A report last year from the Motorcycle Industry Association (MCIA) highlights the economic contribution and significance of the UK’s motorcycle industry. The motorcycle financial services sector (which includes both finance and insurance) has a turnover of £400m per annum, and is estimated to generate gross value added of approximately £200m and provide employment for 2000 people. It also provides an estimated £73m in annual tax contributions.
The motorcycle finance sector shares a number of similarities with the insurance sector, in that it comprises both providers of general finance as well as specific motorcycle specialists. It includes providers of secured and unsecured loans and the sector has close links to motorcycle dealers, manufacturers and retailers, all of whom will look to offer finance deals.
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Last year represented a recovery for the sale of new bikes, observes MCIA CEO Steve Kenward. New registrations were 10% higher than in 2013 and for each month so far in 2015, new registrations are a further 10% up on 2014’s figures.
"There seems to be two distinct stories," Kenward says. "We have an increase in confidence from our core leisure market (who held onto their bikes during the downturn, but have now started buying new again) and we’re seeing a continued growth in motorcycles and scooters suitable for commuters." The registration of bikes around 125cc rose by 19% in May, compared to May 2014. Both ends of the market have been helped by the launch of some eagerly awaited new models at the MCIA’s flagship show, Motorcycle Live, and by some attractive personal contract purchase deals. In addition, a number of finance providers are allowing riders to put training and safety clothing on the principle sum, which is a positive development for motorcycling in general as it promotes safe riding.
The general trajectory for motorcycle use is upwards, continues Kenward. "In 1994 there were 720,900 motorcycles, scooters and mopeds licenced (and licence exempt) for use on UK roads. This increased to 1,326,500 by the summer of 2014 and as congestion bites harder, we anticipate the number of commuters using powered two-wheelers will increase further."
Environmental initiatives are set to give the sector an additional boost. In March, it was announced that electric motorcycles and scooters would now qualify for government subsidy under plans announced by the Office for Low Emission Vehicles. Up to £7.5m will be made available from this summer until 2020, capped at £1,500 a vehicle. This will make qualifying vehicles up to 20% cheaper, establishing powered two wheelers as the most affordable electric vehicles in the market.
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By GlobalData"Economically, this will provide a boost to this sector of the automotive industry," says Kenward. "We also hope it will give manufacturers who already have electric models for sale in mainland Europe the confidence to launch in the UK."
While the sub-50cc scooter/moped market continues to decline, the National Motorcycle Dealers Association (NMDA) is particularly encouraged by sales of bikes in the 51-125cc category, which are often used for commuting. This category experienced a sales increase of 12.6% to April 2015 and NMDA head, Stephan Latham states that the growth of sales can be explained by the continued rise in employment, with consumers looking for alternative and easier methods of travelling to work.
In total, almost 3,800 bikes were registered in April. The highest percentage of growth over the last year has been recorded in 651-1,000cc machines, which have increased by 28% and also reflect the UK’s steady economic recovery and rise in customer confidence as these motorcycles are usually bought for sport and leisure purposes.
Honda and Yamaha are the market leaders, with Triumph in third place. Triumph leads the market in the over 500cc sector, which has provided a high proportion of market growth. After falling out of the top ten major brands list in March, Lexmoto has now recovered to sixth place, which the NMDA says reflects the strong demand for simple budget machines for new or past bikers re-entering the market and in need of value for money transport.
Paul McGill, head of motorcycle finance at Black Horse agrees that the motorcycle sector has been performing well after a number of years when sales declined. "The recovery of last year has
continued into 2015, particularly for larger bikes," he says. "The trend usually follows that as bike sales increase, finance sales also increase and alongside this we have seen a wide range of strong manufacturer offers on new bikes."
The reality is that for many consumers, a motorcycle purchase is not viewed as a necessity and during the difficult financial climate this had a negative impact on sales. But as the economy continues to recover, the market is also seeing a return to growth.
This point is taken up by Kirk Franks, head of national sales at Alphera Financial Services UK, who observes that for many people, a motorbike is a lifestyle purchase, a second or third vehicle for the household and this means it can be slightly more affected than the four-wheeled sector when it comes to disposable income fluctuations.
"However, as the UK continues to experience economic recovery, and confidence in both the business and consumer sectors grows, levels of disposable income are also on the increase. Consequently, bike sales are showing positive signs of growth," says Franks.
Veronika Lovett, director in the financial institutions structured finance, speciality and consumer finance team at RBS says the motorcycle finance sector in the UK is experiencing healthy growth, boosted by a combination of interest from lenders and increased awareness of different financing options.
Typically dealerships have relationships with lenders who provide finance to the very top ‘prime’ borrowers, who may turn down some applicants because they have previously missed a payment on their mobile phone contract or a utility bill.
This has created a significant opportunity for finance companies to create products for what RBS might term ‘near-prime’ or even in some cases might be classified as the more ‘subprime’ areas of the market.
Growth potential
"Market sentiment suggests that demand for motorcycle finance will continue to grow," says Lovett. "This market is some way behind the car finance sector in terms of consumer awareness of finance options, the number of players, and the variety of finance products, although this is improving as lenders become more established in the motorcycle finance market."
She acknowledges that establishing a brand, building relationships with dealers and brokers and in turn driving sufficient volumes, as well as attracting the right types of customers for the finance product being offered requires substantial upfront as well as ongoing investment.
In addition, established players need to understand not only the behaviour of the motorcycle market and its clientele, but also the various considerations in offering finance products as well as the skill set, systems and processes required in the underwriting and collections processes.
Lovett says: "From conversations with some of the leading players we understand that a number of companies have entered the market with what has been referred to as "limited" success. However, this is not expected to deter other companies from attempting to establish themselves in this space, whether that is existing car finance providers diversifying into the motorcycle finance offering, or motorcycle finance brokers looking to set up their own lending arms."
This is likely to continue to increase the flow of innovative finance products into the market, she continues. "However, different methodologies are applied to motorcycle finance compared to car finance. For example, the type of borrower could be very different, as could the way the asset is treated, which impacts considerations such as loan-to-value assessments, stress scenarios, recovery rates, etc. Lovett says: "I often hear people saying that owning a motorbike is like being part of a ‘club’ and the motivations for purchasing are also different."
As part of the process of developing its knowledge of the market and its existing relationships, RBS has regular discussions with key brokers and finance providers to discuss trends, which in turn drives discussions around where opportunities exist.
Over the past 12 months, the flexibility of PCP deals – so prevalent in the car sector – has really taken hold when it comes to financing motorbike purchases, adds Franks at Alphera. He says: "Proactive dealers have taken a creative and targeted approach to ensure that buyers in both the new and used marketplace are being offered an appropriate choice of finance deals to fit a variety of lifestyle requirements. There has been a real emphasis on innovative, low mileage, nearly new bike offers which have formed a huge portion of the used market."
A number of the firms Motor Finance spoke to referred to the introduction of competitive and attractive finance packages (particularly in relation to monthly cost) and the importance of dealers putting in place the right deals and marketing strategies to ensure that the growth trend in sales continues.
Franks says there’s a feeling within the industry that, with the right support and conditions, there could be even more growth in both new and used bike sales. This is especially the case if the sun keeps shining, so dealers need to ensure that they have the right tools at their disposal and expert advice from lenders.
"The market has definitely become more competitive and it will be essential for dealers to remain close to manufacturers to ensure they are aware of supply timings for new and popular models," says Franks. "We work very closely with our dealer partners to review and design campaigns which are aimed at creating demand and improving sales. With the right conditions, alongside creative and proactive approaches for dealers, we’re confident that the motorbike sector will continue to perform well through to the end of the year."
According to Black Horse’s McGill, an increasing number of manufacturers are focusing on affordability, coupled with greater emphasis on customer change cycle management and customer retention.
"While PCP is not a new product, the growth in that particular finance product has been strong as customers realise how affordable a bike can be," McGill says. "The current strength of future residual values is also making this a popular option for customers to consider when buying their new bikes. As we continue to operate in a low interest rate environment, the cost to the consumer has remained consistent and extremely competitive."
As the market continues to grow, point of sale finance will also evidence growth, McGill continues. "We have seen the introduction of some outstanding new products over the last 12-24 months and we understand that this will continue in the foreseeable future, again providing finance opportunities. There are also tremendous opportunities for dealers to take much greater advantage of their customer database with a more proactive approach."
Broadly speaking, the motorcycle industry echoes what’s happening in the wider economy, adds Chris Reid, national motorcycle manager at Close Brothers Motor Finance, which launched a dedicated motorcycle division in 2014.
"There are parallels between the sales and stock levels of new bikes and the amount of disposable income and confidence among consumers," says Reid. "However, the industry has proved to be resilient, adapting throughout the economic downturn. The good news is that with consumer confidence now at it is highest levels since pre-crisis days, many people are starting to look towards purchasing ‘non-essentials’ again. This has a significant impact on the motorcycle finance market, as rising demand for new and used bikes generally means an increased appetite for finance packages as well."
Economic growth presents a major opportunity for the UK motorcycle finance market, as it will likely have a direct impact on consumer confidence, Reid adds. "People may find they have more disposable income to put towards the cost of a motorcycle, while at the other end of the scale there’s also a growing market for lightweight machines that appeal because they can save money, offering affordable commuting with a low purchase price."
He says machines that are in high demand and carry higher average purchase costs, such as adventure touring bikes, also offer the industry an important opportunity. There is an existing demand among consumers for these machines, so motorcycle finance often provides the bridge that can make them more affordable and accessible.
Reid describes the introduction of PCP as a game-changer. "In recent years, we’ve seen a trend whereby more and more customers are choosing usership over ownership. PCP is designed to allow customers more flexibility in terms of their monthly payments, but at the same time provide them with the ability to purchase a wider range of bikes within their budget."
"It has become a popular choice for many consumers as the finance plans on offer typically include lower monthly repayments, making it a more affordable option for both new and used bikes. I can only see the product increasing in popularity in the future."
According to Reid, dealers will seek to work with specialists who have the right knowledge and an understanding of motorbikes to support their business. He says his company is committed to supporting dealers throughout the UK and looking for new ways to improve its service. For example, over the past 12 months it invested heavily in training to ensure all members of the motorcycle division are up to speed on new legislative requirements and point of sale finance.
At Black Horse, McGill suggests that possibly the biggest challenge in the short to medium term is ensuring that motorcycle dealers remain fully compliant with the FCA guidelines, not only in the processes themselves, but the documenting and recording of these processes. He says: "As the market continues to improve, our expectation is there will be more competition and new entrants, which will continue to ensure that the best products are developed and pricing remains very competitive. We are working closely with our manufacturer partners to create new ideas to promote the sale of new and used bikes and we remain highly optimistic that the steady market growth we’ve seen over the last 18 months will continue for at least the next 18 months and beyond."
The NMDA predicts 10% sales growth in 2015 and Close Brothers’ Reid shares this optimistic view of the market’s prospects over the remainder of 2015 and into 2016.
"We’re predicting strong motorcycle sales throughout the next 12 months as the UK’s economic forecast continues to improve," he says "There was continual growth in new registrations throughout 2014 (the highest increase for five years) while overall stocks of motorcycles have also risen and we’re equally optimistic for the remainder of 2015 and the beginning of 2016."
The MCIA’s 2015 registration forecast suggests that sales will rise year-on-year by around 9% until at least 2018 and Close Brothers Motor Finance believes that the motorcycle finance industry will play an integral part in this growth, Reid concludes.
"Through products such as PCP, motorcycle finance at point of sale will become more accessible, allowing dealers to capitalise on the opportunities presented by our economy and the growing demand for new and used bikes of all sizes."
