But things are already bad in the F&I office. To find out how bad, Dealernews contacted dealers as well as banks, OEMs and consultants. Here’s what we discovered:
- Rates and standards, of course, have risen.
- Lenders are leaving the market, and others are adding restrictions.
- As this happens, it’s become especially difficult to finance used vehicles, leading to used-vehicle stockpiles.
- The whole market seems to be shifting toward installment loans (as opposed to revolving credit) and cash deals.
- Some automotive lenders may actually be entering the market.
Read on for a closer look at these issues.
Captive Financing: The Times They Are A-Changin’
But before we delve into it, let’s review how the manufacturers finance vehicles. HSBC and GE Money underwrite between them most of the major captive finance programs. Exceptions include BMW, Harley-Davidson and Honda, all of which have their own finance arms. But even Honda outsources its revolving program.
The big news right before this story’s posting was that Suzuki and HSBC were ending their relationship at the end of the year. Suzuki had not announced the new underwriter, and it declined to comment for this article. Here’s how HSBC and GE Money carve up the market:
- Kawasaki (installment and revolving)
- Polaris (revolving)
- Suzuki (installment and revolving — until next year)
- Yamaha (revolving)
- Arctic Cat (installment and revolving)
- BRP (installment and revolving)
- Ducati (installment and revolving)
- Honda (revolving)
- KTM (installment and revolving)
- Yamaha (installment)
- Piaggio Group (installment and revolving)
- Polaris (installment)
- Triumph (installment and revolving)
If it seems as though the industry has its eggs in a few baskets, it’s because it does. “It’s a little different in powersports than in auto,” says Bill Shenk, a consultant and 20 group organizer who works with about 80 dealers. “In auto, over the years there has been just a huge amount of sources of money. There hasn’t been a lot sources in retail financing in powersports. The manufacturer has to make it happen. In that situation, if those guys stop loaning money, it just puts the industry on its knees. And I don’t think that’s what these guys are looking to see happen.”
The auto industry, of course, is doing worse than we are. Some manufacturers report sales declines of around 30 percent, and the domestic makers have been reduced to begging.
Powersports firms, on the other hand, are relatively profitable. “So for them to go out and guarantee money to get money to sell their products is not something that is out of the realm,” Shenk says.
Polaris, for example, once shared with HSBC the risks associated with its revolving program. The manufacturer also had to maintain a deposit of $50 million. But a new five-year agreement in August 2005 placed all the risk on HSBC and ended the deposit requirement. Instead the bank began paying Polaris a fee based on business volume, and Polaris began paying HSBC for promotional interest rates.
Then this past spring Polaris filed a lawsuit in district court saying that HSBC breached the contract by threatening to tighten lending standards unless Polaris either gave up its incentives or increased its promotional payments.
Polaris reluctantly agreed to forgo its incentives, as well as make other changes. According to its complaint, if it hadn’t, its annual retail sales volume from card purchases would have dropped below $350 million. The complaint states that in comparison, card sales in 2007 reached $699 million. “As a result of HSBC’s wrongful conduct,” it states, “Polaris has suffered and will continue to suffer substantial damages through the remaining term of the agreement.” (Continued)