Low-Rate Financing Causes Industry Unease

the-strategy-1080533A lack of backend reserve for powersports dealers has caused industry unease, particularly in regards to the influx of 0% financing promotions, according to Bruce Marcia, director of retail management consulting firm Bruce Marcia & Associates.

While this is not typically an issue in the auto industry because of the “dozens” of aftermarket product options, for powersports there are not nearly as many add-on products to offer, Marcia told Powersports Finance. “Where’s the money for the dealer?” Marcia said. “There used to be a reserve for dealers when they did financing in-house, so that when there is a certain interest rate — whether it was 3, 4, 5, or 6% — there was a backend reserve for those dealers.”

Not all low-rate financing deals offer extra financing for aftermarket products, Marcia said. If lenders do offer extra financing for those products “it can be quite limiting,” he said. “Bank dealer services or other outside lenders can be more generous in that area, especially for qualified buyers. That’s a big plus for the dealer and the customer.”

“If the manufacturer promotion offers 0% financing plus another retail option, there isn’t much a dealer can do to mitigate the lost income,” he said. “However, most manufacturers will offer the consumer a choice of either low-rate financing, a retail rebate, or an accessory credit. A smart dealership will sell against the low-rate financing and promote a better price on the unit using the retail rebate or accessory credit and then finance the unit with a higher interest rate which makes the dealer more profit on the unit overall.”

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