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A new year -- and the advent of a new administration in Washington -- sees an atmosphere of financial suffering, uncertainty, and a multitude of job losses nationwide and worldwide. The downward slide in the economy has forced many of us to rethink how to spend the more limited amounts of money we have, to find alternatives to the more affluent ways in which we lived, sheltered ourselves, or got ourselves around. Some of us considered alternative fuels for our mode of transport -- or alternative modes, from those gasoline-guzzling SUVs to the more economical motorcycle.
Into the breach steps a company whose very name signifies solidity and a sense of remedy in these tough times -- New York City-based Sparta Commercial Services Inc. (OTCBB: SRCO), a national provider of financing solutions to the Powersports industry, focuses on motorcycles, all-terrain vehicles and select scooters through private label programs for manufacturers’ distributors. SRCO provides a full line of financing solutions including indirect retail installment, direct closed-end leases, and related services.
The company has improved its revenues more than 300 per cent between 2004 and 2007, despite the credit crunch that engulfed the nation beyond the real estate market. Motorcycle industry analysts point out how those two-wheelers have countered the general economic malaise; in 2006, the industry generated an estimated $27.9 billion in consumer sales, services, taxes and licensing fees (all amounts in U.S. dollars unless specified otherwise). Retail sales of motorbikes alone that year totaled $10.7 billion, on sales of nearly 1.2 million new products. Motorcycle registrations accounted for 2.6 per cent of all motor vehicles registered for use on public roads in the U.S. in 2005.
Sparta management sees a $2.2-billion target retail market, with not only the 2,000-plus dealers through the country, but a fair chunk of retail sales not financed by captives, Harley-Davidson Financial Services (HDFS), GE Capital, or the other major lending institutions. Not to be discounted are the municipal and fleet leasing outlets, which also offer revenue potential in the millions.
Sparta, who also boasts a Dealer Support Group based in Houston, stays competitive with the big lenders mentioned above -- and thus merits watching by small-cap stock aficionados -- by offering a variety of loan and lease programs to those in Powersports market, covering all major brands of motorcycles, most semi-customs, ATVs and select scooters.
For instance, the Sparta Flex Lease enables would-be buyers to buy the cycle for the residual amount, re-lease it, upgrade to a new unit or simply walk away. The company’s innovative Lease-to-Rent program was announced in the spring of 2006, to address the burgeoning rental market. Its innovation lay in its ability to lease high-quality bikes at a much lower cost to motorcycle rental operators, thus allowing for better profitability and better capital utilization. Before this program, rental operators had to purchase their own fleets, either out of their own pockets or by borrowing. Response to the program was dramatic, with more than $400,000 worth of vehicles delivered to rental outlets in the first month alone.
Those, and other lending programs, mark Sparta as having among the most liberal lending criteria in the industry, and with its focus solely on the Powersports industry, with limited competition, its success should come as little surprise.
Last summer saw the company announce a ramping-up of its sales and marketing campaign, in a conscious effort to capture the 30 per cent of the motorcycle financing market not already serviced by some of its larger, more established rivals -- a piece of the pie that could translate to about $2.2 billion in annual motorcycle sales. ''Soaring fuel prices, increasing personal environmental responsibility, and the impact of the mortgage debacle on larger finance companies has created a perfect storm'', said Chief Executive Officer Anthony Havens, adding, ''consumers are demanding options.''
The improved company presence paid off handsomely in December, when SRCO completed the first commercial fleet leasing transaction with a major Harley-Davidson dealer, providing a $460,000 credit line under its new program. With over 800 retail Harley-Davidson dealers throughout the United States, Sparta anticipates entering into similar agreements with many more of them in the coming months.
The final days of 2008 saw the completion of revolving credit agreements with Autobahn Funding Company and the New York branch of an established German bank to buy retail sales and lease contracts, as well as used Powersports items. Total value of the contracts was $25 million.
The firm’s management team knows whereof it speaks. Havens brings 20 years’ expertise in the investment banking business, and founded American Motorcycle Leasing Corporation. Chief Operating Officer Richard Trotter has spent three decades in the auto lending, servicing and collecting end of things, besides being former president of the American Finance Company. Acting Chief Financial Officer Anthony Adler served alongside Havens at American Motorcycle Leasing, and also sports a wealth of investment banking and consumer distribution experience.
Even as the shadow descended over the North American economy last fall, Sparta was still sitting pretty, with revenue of $1.1 million for fiscal year 2008, a 27-per-cent improvement over the year before. Operating income is negative for 2008; however, the trend of operating loss as a percent of sales decreased 45 per cent from 2006 to 2008. Net loss declined 33 per cent from $6 million in 2006 to $4 million in 2008.
In the recent volatile market climate, SRCO stock has been relatively stable, even if the price has failed to raise its head above the dime level. Last February, the price scaled the lofty heights of 16 cents, for its 52-week summit, and then faded to a single penny in mid-November, before reaching a plateau around six cents as 2009 got underway. But Sparta’s unique position, and its aggressive marketing strategies, are geared to help the company mount a charge to bigger and better things, a charge that should proceed all the more quickly, as more customers seek to mount that ''Hog'' or another set of funky wheels.
