What’s causing the demand for boats and recreational vehicle loans to skyrocket?

Sales of recreational vehicles have accelerated so much since the economic shutdown, which put many anxious travelers on the road rather than the sky, that dealers like Niel’s RV in Los Angeles cannot keep up.

“Obtaining inventory has been very difficult,” said general manager Scott Rogers, who estimates that sales at Niel’s have increased by 40% this year. “The dealers only have a ton of orders.”

This trend has also been good news for the banks that finance consumer purchases of motorhomes, motorhomes and trailers. These loans, along with maritime financing, have become a rare bright spot amid weakening demand for loans due to the pandemic recession.

“At the start of the pandemic there was a lot of uncertainty, but since mid-April demand has skyrocketed, and we hit record levels in August,” said Michael Lax, executive vice president of RV Marine Sales at $ 100. billion in Bank of the West assets in San Francisco.

Total recreational vehicle shipments plunged 82% in April from the same month last year as businesses closed and workers were laid off en masse, according to the RV Industry Association. But sales skyrocketed in the months that followed, as consumers sought to socially distance themselves on the highways.

Total shipments in June, July and August were up 25% from the same three months in 2019, the association said.

“The motorhome is a safe and compliant way to recreate yourself at a time when the country is essentially closed for typical vacations,” Lax said. “The industry has attracted a lot of first-time RV buyers, and we’ve seen a big increase in this space.”

Zachary Wasserman, chief financial officer of Huntington Bancshares, a $ 118.4 billion asset in Columbus, Ohio, said at an event organized by Barclays Capital in September that sales of recreational vehicles are expected to accelerate in the second half of 2020.

RV financing is often bundled together in the same transaction as the loan for the sale of boats. Personal watercraft sales have also grown so much that dealers are having trouble keeping them in stock. About eight in ten boat dealers surveyed by researchers at investment firm Baird said stocks were too low.

But every craze has its risks, warned researchers last month.

“I’m a little conservative with my upcoming orders for new boat inventory,” said a dealer in Baird, according to his Sept. 8 report. “I think next year or the next couple of years the market is going to be flooded with boats from these new boaters who didn’t know what they were getting into or were funded and couldn’t make the payments.

Financing for the purchase of recreational vehicles, unlike shorter terms for boats, tends to run for around 20 years. Interest rates can range from 4% to over 15% in some cases.

SunTrust Banks, which partnered with BB&T last year to form the $ 494 billion Truist Financial asset, has been one of the largest RV financiers in the market. A spokesperson for Truist said in an email that strong sales continued through 2020, but said the Charlotte, North Carolina-based company is monitoring demand and broader economic trends.

“We believe that part of the growth is attributed to consumers choosing to buy motorhomes due to travel restrictions and concerns about being in large groups due to the pandemic,” said the spokesperson for Truist. “We are developing our business strategically and prudently, focusing on strong dealer / broker relationships and high quality loans. We are also closely monitoring the industry in light of economic trends and unemployment. “

The sales boom was not enough to re-lure Ally Financial, with $ 184 billion in assets, into the recreational vehicle finance industry that the company left two years ago. Executives did not comment on industry projections at the time, saying only that the Detroit-based company wanted to devote more resources to auto loans.

“We haven’t changed our position and are still focused on the automotive sector,” a spokesperson said in an email.

Nonetheless, lenders in this niche are no doubt hoping as long as possible, given that growth is expected to remain weak in most other categories of commercial loans.

Goldman Sachs researchers said in an Oct.6 note to clients that third-quarter commercial loan growth is expected to be 7% lower than a year earlier, with the biggest slowdown in commercial and industrial lending.

“We expect loan growth to be moderate and not recover until 2021,” the Goldman researchers wrote.

To take full advantage of the recreational vehicle lending boom for as long as it lasts, Bank of the West’s Lax said he and his colleagues are considering growing partnerships with dealers and even original equipment manufacturers.

“We think it’s a great time to be in the RV industry,” Lax said.

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