It is no secret the powersports industry is speeding down the fast lane toward pre-recession levels, and if increased financing volumes aren’t enough proof, add ultra-low default rates into the mix.
Defaults are not non-existent for Texas Dow Employees Credit Union, but in March “you could count them on one hand, and we have a fairly large portfolio,” Chuck Smith, vice president and chief lending officer at TDECU, told Powersports Finance.
TDECU, a Lake Jackson, Texas-based prime lender, works with 75 powersports dealers and offers financing on new and pre-owned vehicles. The company reported its highest month of loan originations in March, with a 45% year-over-year increase versus the same month last year, Smith said.
“Even with energy prices the way they are, people still have their passions for what they like to do,” and many consumers are going to make sure they can afford their recreational vehicles to accommodate those passions, he said.
“We don’t have too many people in default, and we try to work with them in any way we can. These payments are typically fairly affordable, so it’s something they can get caught back up on if they get a chance.”
– Chuck Smith, Vice President and Chief Lending Officer, TDECU
Despite noticeably low default rates, delinquency cure rates and voluntary repossessions are “fairly high” in the overall powersports market, said Jim Woodruff, chief operating officer of National Powersport Auctions. Many industry leaders have reported that consumers in default are more willing than ever to come current on their past-due amount or give the unit up to the bank voluntarily, he added.
For TDECU consumers who reach the repossession stage, “we don’t do a whole lot of major crime investigations,” Smith said, referring to consumers who may try to hide the vehicle. Most of the time, especially with higher-credit consumers, “when something bad happens in life, they will communicate with you about it and give the product back.”
Higher cure rates can be attributed to a variety of factors, according to Woodruff. “It’s a mix of consumers having just enough resources available these days to get paid up on a unit’s balance, combined with different policies and regulations in the lending environment pushing lenders to modify their approach,” he said. “It may also be a secondary effect from changes in collection regulations and policies forcing units that might normally have been cured during collections to go down the repo path before the consumer gets caught up.”
Low default rates — and even the uptick in cure rates — can also be due to consumers not wanting to “burn their bridges,” said Brad Van Horn, owner of the Arlington, Texas-based dealership Buy Your Motorcycle.
There are not nearly as many motorcycle dealerships or subprime lenders as there are in the auto industry. “The subprime finance customer that buys — say a Harley-Davidson motorcycle — has to put down $1,000, $2,000, $3,000, and so on, but he’s been wanting a Harley for a long time,” Van Horn said. “He finally found a place for financing, so he’s going to let everything go before he lets it [the motorcycle] go.”