Powersports financing penetration up 15% from pandemic lows

Financing volume is ticking up at powersports dealerships following pandemic lows, despite rising interest rates. “At one point, [cash sales] hit almost 70%, where it used to be more like 50-50, but as I tell my guys a lot of times, that’s not really a cash sale,” Kevin Dunn , general manager at Wake Forest, N.C.-based Capital Powersports , told Auto Finance News . “A lot of times [customers] just got their own loan through their credit union or their 401(k)s or wherever they got the money, so we are getting that back. Now it’s probably 55% cash and 45% financing; it’s starting to go back to normal.” During the pandemic, cash sales were also up thanks to increased disposable income due to fiscal stimulus. Total disposable income rose by $1.18 trillion in 2020 compared to 2019, and more than 80% ($957 billion) of this increase stemmed from fiscal policy responses to the pandemic, according to the U.S. national accounts. Dealership margins are often stronger on financed purchases, which also allow customers to fold additional products into their payments, Chris Watts , president and chief executive at Nashville America’s Motor Sports , told AFN . “We’d like to see more financing because we all know that the margins can be better when the deal is financed versus [when] the deal is paid for in cash,” Watts said. “The customer can add more products or accessories to a finance deal than they sometimes can with a cash deal. ... They may see the value in extended service contracts or prepaid maintenance. ... They don’t mind increasing their payments by $10, $20 or $30 a month to get everything that they feel would add to the value of what they’re buying.” [caption id="attachment_57336208" align="aligncenter" width="1024"] Powersports financing penetration up 15% from pandemic lows / Can Stock Photo[/caption] Even dealerships that historically saw more cash deals are seeing an increase in financing from customers, including at Kerrville, Texas-based powersports dealer Destination Cycle . “We’ve historically always done a significantly [higher] amount of non-financed deals, so more cash, via check or credit cards purchases. … [Currently] we have a higher influx [of financing] than normal,” Michael Campbell , sales and finance manager at Destination Cycle, told AFN . From January to February, the dealership’s finance penetration stood at 33.8% of all deals year to date, up compared with 31% of all deals during the corresponding period a year ago, Campbell said. Financing penetration is 54% so far this year in Campbell’s dealer 20 group, which is a 5.1% increase in financing from last year. “Even though interest rates have gone up, we’ve noticed that people are actually financing more,” he said. Some lenders are also providing favorable interest rates for customers with good credit, Capital Powersports’ Dunn said. “Rates going up is making everybody slow down, but every one of my lenders is advertising 2.9%, 3.9% [APR], which is as good as we’ve ever gotten in our industry,” he said. Loans are “still available, it just depends on the person’s credit.” State of the industry Across the country, economic headwinds are affecting powersports dealers differently, but there is still optimism for a good season, especially compared with pre-pandemic numbers, America’s Motor Sports’ Watts said. “We’re seeing interest rates and inflation affecting sales margins and expenses,” he said. “It’s still enough to be a good spring, just slightly down from Spring 2022, obviously [down from] 2020 when [the pandemic] started, stronger than 2021 and better than anything several years before COVID hit.” Meanwhile, powersports values continue to dip as part of a trend that began in July 2022 . Despite declining values in the first quarter of 2023, stability is returning to the industry and is likely to continue, Campbell said. “Last year, we hit a peak and we noticed it trended down. November and December last year were a big low. But in January, February and March, we picked back up and we’ve been holding pretty steady,” he said. One market segment that could see growth is motorcycles, as customers attempt to navigate rising gas prices, Campbell said. “With the way gas prices are going, I’m foreseeing more motorcycle purchases than we typically have done in the past, but I’m not foreseeing a major slump in the industry in the next eight or nine months,” he said. Auto Finance Summit East, Auto Finance News’ new spring event, is set for May 10-12 at the JW Marriott Nashville featuring a fireside chat with Peter Muriungi, CEO of Chase Auto. Visit autofinance.live.

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