Startup Lenders to Drive Subprime Competition

Harleys on the roadTimes might be changing for the powersports industry, as several new subprime lenders are poised to enter the market.

Many lenders exited the space after the credit crisis in 2008 and 2009 — and continued to exit through 2012 — especially in the subprime market, said Nic Spallas, chief executive at Capital Recovery Group LLC.

While powersports generally lags behind the auto market there has recently been a return of lenders “with traditional options or additional consumer lending products for buyers, particularly in the subprime market,” he added.

Ride Today Acceptance, for example, joined the industry in April 2015, but has kept a “relatively low profile” while making upgrades to its dealer portal and loan originations system, according to Jason Sheely, the lender’s national sales manager.

The powersports industry is “becoming a healthier atmosphere in its new growth” and, under this backdrop, the “purse strings are definitely loosening” for some lenders, he added. “They are not loosening lending standards, but digging a little deeper in the data underlying their credit decisions, and finding excellent prospects. The market overall seems more sophisticated.”

The new post-crisis market is good for consumers, he said. “With all the smaller people jumping in, it’s more competitive again,” Spallas said, but warned that the industry is still very cyclical. Smaller lenders tend to “pop up, flurry around, then teeter out,” because the subprime powersports market is “charge-off-rate-based, so if you keep charge-off rates lower, smaller guys can survive quite nicely. If charge-offs increase beyond model tolerance, you’ll see a lot of lenders retreat from the space.”

“The combination of the increase in powersport sales and lenders who are reaching down deeper into the credit spectrum definitely has had an impact on default rates,” Spallas said.

Default rates have started to tick back up across the board in powersports, added Dennis Louderback, chief operating officer at CRG, which means repossession volume has “definitely increased from this time last year.”

The “appetite for risk is coming back to normal,” Louderback said. “Defaults may be up but they are still below normal overall historically. Some lenders — particularly the new ones entering the space — are not as tight on acceptable risk standards, so you’ve got lower Ficos coming into that pool, which would lead to more loans.”

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