Dealernews recently queried a selection of Dealernews Top 100 retailers to get a snapshot of the current business climate as it pertains to their F&I departments.
Here's what the dealers had to say in response to our questions.
"We are noticing that the banks are limiting the selling prices to MSRP and capping back-end products to 25% of MSRP. This is making it harder to get trade-ins approved." — Brian Jackson, Star City Motor Sports, Lincoln, Neb.
"OEM financing in the Harley world (HDC) has become tough to sell because the rates are higher than traditional banks and because credit unions receive their money from the feds. Back end products like Extended Service, Gap, and Life & Disability have been a tough sell because everyone is cutting cost anywhere they can and would rather take a chance and be unprotected." — Curtis Thompson, Shenandoah Harley-Davidson, Staunton, Va.
"There seems to be an increasing number of consumers utilizing outside funding sources. Those attempting to finance via our OEM financing option are being denied for debt to income ratio or lack of credit. There are also a fair number of consumer cash purchase transactions." — Donna K. Westphalen, "The biggest thing we've noticed is lower credit score customers (under 600) used to more readily get financed. It's a bit more difficult now if at all." — Traci Konieczny, All Pro Motorsports, Inc., Waukesha, Wisc.
"Consumer financing has been trending down continuously this year. Banks are enforcing guidelines such as low max advances, which are extremely difficult to be very profitable under. Dealerships can get underqualified buyers with second chance lenders at high rates, or overqualified buyers with very good rates. These are individuals with 600-700 credit scores that are either turned down or approved, but educated enough to know that purchasing a vehicle at 18% APR is not a wise purchasing decision. Therefore they do not purchase." — Daniel Arriaga, Family PowerSports Weatherford, Weatherford, Texas
"We are lucky to have the backing of a strong financial institution in HDFS. HDFS continues to support their dealership network through consumer lending. Although Eaglemark Savings Bank (ESB) continues to be an important partner to us as a dealer it has become necessary for them to somewhat tighten up on their lending practices. Down payment requirements and APRs tend to be drifting upwards as ESB is making changes to their lending practices." — Nathan Rust, Black Wolf Harley-Davidson, Bristol, Va.
"We are seeing more rejections of customers by the retail lenders. This means effort put into sales (often a day of our time) which results in refunding a deposit and no profit for the dealership. Many of these customers have purchased from us before and used financing and they do not understand why we can't sell them something again. They somehow believe it is the dealer's decision whether they are approved for financing or not. The dealer and the brand get blamed when a deal falls through on financing. Young buyers with little credit history are impossible to get financed. I don't know where these people will get a start on building credit. Also, more customers want to arrange financing on their own as they feel they can get better rates at their own bank (often 3-9% less)." — Dan Witmer, Gear Head, Ottawa, Canada
"We have a local bank that we use for most finance deals, some OEM programs if the customer is demanding them and we try to convert all cash deals to our sources. Around 40% of our deals are financed. We try to use the local bank the most because they pay us a finance reserve and do not cap back-end products." — Brian Jackson, Star City Motor Sports, Lincoln, Neb.
"We are still doing the majority thru HD Credit because of the term we can get (84 months) that most banks will not do. Local credit unions have cut into our finance penetration numbers greatly." — Curtis Thompson, Shenandoah Harley-Davidson, Staunton, Va.
"There has been an increase in outside financing through local banks and credit unions as the financing interest rates can be considerably lower. The customers usually work the vehicle purchase with the salesmen and the financial numbers with F&I personnel in order to present the bank or credit union an accurate buyer's order for the financing needed. At times the consumer will apply for credit through our OEM option and through their bank or credit union in order to obtain the best deal possible." — Donna K. Westphalen, Grove's Winchester Harley-Davidson, Winchester, Va.
"We've never had an OEM finance program. We've been using mainly our local credit unions or our customers are paying cash." — Traci Konieczny, All Pro Motorsports, Inc., Waukesha, Wisc.
"We are financing far less deals through OEM programs than we have in years past. Cash sales have increased significantly. Development of relationships with local banks and credit unions is beginning to make a stronger presence in our finance percentages. Many customers investigate OEM financing as part of their buying decision process but choose to pay cash or use personal banks due to OEM rates being too high." — Daniel Arriaga, Family PowerSports Weatherford, Weatherford, Texas
"As is the case in most of the consumer lending industry, rates and required down payments have been trending upwards. This has steered more customers to either purchase through a local credit union (our local credit unions seem to be somewhat insulated from the credit crisis and their rates and down payment requirements remain relatively low) or bank or to cash in investments to pay cash for the motorcycle since the investments are not making a return to justify the customer keeping their money invested while financing the balance of the motorcycle." — Nathan Rust, Black Wolf Harley-Davidson, Bristol, Va.
"We are seeing more cash purchases and customer arranged financing. Some customers have saved considerable amounts of cash, likely due to a strong underground economy especially in the construction and tourism industry. Then they believe cash will get them additional discounts and deals (or no tax), even though dealers are missing out on finance profit and now have month cash deposit limits at the bank. Our cost of handling cash is greater than credit or debit card purchases." — Dan Witmer, Gear Head, Ottawa, Canada
"We try to stay away from OEM financing because a lot of them are revolving accounts that do not pay any dealer reserve." — Brian Jackson, Star City Motor Sports, Lincoln, Neb.
"We personally have not had any luck with local banks and credit unions because most of them do not have a dealer division." — Curtis Thompson, Shenandoah Harley-Davidson, Staunton, Va.
"Our dealership utilizes our OEM financing option. The OEM financing is their own financial institution and as such they do not 'sell' their paper to other financial institutions as banks and credit unions often do in order to offer lowered rates." — Donna K. Westphalen, Grove's Winchester Harley-Davidson, Winchester, Va.
"Our local credit unions more so than banks seem to get the job done." — Traci Konieczny, All Pro Motorsports, Inc., Waukesha, Wisc.
"Definitely a fact. OEM partnered banks have small max advances and strict guidelines limiting the vehicles we can sell by year make and sometimes model, as well as leaving little or no additional money for F&I products. Local banks do not limit us to certain years, makes, or models, nor do they cap us on how much they will lend for a particular machine." — Daniel Arriaga, Family PowerSports Weatherford, Weatherford, Texas
"In my experience we are not turning to local banks/credit unions more. The revenue our F&I department generates is vital to the health of the dealership and we feel that the way for our dealership to be most profitable in the F&I department is to finance as many units as possible through our OEM financial institution. On the other hand, if there is a customer we cannot reach an agreement with while trying to finance through our OEM program we will gladly recommend that they check with the local credit union which has pretty loose borrowing standards and very long terms (up to 15 years)." — Nathan Rust, Black Wolf Harley-Davidson, Bristol, Va.
"We have not yet approached local banks and credit unions. We prefer to streamline our retail financing through one or two lenders and use online applications that save us time." — Dan Witmer, Gear Head, Ottawa, Canada
"The pros are the advertising and quickness of decisions. As far as cons go, they cap selling prices, do not pay a reserve, and have interest only payments that leave the customer upside down." — Brian Jackson, Star City Motor Sports, Lincoln, Neb.
"The pros are the term or length you can finance a bike, plus factory backed institutions are more likely to take a chance on a customer because it's their product." — Curtis Thompson, Shenandoah Harley-Davidson, Staunton, Va.
"Pros — With OEM partner financing the consumer has the option to roll various expenses into their financing package. Expenses such as parts, accessories, extended service plans, insurance, GAP and Debt Protection. Most outside financial programs will only finance the vehicle purchase price for a shorter amount of time with higher down payment requirements. The OEM financing also offers early payoff ability with no penalty. Cons — OEM financing interest rates are higher. The need for a solid credit history and stable payment history can be a problem with the many individuals being affected by economic pressures. Many banks and credit unions have personal relationships with consumers which can be an advantage to many consumers." — Donna K. Westphalen, Grove's Winchester Harley-Davidson, Winchester, Va.
"With the recent performance seen from OEM partnered banks the only pros I can see are the ease of online application, capability to contract in house, and easy funding process. The cons are limited funds, high interest rates, small max advances, constantly changing guidelines, inconsistent documentation requests, nonexistent programs for used product, and impersonal relationships. With OEM partnered banks you rarely speak with the same person about the same issue, this leads to a lot of miscommunication and extra work. Perhaps these banks should assign dealer representatives so that these issues will not be as much of a problem." — Daniel Arriaga, Family PowerSports Weatherford, Weatherford, Texas
"Because Eaglemark Savings Bank (ESB) is affiliated with Harley-Davidson they truly become our partner in the business of selling motorcycles. ESB will do all that they can to help us as a dealership get a deal together. Whereas with a bank or credit union, motorcycle lending is a very small portion of their business and therefore a small portion of their livelihood. As a result, ESB is more willing to allow dealerships to finance in F&I products (such as GAP, Extended Service Plan, Pre-Paid Maintenance Plans, Shopping Sprees, etc.) which is vital to the success of our dealership." — Nathan Rust, Black Wolf Harley-Davidson, Bristol, Va.
"Pros — We can get some marginal customers approved due to the brand connection, i.e. Polaris is motivated to sell their brand through their choice of lender. Cons — Much higher interest rates (13-14%) which often scares away potential customers. Lower dealer reserve (or none at all if payment programs are applied, i.e. 0% or No payments for a year). Many customers have been disillusioned by the desperate automotive industry which has offered 0% financing and other huge incentives. They believe we should be able to do the same if we want to sell them a vehicle." — Dan Witmer, Gear Head, Ottawa, Canada
"It's important consumers know that rate isn’t the only thing to shop or focus on, sometimes more term with a simple interest loan is more important because it keeps the payment down and there is no pre-payment penalty for early pay off. They need to choose a plan that works for their budget and gets them the bike of your dreams instead of settling for a bike they'll be trading within a year." — Curtis Thompson, Shenandoah Harley-Davidson, Staunton, Va.
"There are an increasing number of consumers who actually lack credit due to their practice of paying their bills in full and paying much of their debt with cash. It would seem that if you are not in some type of debt, you are not considered credit worthy. There is a mixed message being sent to young adult consumers today, stay out of debt, stay away from credit cards but we won't give you a loan because you have no credit history." — Donna K. Westphalen, Grove's Winchester Harley-Davidson, Winchester, Va.
"Reckless lending creates reckless borrowing. As financial institutions requirements for lending become more responsible borrowers will in turn borrow money more responsibly." — Nathan Rust, Black Wolf Harley-Davidson, Bristol, Va.
"We don't like OEM financing programs as they cut into our profit and are too complex to sell to customers (too many options and stipulations). We use a finance broker who pre-screens applications and selects the right lender for the applicant. The broker is better than us at selling credit insurance and relieves us from this somewhat sensitive customer fact finding 'interrogation'. We make additional profit without having in-house trained and government certified F&I people in our small store. Customers know the bank prime rate is less than 1% (currently .25% in Canada) and don't understand why the best rates we can offer on retail financing are 8-9%. This is why they seek other methods of payment." — Dan Witmer, Gear Head, Ottawa, Canada
—Submitted by Guido Ebert
- What are the trends regarding consumer financing/purchasing being noticed by your F&I department?
- How are most of the vehicles you sell paid for by the consumer? Through an OEM finance program, via a local bank or credit union you connect the customer with, through financing arranged by the customer prior to the purchase, or by cash?
- We hear dealerships are increasingly turning to local banks and credit unions (rather than large OEM-partnered financial institutions) to arrange financing for customers. Your thoughts?
- What are the pros & cons associated with OEM partner finance programs?
- Anything else you would like to add regarding the topic of consumer financing?