Powersports market slows down

Debt burdens, elevated interest rates and dampened consumer demand have contributed to an overall slowdown of the powersports market so far this year. [caption id="attachment_58339130" align="aligncenter" width="1600"] (Photo/Canva) [/caption] New-unit powersports sales are expected to tick down in the “mid-to-high single digits” this year amid softer consumer demand, Tony Altieri , vice president of business development at National Powersport Auctions (NPA), told Auto Finance News . “It’s indicative of what's happening in the credit markets,” he said. “Campers, RVs, boats rely on a good portion of sales going through good [quality] credit customers. We’re still hearing from dealers there's a lot of cash customers, especially in the high end of the vehicle brackets, but those customers aren’t as impacted by credit and affordability as most customers are.” At the same time, credit unions and regional lenders facing liquidity issues have pulled back in recreational markets to focus on “more strategic” markets such as automotive , Octane Lending Chief Executive Jason Guss previously told AFN . “Our prediction for this year is that local lenders and credit unions, at best, will be flat to where they were in Q1 to continuing the trend of decline through the rest of the year,” Guss said. Rates create barrier Elevated interest rates are deterring some buyers and dragging down retail sales; it’s challenging for lenders to finance consumers as their debt-to-equity ratio worsens, NPA’s Altieri said. “Most consumers have racked up quite a bit of debt over the last 12 to 18 months,” he said. “Until we see some meaningful steam let out of interest rates, that's going to impact credit customers, which on the powersports side can be 30% to 60% of the transactions at the retail level. You take those people out from an affordability standpoint.” One issue is that federal stimulus during the pandemic propped up many thin-file and low-credit-score consumers who were able to access credit as a result. This phenomenon is now contributing to rising delinquencies by consumers who no longer have that financial assistance, Octane’s Guss said. “Oftentimes consumers were overlent to; at the same time, inflation started to bite,” he said. “That population of consumers received loans that they might not have received historically or loans that were larger than they might have received; that led to them potentially having a larger debt burden.” Additional debt burden is affecting consumers’ ability to finance powersports products. FreedomRoad Financial ’s application quality has deteriorated through the beginning of 2024 as consumers’ debt levels rise, Tom Collins , executive vice president and managing director, previously told AFN . FreedomRoad Financial expects originations to be flat or down year over year, Collins said. Octane, however, is keeping underwriting stable and projecting originations to rise 25% YoY in 2024 to about $1.5 billion after strategically keeping origination volume flat YoY at $1.2 billion in 2023, Guss said. Slowed growth For recreational vehicles , foot traffic is down across the industry, varying based on the retailer, Jon Vestal , senior vice president and head of growth at Octane, told AFN . “Some geographies and some dealers are a little stronger than others,” he said. Octane, which launched RV financing in September 2022, has seen an uptick in volume, Vestal said, declining to provide specifics. “We’re new entrants in the space; we continue to add dealers and retailers,” he said, noting that while Octane offers full-spectrum RV financing, most volume is with nonprime consumers. “There are fewer options on the nonprime side, so that gives us a bit more opportunity,” Vestal said, noting that Octane targets units priced at between $100,000 and $150,000. Despite market challenges, 54% of 69 powersports dealers surveyed by BMO Capital Markets in February indicated that their sales grew year over year, while 46% said sales declined, according to a BMO research note. By comparison, 38% of dealers surveyed reported sales growth in January. The average YoY growth rate across dealer respondents was 0.8% compared with a dip of 3.5% in January’s survey, according to BMO. Results were mixed based on the segment: 44% of off-road vehicle dealers saw growth, but sales on average declined 2.5% YoY; 38% of motorcycle dealers’ sales grew, with average sales down 2% YoY; and 29% of snowmobile dealers experienced sales growth, with sales down 10.7% YoY on average. Snowmobiles suffer weather woes Heavily weather-focused markets such as snowmobiles and boats are feeling the challenge of consumer credit combined with softened demand. The snowmobile segment has been particularly challenged by a lack of snow and limited consumer demand, which is reflected in slower retail sales and lower lending volume in turn, Octane’s Vestal previously told AFN . Consumers who buy snowmobiles are largely prime borrowers, with many trading in units to purchase a new unit, he said. “You don't always pick those deals up later in the season; if you miss your window, you miss your window,” Vestal said. "I don't think we're there yet, but I talked to a lot of dealers over the past few months and at [a recent] snow show for manufacturers, and it's uniformly a pretty tough season in terms of the weather.” [caption id="attachment_58339132" align="aligncenter" width="1600"] (Photo/Canva) [/caption] Many snowmobile orders are done about seven months in advance of the winter season, NPA’s Altieri said. “Dealers are taking orders in summertime for what they’re going to sell new,” he said. “Dealers know when you hit July and August what the season is going to be like for new snowmobile sales.” Limited snow across the middle of the country in Michigan, Minnesota, North Dakota and Wisconsin dampened unit sales, Altieri said. Canadian powersports manufacturer Bombardier Recreational Products ’ snowmobile sales declined in the “high-teen%” range during the fourth quarter of fiscal year 2024, ended Jan. 31, according to the company’s earnings presentation. BRP plans to reduce snowmobile production by about 30% for the next season, Sebastien Martel , chief financial officer, said during the company’s earnings call. Snowmobile values inched up 2.3% month over month in February while values fell across every other powersports and motorcycle segment in a break from a traditional uptick during this time of year, according to Black Book . January to February Average Segment Change in Value

[caption id="attachment_58338759" align="aligncenter" width="596"] Source: Black Book [/caption] Values began to pick up again earlier this month, Scott Yarbrough , senior analyst of motorcycle and powersports at Black Book, previously told AFN . “There still seems to be people at the dealerships; cash customers seem to be buying with not too much of a problem, but the people looking to finance, things are slower than they were,” he said. Powersports values are trending in line with 2019 levels, Altieri said. “All of that extra value that was shoved into the marketplace because of scarcity during COVID is gone now, and we're back to a more normal seasonal pattern,” he said. “The early indicator in March is that pricing is a bit stronger on motorcycles, especially on-road.” "All of that extra value that was shoved into the marketplace because of scarcity during COVID is gone." -- Tony Altieri, National Powersport Auctions The average sale price on snowmobiles is up from a year ago largely due to dealers having an excess of supply, Altieri said. Newer models are making their way to auction as dealers look to liquidate inventory “as quickly as possible,” he said. NPA in 2019 sold 367 snowmobiles across nine locations in the country and so far in 2024 has sold 100 snowmobiles, Altieri said. As “the primary wholesale outlet for all powersports vehicles, we sold about 400 [snowmobiles] for all of 2019 and through January, February and half of March [this year], we've sold 100,” he said. “We already have basically 30% of a normal year of volume through two and a half months of this year. That's an indicator that there's too much supply and not enough demand on the snowmobile side right now.” Boat sales drag due to rate hikes The marine market is also facing challenges as elevated interest rates deter buyers and demand slows from a pandemic-spurred boom. U.S. boat registrations declined 12% YoY in February across all marine segments, while registrations for powerboats — personal watercraft, sailboats and houseboats — dipped 7% YoY, according to Statistical Surveys data based on reporting from 58% of the market. BRP’s North American marine product retail sales decreased 14% YoY in Q4, according to the earnings presentation. Marine sales are expected to be flat for the year, President and Chief Executive Jose Boisjoli said during BRP’s earnings call. BRP plans to reduce marine shipments given increased promotions and higher levels of supply across the industry, Martel said. [caption id="attachment_58339131" align="aligncenter" width="1600"] (Photo/Canva) [/caption] Some of the slowdown is due to coming off high levels of demand during the pandemic, Matt Gruhn , president of the Marine Retailers Association of the Americas , told AFN . “We tend to compare everything to the recent past, which was fueled by COVID-related sales that we had, which were phenomenal for our industry,” he said. “As we compare everything to that, it's hard to look at the numbers today and celebrate. The reality is, there are dealers that are doing well out there; the numbers are not that far off what we saw pre-COVID.” "The reality is, there are dealers that are doing well out there." -- Matt Gruhn, Marine Retailers Association of the Americas Working harder for sales The challenge is getting past higher costs of units combined with rising rates, Gruhn said. Boat shoppers are looking for deals to lower their monthly payment, with many opting not to complete their purchase due to high rates, he said. As a result, marine dealers are having to work harder to secure sales. Lake George, N.Y.-based Boats By George , for one, has increased its marketing spend to bring in more business, Adam Pensel , general manager at the marine dealer, told AFN . The dealership, which carries high-end brands such as Cobalt , is tracking about 20% ahead of its revenue goal for the year of between $23 million and $25 million, Pensel said. “The high-end buyer in boats tends to be significantly less impacted by economic conditions,” he said. “It certainly helps having the top-quality lines. It's also been an initiative to continuously train our sales staff to adjust from the COVID era of order-taking and getting back to basic selling and establishing relationships.” For the powersports industry, getting consumers in the door will likely take a strategic focus on the part of manufacturers, dealers and lenders. “If there’s a challenge in retail, and manufacturers need to help push retail, a big way to that is through promotions,” Octane’s Vestal said. “On the consumer side, everybody’s concerned with their credit. One of the things we do is offer soft [credit] pulls so there’s no harm to their credit.” -- Additional reporting by Riley Wolfbauer R egistration is now available for the annual <a class="fui-Link ___1rxvrpe f2hkw1w f3rmtva f1ewtqcl fyind8e f1k6fduh f1w7gpdv fk6fouc fjoy568 figsok6 f1hu3pq6 f11qmguv f19f4twv f1tyq0we f1g0x7ka fhxju0i f1qch9an f1cnd47f fqv5qza f1vmzxwi f1o700av f13mvf36 f1cmlufx f9n3di6 f1ids18y f1tx3yz7 f1deo86v f1eh06m1 f1iescvh fhgqx19 f1olyrje f1p93eir f1nev41a f1h8hb77 f1lqvz6u f10aw75t fsle3fq f17ae5zn" title="https://autofinance.live/product/auto-finance-summit-east-2024-registration/" href="https://autofinance.live/product/auto-finance-summit-east-2024-registration/" target="_blank" rel="nofollow noopener" aria-label="Link Auto Finance Summit East 2024"> Auto Finance Summit East 2024 , May 1-3 in Nashville, Tenn., which gathers lenders, dealers and fintech innovators in an event designed to bring the power of technology to a cross section of industry players. 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