Regardless of your political views, no one can deny that these past few months have been tumultuous. Many powersports dealers are taking a “wait and see” approach to their 2017 planning. Whether you believe the market will rise or tank, there is one area of your business you can improve – the relationship between dealer and lender.
I recently attended a powersports dealer conference panel where dealership owners and lenders shared their challenges when working with their counterparts across the aisle. For many dealers, offering financial options is new territory. There is much to learn and every lender markets their products differently. Without a background in banking or finance, navigating these waters can be a timely undertaking. And who has time to take the course – read the book – spend hours with your lender partner asking questions?
And then, there is the compliance minefield to consider. Compliance regulations indicate that a dealership must offer every product to every customer. If your team does not understand the financing products themselves, explaining them to customers is untenable.
In the spirit of fostering understanding – and increased communication – I’d like to share some of the key issues and careabouts facing lenders today. Next month, I’ll step over to the other side of the aisle and talk about the challenges facing dealers. Then in January, I’ll talk about how both sides can work across the aisle to build a productive and financially beneficial relationship for both lenders and dealers in the powersports market.
For lenders, mitigating losses has become a primary issue. Consider this statistic. In 2014, losses totaled 19 percent on average. That percentage increased to 30 percent in 2015. And sling shot losses have almost doubled. If consumer discretionary income is up, why the increase in losses?
One reason is the way in which credit is assessed. Since the recession, lenders have taken a much closer look at the overall financial health of the potential customer. Consider these changes in how credit is determined post-recession:
~ FICO has a new competitor called VantageScore, with different scoring metrics. Both now factor in “alternative data” such as on-time rent and utility/phone/cable payments as part of the credit history.
~ Dodd-Frank now requires all lenders to disclose the credit score they used to determine the underwriting offer, or when credit is denied. And the Fair Credit Reporting Act stipulates that every person can access a free credit report annually. With this knowledge, creditors “expect” consumers to tidy up their credit history, and rank negatively those who are not pro-active.
~ While credit card payments have always been a part of the overall credit score, companies now include up to 30 months of trended credit card data for a snapshot of the consumer’s payment history.
~ Paid collections are not factored into the overall credit score – no points earned for paying off old debt.
So, given this closer scrutiny on consumer credit, lenders are now valuing some traditional prime loans as sub-prime. And the near-prime market is growing to fill the gap between the two. The days of pulling a credit report, seeing a “decent” score and offering a loan are gone. Now, lenders have a wealth of data to determine the credit health and habits of the potential customer. And they use a finely-tuned microscope to look at that data.
Understanding how credit history is assessed, and the resulting credit score, offers insight into how a lender will view your potential deal. Where you see a great customer with a passion for powersports – your lender sees a credit score and the percent potential for risk. Look for my next article where I will share some of the challenges facing powersports dealers. Then in January, I’ll share some tips so that both sides can work across the aisle.
Glenice Wilder is the vice president of Powersports for EFG Companies. A 33-year industry veteran, Glenice is responsible for growing and developing EFG’s action and powersports market channel. She combines her passion for motorcycles and her dedication to serving EFG’s customers to develop solutions that consistently exceed their expectations. Glenice acts as a strategic partner to assess her clients’ areas for improvement and how EFG can fill that role. She provides insight in how to increase productivity by pairing the right products within the right markets for the greatest return on investment.