Categories
Uncategorized

EFG Companies in Subprime Auto Finance News: Motorsports Sales Ripe for Fruitful Subprime Growth This Year and Beyond

ImageBy 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.”

P2 C4“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.

Categories
Business Growth F&I

Vehicle Dependability is on the Decline! Do You Know How to Leverage this Trend?

Contributing Author: Brien JoyceWith the pent-up demand and looser credit standards, customers have been flocking to dealership lots over the past year and a half. While that trend is expected to continue, dealerships have also seen a much more demanding consumer walk onto their lots. Since the recession, consumers have a tighter hold on their wallet and expect more value for their dollar.

Now, compound their hesitation with the widespread recalls and reports of vehicle failures hitting the news. Not only are customers more concerned with the level of service and value they receive from the dealership, but also with the dependability of available new model inventory.

According to the 2014 U.S. Vehicle Dependability Study from J.D. Power and Associates, for the first time in 15 years, owners of three-year-old vehicles reported more problems than did owners of three-year-old vehicles in the previous year. They attributed this drop in dependability to an increase in engine and transmission problems, particularly on 4 cylinder vehicles.

With vehicle dependability called into question, along with many high profile news stories around the OEMs and recalls, you can bet consumers are going to be even more circumspect when it comes to purchasing their next vehicle. Your dealership partners need a strategy to incentivize potential customers to purchase from them. Keeping in mind that retail sales volume has a significant impact on your loan volumes, think about this statistic from the J.D. Power Automotive Internet Roundtable – today’s car shoppers visit only 1.1 dealerships before making a purchasing decision, which is down from visiting three dealerships just five years ago.

Now think about how many of your dealerships partners are the ones with which consumers choose to do business. Going forward, the best way to keep your share of loan volume is to ensure that your dealership partners successfully sell to this new single-visit customer. But how?

The Answer: Keep it Simple —

  • Be available during dealership hours and not just 9 to 5, Monday through Friday.
  • Provide fast, consistent loan decisions.
  • Be willing to advance on consumer protection products that add value to the loan and take away customer concern.
  • Consider offering complimentary limited warranties that help extinguish customer hesitation.

With vehicle dependability called into question, the ability for your dealership partners to sell vehicle service contracts will be at the forefront of their minds in the coming months. Consumer protection products will not only mitigate customer concern, but also reduce the likelihood of defaults. This is especially important in the subprime space where a vehicle breakdown could cause a consumer to choose between making their monthly payment and repairing their car.

Of course, not all customers have the credit history to afford a loan that takes into account the vehicle cost and the traditional F&I products sold within the dealership. That’s where structuring complimentary limited offerings within your loan can take the lead. This way, the customer still gets coverage on some of the most important parts of their vehicle, your loan is better protected from default, and the dealership has the opportunity to upsell to different coverage levels to increase their profit.

Whether you can structure your loan advance to take the cost of selling F&I products into account, or provide complimentary limited offerings, your loan will stand out and keep you top of mind. Combine this with quality customer service and F&I managers will prefer to sell your loans.

With over 35 years of innovating nimble consumer protection products for dealerships across the U.S., EFG Companies knows how to structure your loan to stand out from the crowd. Contact us today to find out how.

Categories
Banner Economy

Faced with Economic Lemons? Lemonade Sure Tastes Good.

Contributing Author: Steve KleesAs President Obama and Congress nail out budget sequestration for 2013, businesses across the country are scrambling to determine how this will affect their productivity.

Political Pundits are anticipating the sequester will cost the economy upward of one million jobs in 2013 and 2014. While this might make you cringe when thinking about possible affects to the sub-prime auto loan market, it’s important to remember that coming out of a recession, there is pent-up demand.

According to recent stress tests conducted by Fitch Ratings, the U.S. auto market can withstand a hypothetical recession and material declines in used vehicle recovery rates. However, rather than just trying to withstand economic hardships, your competitors are looking for ways to turn those stresses in their favor.

How do you stand-out from the crowd among F&I managers beyond low interest rates?

Consider the following scenario.

An F&I manager has a customer who qualifies for financing through your institution and a competitor. While the competitor’s rate is slightly higher, they also offer complimentary consumer protection products that make their loan more stick (not to mention the opportunity to make money through upsell). Which rate do you think the F&I manager will sell?

Structuring your loans with F&I products that reflect current economic conditions and consumer needs not only make it easier for finance managers to sell, but also:

  • attract and retain dealership partners;
  • increase year-over-year auto loan volume and financial control;
  • expand per month income;
  • reduce default rates; and,
  • decrease repossessions and collection costs.

With over 35 years in administering consumer protection products and working hand-in-hand with dealers across the U.S., EFG Companies knows how to structure your loans to be more attractive in the F&I office with F&I products custom-tailored to match your dealership-partner’s demographics.

Find out how EFG can turn economic stress into increased revenue streams today.