Special Report: Credit Crisis and the Industry

Publish Date: 
Dec 5, 2008
By Arlo Redwine

This past summer the court ruled against Polaris and in favor of HSBC.

Other manufacturers probably have rocky relationships with their underwriters as well. “The OEMs obviously want to get their product purchased and want the banks to buy their product, so it’s just kind of a battle back and forth,” says Heidi Byers, who is finance director for RideNow Powersports, a network of 29 dealerships with corporate headquarters in Tempe, Ariz. “It’s always been that way. Nobody wants to lose money, but everybody wants to think that they can make a lot of money if they open up the purse strings a little bit.”

The OEMs have multiyear contracts with their banks, but as the Polaris case illustrates, these contracts likely contain loopholes and conditions — to the effect that even if a bank can’t pull out completely, it can set its standards and rates so high as to render its programs useless.

So seemly it’s more secure to have your own bank, as Harley-Davidson does. Not that it hasn’t had its own problems. The media has had a field day reporting on how nearly a third of the people holding the company’s retail loans are subprime borrowers. Businessweek went as far to say that Harley operated “in a pattern eerily similar to the housing bust.”

Hard to believe that as recently as summer 2007 Harley was offering a 2.99 percent introductory rate with zero down. A Harley dealer tells us the company recently raised its best rate for new bikes to 6.50 from 5.99. Harley Financial’s default rates are up, and it can no longer sell off risky debt as it once did.

Businessweek reported: “Harley’s finance arm has taken some steps to tighten lending to subprime customers. And its beefed-up loan collection staff is making more calls on weekends and evenings to chase down deadbeats.”

Pre-Owned Nightmare
The increasing difficulty in financing used vehicles goes back to summer 2007 when the Polaris StarCard stopped taking other brands. “That hurt because Polaris bought better than any of the other lenders,” says Jim Dirks, finance director for Killeen Powersports in Texas.

Then, about a year ago, Suzuki and Kawasaki began limiting their installment loans to new units of their own brands — no used vehicles at all. This past August, both OEMs limited card purchases to their own brands, but at least this time they included new and used. A couple of dealers in California say they’re still using the cards to finance secondhand bikes. But a finance manager in the Midwest says it’s been many months since she’s been able to finance a used vehicle with the cards. “It may have something to do with the state guidelines,” says the manager, Kerry Maddox of City Cycle Sales in Junction City, Kan. “Some states, like Texas or Nevada or California, have year-around riding, so they may have different guidelines. I don’t know.”

City Cycle Sales is also a Harley-Davidson store, and Maddox often uses Harley’s bank, Eaglemark Savings, to finance what it calls “outside products.” The customer has to pay 10 percent down, and the unit has to be of a type Harley approves. “Used sportbikes we have a heck of a time getting financed,” Maddox notes. “We don’t have a lot of options unless they have perfect credit and they can just buy on the revolving terms. But those are few and far between these days.”

Most other revolving and installment programs also continue to finance used bikes, but not those of other brands. Honda Financial, for example, financed other brands for a few months this year and then yanked the program.

“Our used inventory is stacking up,” says Nick Arce, finance manager for Northland Motorsports in Flagstaff, Ariz. His store is still taking trade-ins, but others aren’t. A potential customer, he says, even rode three hours to get to Northland. “His local dealerships won’t take any more trade-ins because they’re having such a hard time getting funding for them,” he says. (Continued)