By Nick Zulovich, Editor
IRVING, Texas – Steve Klees sees motorcycles and other powersports equipment sitting at dealerships and can’t help but think there are possible scores of potential subprime buyers for those items if more finance companies chose to delve into that market.
Klees, who is the senior vice president of specialty channels with EFG Companies, explained his thinking to Subprime Auto Finance News earlier this summer.
“Think about one out of every seven or eight customers the dealer pays from leads to come on the lot, and they can’t take delivery because they can’t obtain credit through the dealership,” Klees said.
“That’s a big market opportunity that’s out there for those companies that are aggressive and understand where the opportunity is,” he continued.
With the situation in mind, EFG Companies announced it has been selected as the premier product provider by MotoLease, a financial services company that offers unique consumer leasing programs through MotoLease authorized dealers. The company designs solutions exclusively for the motorcycle and powersports markets to help even the most credit-challenged riders.
MotoLease has partnered with EFG Companies’ Motorsports Division to enhance its lease offering with a goal of aggressively increasing market share. EFG private labeled its vehicle return program, the award-winning program behind Hyundai Assurance, along with its vehicle service contract and roadside assistance.
Starting in June, under the SelectGuard brand, all MotoLease leases will include complimentary limited coverage, including six months vehicle return and 12 months roadside assistance, with the option to upgrade.
“Going into 2014, we knew we had to get ahead of industry trends, and leasing gives customers the ability to get into a bike without having the extra financial burden of an outright purchase,” MotoLease managing partner, Emre Ucer said.
“EFG demonstrated agility and innovation within their product development and administration that we felt would greatly enhance our ability to achieve our goals,” Ucer continued.
According to the latest report from the Motorcycle Industry Council, first-quarter sales were down 0.2 percent (or 118 units) from Q1 2013, and the motorcycle market dropped 14.7 percent in Q1 2013 from the year before.
While yearly sales have stabilized since the Great Recession, EFG Companies believes they have not bounced back yet.
“MotoLease had significant opportunity to adapt their lease product to both dealership needs and customer concerns,” said Glenice Wilder, vice president of EFG Motorsports. “Our private–labeled product offering takes on that opportunity by providing customers critical protection against unforeseen circumstances and setting the stage for dealers to increase their profitability with upgrades.”
With the combined effect of American consumers still being wary of the economy and motorcycle sales’ dependency on discretionary income, dealerships need a significant value-add to incentivize consumers to make a motorcycle purchase. MotoLease recognized this need and understood that providing limited complimentary consumer protection products would significantly enhance the value of their leases.
This new offering from MotoLease and EFG is designed to enable dealerships to better provide customers options when making a purchasing decision, while at the same time increasing profit per lease sold and customer loyalty.
“If you take higher-end bikes with an average unpaid balance of somewhere between $14,000 and $15,000, the margin opportunity for lenders – which I think is really interesting in the motorsports space – is significantly higher, maybe even two to three times higher than it is on the auto side that’s so highly competitive,” Klees said.
“I don’t think you’re going to see losses that are any different. I don’t think you’re going to see delinquency rates get higher. I think there might be worrying on how to collect those properly and getting back collateral. But it’s a highly profitable, high margin opportunity that I believe is being missed,” he continued.
Klees recalled that Harley-Davidson Financial Services, the captive he called the “bellwether” of the motorcycle space, held about 28 percent of its overall portfolio in subprime in 2006. Klees noted that penetration softened dramatically during the recession and recovered to only about 7.5 percent last year.
“While it’s come back really strong for retail automotive, there is still a gigantic gap in the subprime motorsports financing business that just isn’t back to what the current needs are,” Klees said.
“I think a lot of lenders withdrew from it,” he continued. “The major attraction for subprime lenders was to get back into auto because it’s a business that they knew very well prior to the recession. There are also higher balances. Motorsports have really been ignored.”
“In that five-year, six-year span, Harley stayed around for their dealers as the captive, but we have a whole generation of finance managers now that have become used to using only the captive as an example,” Klees said.
“They haven’t really expanded out to see who is in the market and who is ready to play. It just hasn’t bounced back due to the lack of search on the part of dealers and the lack of interest on the part of lenders. But there is a tremendous opportunity,” he added.
Klees also touched on who these potential subprime buyers might be. He mentioned a large amount of possible buyers who didn’t even have a credit history before the recession or individuals who saved as much of their money as possible during the economic downturn. “Those are your target demographics,” he said.
And potential buyers who took various kinds of hits to their credit during the recession?
“Those that were bruised have recovered, and they understand that the value that they get with a purchase is critical,” Klees said.
“I think there is a better opportunity now than there was six years ago when everyone departed,” he added, noting the Motorcycle Industry Council projected retail sales of 385,000 units this year, possibly rising to about 410,000 units in 2015.