’s a good unit, and it’s a pretty safe bet from a lending perspective because if a consumer is good, then the collateral is good.”
Pre-owned leasing provider Chrome Capital also spotted a niche market in the pre-owned space five years ago, and saw its year-over-year lease originations double in 2015. The lender projects its 2016 originations will also double due to an increase in pre-owned financing demand.
The key to finding success in the leasing and pre-owned markets lies in the “value of the asset and the stability in future markets,” Peter Wasmer, Chrome Capital’s founder and chief executive, told Powersports Finance in March. “One of the things with pre-owned Harley-Davidson motorcycles is there is an open, liquid market, and there’s good demand and predictable value. What we have found in designing our leasing program is that with proprietary algorithms we can take into account each independent model — and we’ve been able to tweak those to a very high degree of accuracy.”