New Entrant Subprime Lenders Yield High Dealer Fees

americans-savings-Wavebreak_Media-1360x860A spattering of new-entrant powersports lenders, particularly small subprime finance providers, are coming into the market and likely bringing high dealer fees with them, said Neil Noble, business partner to Owner Adam Smith at Calculated Risk Motorcycle Group — the management team for the Adam Smith Harley-Davidson dealership family.

Over the last 18 months or so “there have been a few subprime lenders that came into the market with high dealer fees, which has impacted the profit of deals, but most dealers use them as a last resort,” he said. “You have to count every dollar in the deal to put it together to make sure it’s profitable.”

“I think what they are trying to do is to fill an underserved part of the market, and to do that they have to protect themselves [with high dealer fees and stipulations] and be that lender of ‘last resort’ to get the deal done, but you [dealers] have to pay to get it done,” Noble told Powersports Finance.

Some dealers have leaned on in-house financing to serve the subprime market without the high dealer fees, but CRMG is “very comfortable” with its more than 15 lender partners, Noble said. At most of CRMG’s dealerships, subprime makes up 20 to 25% of the originations mix, which is mostly served by Harley-Davidson Financial Services.

“As our size grows and the product mix changes, there’s certainly going to be opportunities to do in-house financing, but we are at that point where we want to be good at knowing and servicing motorcycles,” not focusing on building an in-house financing service, he said. However, “we’ll never say never to an opportunity to move into a new area.”

“Until you have maxed out the upside growth in areas that are your main focus, moving into a new business area is distracting,” Noble added. CRMG has “a lot of room to grow” but once it “maxes out” its core business areas, the in-house financing idea may be revisited. “For right now, we’ve got great lender relationships,” Noble added.

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