Credit loosening helps boost auto sales; signs of a marine thaw emerge
The auto industry is crowing over an 11 percent uptick in 2010 sales that has been driven in large measure by aggressive, even subprime lending to car buyers, but that dramatic easing of retail credit has yet to reach the boat market.
"We're seeing an awful lot of people pulling out their checkbook and writing a check instead of getting financing [to buy a boat]," says Ed Lofgren, longtime owner of 3A Marine Service in Hingham, Mass., and a past chairman of the Marine Retailers Association of America. He says retail credit is available to boat buyers who need it, but they have to show near-perfect credit scores to qualify.
Others have seen some easing of retail credit. "What we've seen the last three or four months is a loosening of credit for good-credit people," says David Foulkrod, chairman of the MRAA, who owned a dealership for 28 years and is working with Hoover Marine & RV, a five-store Texas chain. Foulkrod says lenders are actively seeking to make loans to good credit risks, where before they were looking for the tiniest blemish so they could reject applicants who otherwise were highly qualified.
Both dealers see a lot of pent-up consumer demand for boats and expect credit to ease further as the economy improves and more people pull the trigger on a new boat. "As an industry, we tend to follow behind the auto industry just a tad in that respect [lenders returning to easier credit terms]," Lofgren says.
Lenders flush with money and no place to lend it with the real estate market still in disarray are aggressively competing for auto loans. In last year's fourth quarter, as much as 38 percent of their car loans were subprime - up from 18 percent a year earlier, according to a report in The New York Times. Why isn't that "easy money" flowing into the marine market yet?
"We're a different animal than the auto industry," says retail lending consultant Jim Coburn, managing partner at Coburn & Associates of Macomb Township, Mich., and a past president of the National Marine Bankers Association.
Coburn says autos are a necessity. People have to buy cars, in good times and bad. The sales volume in cars is much greater than in boats. The auto industry is more homogenous than the boating industry, with fewer manufacturers. The price spread in cars is smaller than in boats.
The resale value of a car is more easily set, so lenders have a better idea of the price they can command if they have to repossess it. Car financing terms are shorter. And car values held up pretty well during the recession. It also doesn't help that boat loan delinquencies in 2009 were 2.26 percent of loans - the highest it has ever been and a higher delinquency rate than for consumer loans that year.
With real estate on the skids, "the first and the easiest thing for lenders to get into is auto lending," Coburn says. Yet he believes the criteria for boat loans have loosened a "little bit. I'm not going to say 'a lot.' "
Some boat buyers are getting loans with credit scores of 680. "That's still pretty conservative, but it should be so we don't run into these kinds of debacles [like the 2008 credit market collapse] in the future," Coburn says.
Coburn says retail lenders are starting to solicit dealers again. Forty-four percent of lenders are projecting that lending criteria will return to precrisis levels by 2012. Coburn says there are companies issuing subprime, or what he calls "non-prime," marine loans: Marine One Acceptance Corp., of Dallas; Merrick Bank, of South Jordan, Utah; and Medallion Bank, of Salt Lake City.
Most lenders know auto financing; they know how to make money even when a customer defaults on a loan. These lenders "tend to be a lot more aggressive in catering to just about any credit profile out there [in the auto market]," says Scott Anderson, vice president of marketing and manager of the recreational lending program at Merrick Bank.
A lender might find a clunker for a desperate car buyer and charge him 30 to 35 percent interest. The buyer will snap it up because he needs the car to go to work every day, Anderson says.
Merrick, which only works through dealerships, usually charges about 11 percent for non-prime loans, his clients typically being buyers who've had credit lapses but are demonstrably pulling out of a tailspin. "The last thing we want to do is to make a loan to somebody when we don't think they can pay it back," Anderson says. "That doesn't help anyone."
Merrick's niche is boats that cost $60,000 or less, usually trailerable boats - family runabouts, ski boats and fishing boats - smaller than 30 or 32 feet. Merrick has been pretty busy during the recession. "So many lenders left the industry and the ones that were left tightened their criteria," Anderson says.
As one of few banks offering non-prime loans, that left a big opening for Merrick. "2008 and 2009 were pretty good years for us," he says.
One hopeful sign for boat dealers: American Banker, the financial services daily, says competition for auto loan business is so keen now that pricing on loans is becoming less attractive to lenders, which could send them looking elsewhere to loan money.
This article originally appeared in the May 2011 issue.