Capital One Financial Corp.’s gradual exit from the market and Wells Fargo & Co.’s recent acquisition of GE Capital’s Commercial Distribution Finance (CDF), has stirred up some concern among many industry leaders, despite the continued growth of the powersports industry.
The Wells Fargo CDF acquisition is “too new to see what that impact will be, where they will take it, and [if] they are going to be more aggressive in market,” Steven Chavez, senior manager of credit services at Kawasaki Motors Finance Corp. (KMFC), told Powersports Finance. GE Capital was “all about return and maximizing profit. That means dealers end up paying the cost.” Now, the question remains: “Is that going to be different with Wells Fargo?”
Financing powersports vehicles can be risky, but “one of the advantages for a captive is they are there for the purpose of supporting the brand,” he said. “That’s the primary strategy behind a captive, as opposed to a non-captive that is primarily focused on its return on investment. It’s not necessarily whether or not a particular brand survives; it’s a revenue stream for them [non-captives], but others can fill that gap if the products ever leave the market.”
Pulling out of the market “happens traditionally with banks,” Chavez said, and “there are many reasons a lender may choose to exit the industry. For some lenders, they don’t know how to manage their portfolios. “You have to price it correctly then manage it correctly. Those are the two main keys of being successful in the business,” he added.
Capital One’s exit could be strategic and possibly due to the fact that the dollar amounts are smaller and the volume is less, Cahvez said. About 17.5 million cars were sold in 2015, as opposed to the less than 3 million motorcycles that were sold, he added, “therefore, banks look at that as small pie, and the risk is different. It’s a seasonal and discretionary business. It’s about, do we have the infrastructure, and can we price it correctly?”
Irvine, Calif.-based KMFC is the dealer wholesale financing arm for parent company Kawasaki Motors Corp. USA, and currently provides inventory financing to more than 1,000 dealers in 49 states.