HERE'S AN INTERESTING HYPOTHETICAL: What if the worldwide credit crunch had happened back in April? "It would have bankrupt our industry," guesses Bill Shenk, an organizer of 20 groups who works with about 80 dealers.
That sounds dire, but Shenk is still upbeat. "If the crisis had to happen," he says, "it could not have happened at a better time in the powersports industry because Christmas is traditionally a cash market anyway. And so we've got until February to get this thing fixed."
Shenk probably wasn't thinking snowmobiles when he said this. Let's just pray for snow. From what I hear, as long as it snows enough, people buy sleds as an impulse item. The last thing on their minds is the interest rate.
But I assume these snow-crazed folks will qualify for a loan to begin with. As you know, things are bad in the F&I office. To find out how bad, I contacted about a dozen dealers as well as banks, OEMs and financial gurus. Below is sampling of what I discovered. (For more details, see my story posted in the "Web Exclusives" section of www.dealernews.com.
Difficulty in financing used bikes. This problem has been brewing since last year when the Polaris card stopped taking other brands. More recently, Suzuki and Kawasaki each began limiting its installment loans to its new units. Other programs continue to finance used bikes, but not those of other brands. Standards have tightened.
"Our used inventory is stacking up," an Arizona finance manager tells me. His store is still taking trade-ins, but others aren't. A potential customer, he says, was even preparing to ride for about three hours to get to his dealership. "His local dealerships won't take any more trade-ins because they're having such a hard time getting funding for them," the manager claims.
A Shift toward installment loans and cash deals. Heidi Byers is finance director for RideNow Powersports, a network of 29 dealerships. She calls revolving cards an "industrykiller." In the past year she's directed the finance managers under her to write more installment loans. "I'd say 80 percent of our deals are now install," she says. Other dealerships report a similar shift.
Most readers know the dangers of revolving loans. People get backward in the loan and never return to upgrade. Many mom-and-pop shops, however, have grown to rely on cards due to their simplicity and promotional value.
With fewer people qualifying for loans (and fewer sales, period), there's also been shift toward cash deals. A major California dealership, for example, tells me about half its sales are now cash.
Fewer lenders — for now. Turn to page 18 to read about the disappearing act GE Money's FUNancing performed at many stores in November. The industry's other big lender, HSBC, many months ago cancelled its dealer-direct program, Rev Charger XL.
A manager at Rick Fairless' Strokers Dallas tells me that Bank of America and Wells Fargo will no longer finance the store's American iron.
But I'm also hearing that due to the auto industry's woes (seemingly even worse than ours), some auto lenders are starting to look at powersports. As the usual lenders pull back or make their exit, others will no doubt fill in the slack.
In the long term, a more diversified lending base and a shift toward installment loans will be good for the industry. Bill Shenk is even fairly optimistic about this upcoming spring. "My guys think the tight money is temporary, and I tend to agree with them," he says. "The financial institutions are going to close up 2008, and then they're going to ask, 'How are we going to make money to keep the doors open in 2009?'"
I imagine many of you will be asking yourselves the same question.