Special Report: Credit Crisis and the Industry

Publish Date: 
Dec 5, 2008
By Arlo Redwine

Bill Shenk says his 20 group dealers have a simple strategy for financing high-margin F&I products. “Our guys are doing better in finance than they have ever done,” he claims. “But part of that is that were selling the unit for less money, and then there is a little more money available then when the amount financed to add warranties and that stuff. Our guys sell a lot of maintenance at the time of sale.”

When it comes to add-ons, how banks calculate the overallowance is important. The revolving cards, of course, offer approved lines of open credit. Surprisingly, most HSBC installment amounts are also open. GE-backed installment loans, on the other hand, are based on the vehicle’s MSRP or book value. A customer with good credit may get 125 percent to make up for taxes, fees and add-ons.

But this may soon be changing. Dealers report that HSBC recently added to its installment programs a new low-end category, Tier E, good for only 95 percent of the MSRP.

As of today, HSBC may seem more lenient than GE when it comes to overallowance, but other factors come into play. Finance managers tell us, for example, that HSBC revolving programs don’t allow dealers to show GAP insurance on the contract. “They don’t want you to have GAP,” says a finance manager who asked to remain anonymous. “It’s the stupidest thing. Those banks like Honda, if it’s a $10,000 approval, they’ll give you $10,600 so you can specifically sell GAP — it’s in their best interest. HSBC won’t let you show it.”

Suzuki HSBC also cut back on perks this year. “If the customer signed the deal the day of the approval, we used to get a 10 percent overallowance for backend or accessories,” says Jim Dirks of Killeen Powersports. “We don’t get that anymore. I’m talking to a lot of F&I guys across the country every day, and it’s not a pretty picture out there.”

Outlook: Uncertain
As most dealers know, staying up to date on finance programs is a daily chore. We had to work hard to obtain just the information in this article, much of which is probably obsolete already.

“The banks have loopholes for everything,” Byers says. “They live in the gray. They never, ever truly spell out their policies and procedures because they want to give themselves the ability to change it any way, shape or form that they want it to benefit themselves.”

One could argue that such flexibility is needed in the rapidly changing finance world. Who’d have guessed just a year ago that credit would be this scarce?

Consultant Bill Shenk, however, is 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.”

In the long term, a more diversified lending base and a shift toward installment loans will be good for the industry. Shenk and some of his 20 group dealers are even 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 door open in 2009?’”

Unfortunately, though, the credit crunch is just one part of the overall financial crisis. Even if the credit freeze thaws by next spring, the stock market crash, the rising unemployment rate, and the ailing housing and auto markets will keep some people from walking into your store in the first place.