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ConsumerFi Podcast: Non-Prime RV Financing with SaGo Financial's Doug Neal and Jerry Cockburn

September 1, 2022

Episode 19


Joel is joined by Doug Neal and Jerry Cockburn of SaGo Financial to talk about the hurdles they face as the first name in the non-prime RV loan market, its surprising differences and similarities with non-prime auto lending, and what’s in store for the RV industry as a whole in 2021 and beyond.

ConsumerFi is presented by Nortridge Software: Loan Software That Accelerates Change.

And special thanks to The National Automotive Finance Association: The only trade association exclusively serving the nonprime auto finance industry.


[00:00:20] Everybody welcome to the ConsumerFi podcast. Uh, I’m really excited today to have. Uh, a couple of experts in an asset class. So we don’t tend to talk about too much. It’s not consumer finance, it’s not really auto it’s non-prime, uh, towable RV financing, which I’m sure it’s very interesting to a number of people given that, uh, if you get on any social media platform, you see people that are living, you know, wherever they want to on their own terms.

[00:00:47] And, uh, so I thought it was a good topic. Anyway, please, uh, want to welcome, uh, The leadership from Sago, Doug Neil and Jerry Cockburn, Doug and Jerry, welcome to the [00:01:00] podcast.

[00:01:04] So Doug and Jerry, I’ve known you guys for a little while, and I’ve been very impressed with what you’ve done. Um, and I know a thing or two about what you’ve done. Uh, I love. I love people that kind of make markets. And, um, I really feel like that’s what you guys did with non non-prime towable RV financing, but maybe we can start off with, uh, with, with, with both of you guys kind of doing a quick intro and your background and, uh, and then Doug, I’d love to hear Nate.

[00:01:33] Maybe we have Jerry go first and then have Doug, have you kinda. Tell us about the concept for, for Sago and your background. I know you, you, you were a dealer for some time, um, and then you made this switch. I think it’s an interesting story.

[00:01:49] Doug Neal: [00:01:49] Yeah. I mean, um, you know, I, I started in kind of the payday loan space, um, small business loans, title loans, type stuff.

[00:01:57] Um, you know, Doug brought me on [00:02:00] about, uh, it’s been about 12 years now. Um, started from the bottom with him, worked my way up to the top. We’ve seen it all part at all, then through it all. Um, you know, now we’ve kinda looked at creating this new little space in the, in the non-prime RV and, um, it’s really going well.

[00:02:21] Um, I’m sure Doug can touch more on it as far as where it came from and how the idea began. Um, so I’ll let him continue. So, yeah, I, um, my background is I I’ve been in the car business. 28 years. Started off in the used car industry, brought some new cards, bought a new car store, had four stores. Um, Jerry was working in my front and my, my finance company.

[00:02:47] So we were toting the note on some cars on some of these inventory that we had. Um, and. You know, I was sitting around with a bunch of buddies back in 2013, and they were [00:03:00] in the RV industry and, you know, they were saying, well, you know, we had, we had a 700 beacon score today. We couldn’t get done. We had a six 80, we had a seven 20 I’m like, wait a minute, guys.

[00:03:11] Those are automatic approvals in the car business. I mean, those are slam dunk. I said, well, in the RV industry, I mean, if you’re not a, a solid 700, six 80 and above, you’re not going to get bought. So I immediately started looking into the business, seeing what the needs were, who was getting bought, who wasn’t getting bought, um, came to Jerry and I said, Hey, why don’t we start at post-it note in the RV industry and, uh, talked to a buddy of mine that was in the RV industry, Lanny.

[00:03:41] And we opened up a dealership on January 1st of 2014. Um, but every kind of wrong RV you could buy, uh, we’re doing Mo motorhomes, wills, towable [00:04:00] pop-ups. We were doing everything pretty much doing it with anybody. And we, we, we did that for about two years and we had our repo washes through the roof. We were repo and 40% of the portfolio, it was, it was not good.

[00:04:18] Um, we’ve probably restructured this company eight to 10 times, if not more minimal, finally got it dialed in two years ago. And, um, we were just in China as closed down my RV stores. Didn’t want to be in the RV retail business. There’s wanting to be in the finance industry, uh, closed those down about three and a half years ago.

[00:04:45] And just started rolling this out to dealers. It was one of the hardest things we’ve ever done to roll out a subprime RV package to a dealer. They didn’t understand discount. They didn’t [00:05:00] understand anything like you understand in the car business. They didn’t understand anything about that. And we rolled it out in Texas, had a lot of pushback on a pushback.

[00:05:12] Finally, we broke the market and started getting in with some of the biggest dealers. We were getting onesies and twosies of deals per month. And then all of a sudden it just kind of exploded. And we started getting a lot of deals. Uh, what was it? Last year? We rolled out to 12 other States. So right now we’re in 13 States.

[00:05:32] Across the country, um, kind of holding off on growing anymore, just because of COVID, but, uh, been a very interesting business and, um, for our clientele for probably running about 50% of our clientele lives in the RV full-time, which is unheard of most of the time, if you live in the RV, you can’t get financing.

[00:05:55] And, um, we’ve kind of, I don’t think we kind of, the, we did change the RV [00:06:00] industry. Quite a bit on financing. Um, we’re just, uh, we’re a different animal in the RV industry and nobody competes with us. We basically call us we’re, we’re basically at a blue ocean. Everybody else is in the red ocean, fighting the bloods in the water, and we’re just, we’re over in our own ocean just went along and financing our own deals.

[00:06:23] That’s really it.

[00:06:25] Joel Kennedy: [00:06:25] You guys, you guys did experience some really nice growth, which is a Testament, not only to the business model in my mind, but, uh, but you, you guys are able to talk the talk with the, with the money folks as well, which I think is great for the, for the listeners who aren’t super familiar with the market.

[00:06:42] Um,

[00:06:44] Doug Neal: [00:06:44] I, what

[00:06:45] Joel Kennedy: [00:06:45] is this? What is the SA like overall size or opportunity of the, the, of the market that you’re going after? Doug?

[00:06:53] Doug Neal: [00:06:53] Um, you know, the RV industry as a whole, the biggest year they ever had was [00:07:00] 515,000 new RV sold in a year. That’s the biggest year they ever had out of that 85% of that makes up total.

[00:07:12] So 15% is drivable. So, um, of our market, I mean, it’s just in the subprime market. Seven $8 billion industry, you know, and the prime business, um, you’re looking at well, I can tell you they finance 24 billion last year in crime. So it’s a huge market problem is the same thing that everybody else has said when right now is.

[00:07:44] Parts supply. Of course, it’s sold out everybody out of inventory. Now they’re having to replace it. And then unfortunately the manufacturers can’t make them quick enough and they can’t get the supplies. I mean, they got thousands and thousands of [00:08:00] units parked in Indiana waiting on fire, extinguishers, refrigerators, dishwashers, ACS windows.

[00:08:06] So it’s hindering the market a little bit right now. We feel that we feel the slow down. There’s no doubt about it.

[00:08:13] Joel Kennedy: [00:08:13] We should talk about that. When we look at a forecast moving forward, I really want to hear what you guys think about. If you think you guys are going to bust through that inventory. But I do want to talk on one thing, um, about the towable RV versus the motor home.

[00:08:32] Doug, you and I have spoken about that on the towable RV. Um, it’s a far more simplistic mechanical equation. Can you talk a little bit about what, what, what makes that so attractive to you guys?

[00:08:45] Doug Neal: [00:08:45] Well, I mean, just, uh, you know, first thing is a motor home is going to cost 150 to a million dollars, um, travel trailer, average travel trailer prices, [00:09:00] $130,000.

[00:09:01] And the average fifth wheel is. Yeah, 65,000. So we’re not doing any drivable. Um, the mechanical breakdown on them is really expensive. Second thing is the warranties are outrageous. They could cost 20, $30,000 for a warranty. And the terms, uh, you know, you’re looking at in terms of, you know, as high as 20 years for financing and, um, you’re looking at good credits and those credits.

[00:09:31] People are generally five, 6% interest rates. So that’s why we’ve kind of stayed away from the motorized in Vermont

[00:09:42] Joel Kennedy: [00:09:42] when you looked at the risk profile. So if I just, if I just take off my, take off my hat, that that acknowledges the fact that I know a thing or two about what you guys have done. But if I think about somebody who’s who’s, well-versed in automotive non-prime lending and then saying.

[00:10:00] [00:10:00] Hold on a second. You know, I’ve seen motorcycle portfolios, I’ve seen ATVs and boats and stuff. You know, why, why would, why would we ever want to make a loan like this to a non-prime consumer? And, and, and by way of kind of leading you, I want to hear a little bit about the, you know, how you guys view getting to a net number through losses.

[00:10:22] Because when, when, when we talk about losses for the segment, um, It it’s just it. I don’t want to steal any thunder. I’ll let you kind of walk through it, but tell us a little bit about that.

[00:10:36] Doug Neal: [00:10:36] Well, I mean, first thing is just, you know, it has a lot of similarities of the car industry and the car portfolio, but then on the other hand, it’s, it’s totally different when you go to reassess somebody, uh, it’s their home you’re, you’re dealing with other underlying issues other than the car.

[00:10:57] So that’s, that’s a little bit [00:11:00] different. A second thing is terms terms are a little longer than those in the automotive industry, especially in the tote, the note industry. So it’s an old industry is, is really 36, 42 months. Um, I mean, we got those highest 10 years, so big difference there, uh, dollar wise where we’re average and, you know, financing somewhere around that 30, $35,000 Mark.

[00:11:23] Um, And then, and then losses. I mean, right now we’re experiencing the nominal return on our, on our repos. I mean, their losses are very minimal because the market is so strong for used inventory because there’s no new inventory out there. So when we fake units to auction, we are bringing over a book or, you know, um, at book.

[00:11:48] Where before we were bringing in, you know, 80% of book, right? There’s no MMR. The book is not realistic on a nice, you use products. [00:12:00] Um, there it’s, it’s 15 to 20 years behind the automobile industry, especially as the options MMR, how they’re actually recon and in resettling these units or 15 years ago, They’re harder to move.

[00:12:16] They’re more expensive to repossess, but, um, you know, the payments are higher. So, you know, the average payment is going to be, you know, five to 600 bucks and, uh, you, you make more money on these per unit. So it’s, it’s, it’s got some similarities to the car business, but on the other hand, it’s, um, It’s totally different.

[00:12:41] It’s very difficult to go borrow money to raise capital because nobody knows this industry. Everybody knows as soon as you say RV industry, they think 20 years and 500,000 on buses, right. Low rights. And we are [00:13:00] just the opposite. We’re shorter term, lower dollar amounts, higher interest rates, higher risk.

[00:13:06] Um, but. It’s just, that’s our hardest obstacle we have is race. The hardest thing we can be in 30, 40 States today, if we have the capital to expand from as weird for burning our cash on a monthly basis. Yeah.

[00:13:30] Joel Kennedy: [00:13:30] Then I think about the points you made earlier about the dealerships. Um, really getting it and understanding the program.

[00:13:38] Do you feel like, uh, do you feel like you’ve crossed that hurdle or is that still kind of like a daily, daily battle that you have to do

[00:13:45] Doug Neal: [00:13:45] it like daily to a minute battle every day that, you know, they don’t understand the discount, they don’t understand, you know, marking up the units, you know, remember back in the day.

[00:13:59] And I was in the car [00:14:00] business in 1989. And I remembered the subprime market come into town seven to Fort worth in 1990, 1991. And a good friend of mine brought it in Scott Carlson. And he brought me the idea of how to do it in a discount. And I told him it would never work well. He grows, he grew the company where hundreds of millions of dollars took it public.

[00:14:22] And so I was wrong, but the same thing happened in the new car world. They rolled this out to the new car world, the subprime. Nobody in the new car world wanted to deal with discounts. Those, they always said those kinds of people lower credit. They didn’t do it until 1997, 1998. When they started seeing all of us independent dealers, jump on the bandwagon and making all this money.

[00:14:48] But we had to Mark the cars up. We had to deal shorter term, higher interest rates, jumped to a lot of hurdles to get paid. And, but everybody came on board now [00:15:00] in the industry of the automobiles. If you don’t have subprime in your dealership, you won’t make it. You will not make it at all. You have to have sub price.

[00:15:14] So that’s why I keep saying we’re 15, 20 years time the automobile business, because right now nobody’s doing the subprime, but again, there’s 17 million cars made every year. There’s only. 500,000 of these new every year. And they don’t last that long. I mean, they, they last, I think they last as long as a car and a car lasts, you know, 10 years an RV will last about teens so that, you know, for the differences it’s, it’s, it’s night and day on probably 80% of the portfolio and how you collect, how you do things.

[00:15:51] Um, Than the automobile business, but it’s been very good to us. Don’t get me wrong. If we had the capital, we quadrupled our [00:16:00] portfolio and one year

[00:16:05] Joel Kennedy: [00:16:05] I love, I love how you crack the market. Starting at finding a gap there where anything beneath six eight, where you’re saying six 80 is, uh, is just really not put together. I think it’s fantastic. And obviously, you know, we talked about it earlier with COVID more and more people are interested. When utilizing these types of products and, uh, yeah, I can tell you, I, myself, I took my kids camping and they loved it and I would done it whether there was COVID or not.

[00:16:34] But now with COVID and this thing dragging on it makes me more and more motivated to go buy a four wheel drive vehicle. So I can do more of that with my kids. And I think the same thing applies to people with the RVs. And, uh, my hope is that longer term. People will continue to utilize these types of products and go out and see America.

[00:16:54] I think that’s, it’s pretty amazing there. You know, obviously now people are using it to live in, um, a lot [00:17:00] of the van conversions and such, but, uh, so looking forward, I’m really interested you guys, um, cause you guys are so, uh, close to this issue. You, as far as I’m concerned, you guys were market makers.

[00:17:12] Where do you think everything. Is going to be going forward. Uh, Doug, you mentioned that there is too much action on the securitization side with these types of things. Um, what do you think you guys are going to see in terms of, uh, everything from supply through, through retail, you name it? I mean, what do you guys think?

[00:17:29] 20, 21 we’ll we’ll hold in store.

[00:17:32] Doug Neal: [00:17:32] You know, we talked about this going into the fourth quarter and we feel like 20, 21 is going to be really well in supply and demand with the manufacturers. Um, we don’t, we don’t see the inventory level coming up as drastically. I think it’s going to be a three-year battle to get the inventory up where it was.

[00:17:51] I mean, to give you an example of some of our dealers, one of our dealer groups, um, you have six stores. He normally keeps about 1200 units on [00:18:00] hand. Uh, in the fourth quarter he had 200 units total. Wow. You know, he’s older at thousands and thousands of units and so on out every day. So. We felt like that supply’s going to be short for two to three years.

[00:18:17] What does that do to us? Well, it hinders us somewhat because we charge a discount. So if, if they’re short on supply, they’re not going to take a shorter deals, sell a unit, they’re going to hold it because they want to, you know, they want to maximize their gross. So we felt like that’s going to hinder us a little bit, but, um, The only, you know, the only way that we can keep our growth going and steady booking more deals is expand our footprint.

[00:18:46] I mean, uh, our work better with our dealers in our 13 States. I mean, we grew so fast last year or the year before. I’m sorry. We, we did this in 2019. We’ve put on [00:19:00] nine States and then in 2020, we put on the rest. So we’re still in our infant stages on a lot of States. We’ve just got to do better in those dates and that’ll get our business back up to where we need to be, but we just need more dealers, more dealers equal more deals.

[00:19:17] So that’s, that’s basically where we’re at. You know, you were saying, you know, the RV industry, I mean, it doesn’t hurt when the president gets on national television and says, go are being. No see America. Right. And that was like that we saw when COVID hit, everybody went out and bought RV use market jumped drastically.

[00:19:39] Like I said, we see that in our auctions sales, we’re bringing in, you know, 20, 30% today. We had one at double book on a sale. So very fortunate there, but you know, that’s going to turn eventually when the supply, you know, we’re very positive. Um, money is getting easier to borrow there [00:20:00] when COVID hit everybody kind of dried up.

[00:20:02] We did too. We shut down for six months thinking our repos were going to go through the roof or delinquency was going to go through the roof. Uh, actually our delinquency picked up 1.5%. Our repo rate stayed about the same. Um, what we have seen this month, uh, actually was our re posted up this month. And I think people are just running out of money.

[00:20:24] The stimulus checks are not there. Um, but we have seen the repost tick up, but again, they’re maximizing bringing it to the sales. So we feel fortunate there. So for

[00:20:37] Joel Kennedy: [00:20:37] folks in the either, you know, uh, there’s a number of things that you just mentioned there, Doug, um, For folks that are, you know, maybe in the capital markets or they want to learn more, get involved, maybe they’re a RV dealer, or maybe they’re, maybe they’re a, uh, an independent dealership that said, you know what?

[00:20:52] I traded a couple of these towables and I like it. And I want to learn more about how I might be able to carry some inventory and [00:21:00] financing. It what’s the best way for folks to get ahold of you and Jerry.

[00:21:04] Doug Neal: [00:21:04] Yeah, we’re, um, you know, ShayGo That’s our website. Um, you know, you can always reach out to us and, and our emails are very simple.

[00:21:13] It’s doug at spagofinancial[.com] or jerry at spagofinancial [.com]. Um, that’s generally the best way to get ahold of us. Um, but yeah, I mean, we’ll, we’ll help anybody, um, you know, to, to, to grow in this business. And, you know, we do have repos across the country. We do, uh, Get them over to our dealers and see if they’re interested in buying them or putting them on the arm or taking them straight to the sales.

[00:21:38] So we’ll work with anybody and we would love to sign up dealers, you know, like we’re, we’re not in the Northeast, um, on the States, but we’ll, we’re, we’re basically all over the West and all over the East coast and techs. So, but yeah, that’s the easiest way to get ahold of us and we’d love to have more dealers.

[00:21:58] Joel Kennedy: [00:21:58] That’s Sago. [00:22:00] It’s Sierra alpha golf. What’s the call one for, Oh, I forgot. Do you remember Oscar? There we go here. Sierra alpha golf, Oscar And uh, they run a tight ship and well-run operation. And like I said, market maker, uh, exactly what the American economy needs a right product at the right time.

[00:22:26] Um, You guys can tell I’m a fan

[00:22:30] Doug Neal: [00:22:30] a little bit biased. You’ve been a fan for a long time. You’ve been very helpful in our industry. Very helpful in our business trusts me and Joel. We love you to death.

[00:22:39] Joel Kennedy: [00:22:39] Oh man. The feeling goes both ways. Let me tell you, um, and, and being in, in, in Dallas, it doesn’t hurt. Cause, uh, as everybody knows, I tell everybody Dallas is the nexus point of the universe when it comes to auto.

[00:22:51] So you guys are down there. So I’m always able to break bread, which I always enjoy as well. But, um, well thanks, Jerry and Doug. From Sago [00:23:00] financial. Uh, I’ll let you guys have the last word and signing off, but, um, thanks for being on the podcast.

[00:23:05] Doug Neal: [00:23:05] Great. Thank you very much, Joe, look forward to you coming down to Texas, whenever you start traveling again, and, um, we’ll go out to dinner and have some good times.

[00:23:12] And, uh, and again, if anybody leaves to reach out to us, I’ll give you our, uh, emails again. It’s Doug D O U and Jerry at, uh, Sago We’d love to have you on board and talk to you. Anything we can do to help anybody out. We’re definitely here to

[00:23:28] Joel Kennedy: [00:23:28] help. Well, they heard it say go financial, Jerry and Doug.

[00:23:32] Thanks guys. Thanks Joe. The consumer five podcast has been brought to you by Northbridge loan software. That accelerates change. We’d also like to thank the national automotive finance association, the only trade association, exclusively serving the non-prime auto financing industry. [00:24:00]

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