Tapping into disposable income

There have been several news items lately announcing new lenders entering the powersports market, and existing lenders charting notable profits. The trend has been unfolding for about a year. In fact, there was a packed house at the 2015 Powersports Finance conference, with lenders hearing lots of good news.

One institution already servicing the powersports market — America’s First Federal Credit Union – recently announced a 20 percent increase year over year in its powersports portfolio. The company credited its strong partnerships and increasing dealer network as the driving force behind this growth. The company has existing relationships with 30 dealers and anticipates adding another five to seven during 2016.

Another example is Excel Finance, a subprime motorcycle loan provider based in Texas. Excel funded 700 motorcycle loans in 2015 — worth $2 million — up from $1 million in 2014. The average monthly payments for motorcycles ranged between $300 and $350.

If you are a motorcycle dealer, this is great news. But let’s dig a little deeper to uncover the roots of this trend – and see how dealers and consumers can benefit.

A Little Extra Cash to Spend

Consumer spending choices are affected by many different factors, the most important being levels of discretionary income (disposable income minus the cost of the fixed expenses of life, such as rent/mortgage, food, car payments, insurance, etc). Discretionary income, in turn, is strongly influenced by the country’s economic situation. It typically rises in periods of expansion and falls in times of economic downturn.

Real disposable income has risen steadily since 2009, with real purchasing dollars up 23.8 percent. Disposable income is also impacted by increased wage security and a low inflation rate – two factors we have enjoyed over the past couple of years. In fact, a 2011 study by the Chicago Federal Reserve, found that for every dollar increase in minimum wage, a worker’s household added $2,800 in new consumer spending over the following year. U.S. consumers remain confident and optimistic, with some analysts believing that more affluent consumers are showing very strong sentiment while lower- and middle-income consumers are taking a more middle viewpoint.

All of this data points to a consumer with more disposable income to spend on purchases they might have delayed during the recession. However, there is increased competition for these items. Motorcycles are often considered luxury items — or second vehicles. So how do you sway the consumer to spend those extra dollars with you?

Packaging and Presentation

Even with a little more jingle in their pocket, post-recession consumers are more conscientious with their discretionary spending. Make sure that when they enter your dealership, you have the right package…and the right presentation for them. Have you built a good relationship with your lending partners? Many lenders who are new to the powersports space may need a refresher on your sales floor. Have this conversation early and frequently. Educate them on your target demographics and how you are capitalizing on trends.

Also, take a look at your F&I portfolio. Do you have the right products for today’s consumer – and are you packaging them to show value? Even with increased wage security, the recession and potential job loss is still in the back of many consumer’s minds. Positioning a VSC as an important safety net demonstrates a sound financial position.

Lenders are more likely to accept a deal with F&I products attached. To the lender, these additional products demonstrate two things:

— The consumer is interested in protecting their motorcycle and places a value on that protection.

— Deals with F&I products attached are less likely to default, reducing the portfolio risk for the lender.

With 2016 market trends showing positive growth in powersports, and lenders reporting notable growth on the financial side, dealers with strong lender relationships should fare well.

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.