Dealers: Consumer finance improving

After several years of rowing against the current, boat dealers are reporting that consumer financing is getting easier. 

Dealers’ ability to get prospective customers’ boats financed has been improving during the past year and  is expected to get a boost in 2012.

That was the sentiment of the majority of marine dealers Boating Industry interviewed in early March to determine the state of consumer financing on the front lines of the industry.

The National Marine Bankers Association reported in early 2012 that most of its members saw business increase in 2011. In addition, 89 percent of its member survey’s respondents said that lending criteria in the fourth quarter was the same or less stringent than the prior quarter, and 50 percent of respondents said they expect the first quarter of 2012 to be up over the same period of last year.

In an effort to find out whether dealers were encountering the same trends, Boating Industry reached out to 18 industry leaders, asking them about their experience during the past year and their expectations for the year ahead.

Of the dealers interviewed, 50 percent financed less than 25 percent of boats purchased by consumers during the past year, while 33 percent financed 25 to 50 percent. Slightly less than half worked with a third party F&I provider for at least one deal during the past year, while a slight majority handled their customers’ boat financing exclusively in-house.

The area where dealers reported the most variance was in how their current penetration rate varied from their company’s peak in consumer financing. The most popular answer was “about the same” at 39 percent; however, the next most popular option was “10 to 25 percentage points lower.” Two dealers reported that they are currently experiencing a peak in consumer financing.

The market segment factor
One of the factors that influences dealers’ experiences with consumer financing is the market segment they are targeting.

Sail & Ski Centers, for example, expects consumer finance to “stay the same until the mid-sized buyer, who was the core of the F&I opportunity, returns,” said company president Rod Malone. The Austin, Texas-based company’s F&I income is currently about 1.77 percent of sales, compared to a peak of 2.7 to 3 percent of sales. During the past five years, financing volume has declined 30 percent and the revenue per deal has declined. One reason for that change, Malone suggested, is that the company is using more credit unions to finance, which pay less reserve.

At Kelly’s Port, Osage Beach, Mo., a relationship with a new bank has helped the dealership put together deals on its largest boats and opened up refinancing as well, which Operations Manager Kyle Kelly said has been very helpful, given the current rates.

Conversely, Larry Russo, president and CEO of Russo Marine, believes lending requirements must be relaxed for the slow pace of recovery to pick up.

The entrance of some new banks into marine lending has Lake Union Sea Ray of Seattle, Wash., expecting a boost in consumer financing in the years ahead.

“The banking lending policies have loosened up a bit this past year,” says business manager Holly King. “Interest rates are lower than we’ve seen in years and banks are hungry to increase their business.”

A focus on finance
Another factor that may play a role in dealerships’ F&I performance is the stage of this department’s development. Some dealerships have started focusing on this department as a profit center relatively recently, while others have decades of experience profiting from its success.

Rayburn’s Marine World of Kelowna, British Columbia, offers a full-time finance expert to its customers. Consumer financing peaked for Rayburn’s in 2007 and 2008 and has become “much more difficult” in the past few years. Since the beginning of the year, however, F&I business has been strong, so owner Kevin Isabey expects it to increase in 2012.

At Gordy’s Lakefront Marine in Fontana, Wis., the hiring of an F&I professional has allowed the dealership to increase its business despite the downturn.

“We are seeing better results on margins and quantities of deals with a great person and turnover procedure,” commented Gordy’s co-owner Rallee Chupich. “Many of our Cobalt customers would use their own bank or just write personal checks, but now we see more interest in financing with us.”

Buckeye Marine has been growing its consumer finance business during the past five years, monitoring it more closely and converting to menu selling. During the recent boat show season, the Bobcaygeon, Ontario-based dealership has seen a 10- to 15-percent increase.

For Action Water Sports, based in Hudsonville, Mich., 2011 generated the highest levels of F&I revenue in 22 years. This is due in part to an increase in extended warranties sold on both new and pre-owned boats, as well as other “add-on” coverage, suggested general manager Jerry Brouwer. He also said reserves have been improving and loan volume is coming back a bit.

“We are hoping to maintain at or above 2 percent and grow from there as we continue to offer additional products and services,” said Brouwer. “In 2011, we had a 2.4-percent gross revenue.”

Pride Marine Group brought an F&I specialist in-house 18 months ago, and this part of its business is now taking root in its processes. It expects to evolve its F&I business into a significant contributor to its bottom line and also a customer retention tool.

Perhaps the most optimistic dealership interviewed was also the most aggressive: Singleton Marine Group. The Dadeville, Ala.-based dealership has set up a special program with two banks designed to convert cash buyers. It involves “interest only at a very attractive APR for three years for very qualified buyers,” explained  owner Austin Singleton. And it pays 1.5 percent of purchase price to the dealership, whereas in the past it received nothing, he added.

With the addition of this program, the company has been able to finance more than 75 percent of its customers, the highest rate of any dealership interviewed. As you might expect, this represents a peak in the dealership’s consumer financing business, which Singleton described as “a significant contributor to my bottom line.” The dealership has budgeted for 40-percent growth in 2012.

“We put a very strong emphasis on this department two years ago and feel that we still have a tremendous growth opportunity here and will continue to build it,” he said. “We have added a second full-time F&I admin and assistant to help. Each have been aggressive going to banks trying to set up niche programs to fulfill our needs.”