Effect of Long-Term Financing On RV Industry...
Our goal is to move units and make a living while watching the inventory roll off the lot. The way we presently do business is the key to our future business. Long-term financing is not a true friend to the industry or our customers.
Longer terms mean customers will remain out of the market for longer periods of time, including those who likely to trade every two-to-three years. Too many of our customers are drowning in a sea of negative equity created by long-term financing with short down payments. Even when customers have resources for down payment, our sales representatives are often afraid to ask for it. Their fear of the word “no” keeps them from moving to close the sale.
It is certainly easier to demonstrate large units featuring gas fireplaces, oak cabinets, and triple slides. Everyone falls in love with glitz. Unfortunately, not everyone can afford it.
Typically, sales consultants take the path of least resistance and work the sales managers harder than the customers. The sales managers in turn work the F&I managers to get the deal approved. The F&I managers then work the daylights out of the lenders. Do you see a pattern here?
The lenders want the business without extended terms. They realize that extended terms mean extended risks. A lender once told me that it takes 100 good loans to make up for a single repossession. After viewing some of the losses, I think that statement must be accurate.
Extended terms also affect the type of protection policies sold during the F&I process. Rather than presenting a five-year policy for service contracts and tire protection, F&I managers sell the maximum of seven years or more. When the customer does manage to trade in the unit, the early termination creates a charge back for vendors, the dealership, and sometimes F&I managers. As one of my charges recently quipped: “We swim in the gross and drown in the net.”
The good news is that the industry is beginning to find ways to shorten the trade cycle. If customers cannot or will not invest money in the beginning of the loan, perhaps they can pay a little more during the loan term. Even one extra payment per year will pay off a 120-month loan in 105 months. This can also be accomplished by including an additional 8 percent with each payment, or through bi-weekly payments using a neutral third-party company to make the withdrawals from their checking account if financial self-discipline is an issue.
At a 1996 convention in Reno, Nevada, I introduced the industry to Auto Quik out of Sacramento, California. This company facilitates a repayment plan on home and RV loans designed to allow the customer to enjoy a shorter trade cycle by repaying the loan at a faster rate. In 2006, RVMetrixDirect.com provides a similar service. Bi-weekly or semi-monthly payments are finally coming into fashion. I am hopeful that lenders will begin to offer an accelerated equity repayment plan.
This article began with what our job is: Moving units. Believe me, I do know the mission. The increasing cost of units and decreasing amount of down payments create a perfect storm for longer-term loans. We can stem the tide by reducing loans and gaining down payments. We can invest in future business by presenting units that fit the customer’s budget. The reward will be the sale of units to the same customer on a more frequent basis. In this case, less can well be more in the grand scheme of business.
RV PRO Magazine, June 2006