Special Report: Credit Crisis and the Industry

Publish Date: 
Dec 5, 2008
By Arlo Redwine

In late August, Yamaha’s installment program also stopped financing new and used vehicles of other brands. “It’s hard for us to finance a Suzuki or a Honda anymore,” says Roy Dinki, finance manager for California’s Montclair Motor Corp., a multiline dealership that doesn’t carry those two brands. “We have a credit union that we can use.” (Dealers’ interest in credit unions is up in general. Click here for a story on the pluses and minuses of using them, as well as on how to approach them.)

Not all dealerships are suffering. Take WOW Motorcycles, for instance. The Atlanta, Georgia-based independent has more than 600 used vehicles on display at any given moment. “We’re unique in that we’re already very good at alternative credit sources and bad credit,” says John Martin, the store’s sales manager. “With used bikes, we’ve had to be creative for a long time. We couldn’t rely just on GE, for example.”

House of Motorcycles in San Diego also reports a healthy pre-owned selection. The store says it benefits greatly from local auctions.

Financing restrictions have also affected new-bike sales. Because the OEMs are financing only their own brands, salespeople at multilines are forced to switch more customers to other brands. No longer, for example, can a diehard Suzuki shopper get a Yamaha loan if he or she doesn’t qualify for a Suzuki loan. Before many customers had been willing to pay a higher interest rate with the competitor’s finance program.

Revolving vs. Installment — Days of Sensible Loans Ahead?
Most dealers know the dangers of revolving credit. 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. As we first reported in our July 2007 issue, many of these stores turn away customers who don’t meet the high credit standards that come with such deals.

“All the promotions that GE has, unless you have a 700 score, you can pretty much kiss it off,” says Carlo Hansen of Riverside Kawasaki. “Like the Ducati plan: You needed a score that was crazy. It would not accept most people.”

But dealers report that OEM advertising still trains most customers to walk in asking for low monthly payments, not sensible fixed rates.

Martin of WOW Motorcycles blames our industry’s credit problems not on advertising, but on the overuse of promotions. He recently served on GE Money’s dealer advisory board for two years. “I think GE was pretty clear about the fact up front that promos were never designed to be a total dealership solution,” he says. “A lot of dealerships obviously treated them that way. You can’t run promo after promo and not expect the banks to get bit at some point.”

He continues: “We rarely do a promo, only when a customer forces us to. We’ve always built into our customers: Think down payment, think newer bike, think less-expensive bike. We don’t even try to make money on loans because we make money on our product.”

Martin says that because of its policies, WOW Motorcycles does a lot of repeat business on 24-month cycles.

Byers of RideNow has directed her 29 stores to be wary of the cards also. “In the three years that I’ve been sitting as finance director,” she says, “I have been pushing my guys harder and harder every single year to get off these credit cards. I think of them as the industry-killer.” She says about 80 percent of her company’s deals are now installment loans. “We knew this day was coming, so we jumped ship a long time ago.” (Continued)