In contrast, if that consumer loses his car to a repossession, “there’s a place on every corner to get another car for $600 down, and burn the next dealer,” Van Horn said. “If they burn that bike and bridge with that dealer, they are not getting another motorcycle. They can, but it gets worse and worse. They are going to an in-house, tote-the-note motorcycle shop.”
For subprime consumers, “it means more to them to keep the bike than anything else,” which is why repossession volume and default rates are “way lower than you’d expect,” Van Horn said. “Our repo rate is 5% — it’s crazy low.”
Nearly half of Buy Your Motorcycle’s 77 deals in the month of February were to subprime consumers, according to Van Horn. The dealership has 14 financial partners, including its in-house financial services provider, CAR Financial Services.
Anecdotally, default rates in recent years were reported as lower than pre-recession levels, which might be attributable to banks originating fewer deep-subprime deals.
“The reason why repossessions and defaults are at a low is because they [lenders] just raised the bar so much on who they’ll give a loan to. In this case, the fact is they really cranked up the requirements for consumers to get a loan within the powersports industry.”
– Eric Lawrence, Director of Specialty Products, Black Book
As the economy picks up, and financial providers loosen loan approval standards, the industry can expect to see a return to higher repossession and default rates, Lawrence added.
Defaults are highest in the late fall and winter, because if consumers aren’t riding the motorcycle, they typically aren’t making the payments either, said Tom Collins, executive vice president and managing director at FreedomRoad Financial. Repossession volume usually looks a lot better in the springtime, “once you get that first 70-degree sunny day,” he said. “People want to ride, and if they want to ride, they have to stay current on their loans.”
The turnaround for repossessions usually begins after the New Year, said Peter Wasmer, founder and chief executive at Chrome Capital. “Once we cross over into the New Year, [repossessions] go the other way,” he said. “Whether it be from an end-of-the-year bonus or tax refund, there’s an uptick of people jumping on bikes. It’s a traditional cyclical habit. Repossessions are almost non-existent at that point.”
Reno, Nev.-based FreedomRoad Financial is a full-spectrum lender that funds loans for more than 1,500 franchised dealerships. Chrome Capital, a Naples, Fla.-based lease provider, is partnered with 750 dealers, and offers leases across the credit spectrum for pre-owned Harley-Davidson motorcycles and new Indian and Victory motorcycles.
Overall, repossession during the fall and winter “works out great from an auction perspective, because we see that volume come to auction in the springtime, and that’s when dealers need it,” NPA’s Woodruff said. “It works out great for lenders, as well. When they have the most amount of product to liquidate, that’s the time when the dealer needs it most, and this maintains a healthy price point for them. If peak was in late summer, dealer demand is at its lowest point — lenders take a bath in that. Volume that comes at the same time as the demand peak is good.”
This story originally appeared in the second quarterly Powersports Finance magazine. For access to this issue, subscribe here.