Retail Captive Poses Many Challenges for Off-Road OEMs

canstockphoto1802423It’s an “open question” if Kawasaki Motors Corp. USA and KTM North America will form retail finance captives. However, launching a captive may pose too many challenges for an off-road OEM to field, said Steven Chavez, senior manager of credit services at the company’s wholesale captive, Kawasaki Motors Finance Corp.

“Our Japanese owners have not made that decision, as to whether we would be going in that direction to form a retail captive,” despite the fact that many OEMs have formed captives recently, Chavez told attendees at PowerSports Finance 2016.

Over the past two years, several OEMs have formed retail captives. Toronto-based Yamaha Motor Canada Ltd. formed Yamaha Financial Services on July 4. In March 2015, Cypress, Calif.-based Yamaha Motor Corp. USA revved the engine of its nonprime captive, Yamaha Motor Finance Corp. USA. Even Polaris Industries Inc. formed a “captive-like” program with FreedomRoad Financial, called Performance Finance, in September.

“One of the main issues with a retail captive is, are we just financing Kawasakis?” Chavez said. Kawasaki’s “big seller” is the sportbike, and the primary buyers of sportbikes are typically consumers in their 20s, who often like to drive fast and reckless, and don’t have a lot of credit or good job histories, Chavez explained.

“I think if you are a captive on the retail side — and I’m not a retail expert — but based on what you are [financing], it could be problematic from a portfolio structure standpoint, if the majority of your products are lower Fico and higher risk transactions,” he said. This may have contributed to Kawasaki’s decision not to form a retail captive yet.

Forming a retail captive is not “on the horizon by any means” for KTM North America, either, but the OEM might consider it in the future as the finance industry evolves, added Tom Etherington, the OEM’s vice president of sales. “There are certainly some challenges to it, but there are some benefits to it as well,” he told attendees.

Retail finance is a “different animal,” and there are many moving parts, Chavez said. “You need much more in the way of infrastructure than wholesale finance, I want to say it’s definitely more complicated in managing it day to day,” because it can require more operating overhead.

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