A lesson learned from a prior business model, Peter Wasmer designed Fuel Capital, a pre-owned Harley-Davidson lease servicing company, to separate funding from operations. The result was a $100 million investment.
When it comes to business, Fuel Capital President and CEO Peter Wasmer’s approach is to start only with the end in mind.
The philosophy applies at the micro level with every individual transaction and at the macro level with the overall business plan.
Fuel Capital, a Naples-based company that specializes in servicing leases of pre-owned Harley-Davidson motorcycles, is the reconstitution of Chrome Capital, which Wasmer founded in 2011. It, too, was a pre-owned Harley-Davidson lessor that operated until a private equity partner exited the business in 2016. (Peter Wasmer is not related to Martin Wasmer, CEO of Naples-based bond-management firm Wasmer, Schroeder & Co.)
That was an end Wasmer didn’t see coming — and he learned a valuable lesson from it.
So when he and partner Stephen Swain built the pro forma for Fuel Capital, the model was changed to separate funding from operations. That key move allows both units to function independently. It also protects the business from the occasional whims of investors.
Another key to Fuel Capital, thinking long term, is the company's high-end software, designed with client diversification in mind. The company spent $330,000 on its technology and expects to spend less than $150,000 in additive feature functionality in the coming months.
“We really think of ourselves as more of a technology company than we do a Harley-Davidson leasing company," Wasmer says, "and it’s because if we have a philosophy that, if it’s predictable, automate it,
“What we were able to put together with the new design for Fuel Capital was the evolution of Chrome Capital, which is a very successful rebranding and re-stamping of it as Fuel Capital,” says Wasmer. “It was successful from day one simply because of all the knowledge accumulated with Chrome Capital.”
First came the task of convincing investors that the end result of each lease is a double-digit return.
“As a good leasing professional,” Wasner says, “I always start with the end in mind. How much is this asset that we're going to buy and let somebody use and pay us rent going to be worth on the back end?”
Apparently it’s worth enough. Wasmer and Swain started Fuel Capital earlier this year with $100 million in private equity funding. They secured the funds by demonstrating to investors how the end of a lease provides a solid, secure return on each transaction, including monthly lease payments and predictable asset value at disposition.
“Most finance companies are built on a model where you have the operations and management in the same bucket as the portfolio, the originations and servicing,” says Wasmer. “That all works very well until one of these participants decides to change their mind, or they don't participate at the same level, or somebody comes in and they just don't agree with what you are doing. Evidently that happens regularly, and that was the risk in that platform.”
Within Fuel Capital’s funding and operations separation model, the fund owns the assets, receives the lease payments and earns the residual value from the sale of the assets at lease termination. Fuel Capital earns a fee for originating and servicing the lease.
The revamped model includes another key point: the exit of private equity will not necessarily cripple the company — particularly with Fuel Capital’s ability to diversify its offerings, another lesson applied from the former Chrome Capital.
“The funding will not fund anything we send to them, but it is not attached to us,” says Wasmer. “Therefore, they also get all of the returns. In splitting the two, I’ve insulated us and the dealers from funding vagaries that may happen.
“These guys are dedicated to what we're doing. They will buy it up to $100 million. We’re all on our own sides of the street, but running along very nicely.”
A tech business
With the funding in hand, Wasmer immediately began to reconnect with dealerships nationwide.
Good results have come quickly. In four months, Fuel Capital is already working with more than 50 pre-owned independent Harley-Davidson dealerships from coast to coast. The company never lays eyes on its inventory, relying on its relationship with National Powersports Auctions — Wasmer calls it the foremost authority on valuing pre-owned vehicles — to assess both current and residual value.
Fuel Capital deals only with pre-owned Harley-Davidsons that are younger than 10 years and have fewer than 50,000 miles. This eliminates initial value loss of new bikes, similar to that of cars. The company works only with independent dealers because Harley-Davidson factory dealers have access to an in-house financing arm to service leases.
Partner dealerships aren’t required to send their leases to Fuel Capital, though. And that's where Wasmer says the company must distinguish itself to earn the business.
“The person we need to get to is the one at the desk executing the transaction,” says Wasmer. “If we make his life easy, he'll do business with us. We found independent dealerships that didn’t have a national financing platform and really needed some way to capture and keep customers, which is what the lease does.”
Among the first to sign on with Fuel Capital was Lucky U Cycles of Wildwood, in Sumter County. Owner Jeremy Coon was happy to see Wasmer restart the business.
“We were super excited to work with them again,” says Coon. “They came up and visited us, signed us up and we did a deal with them almost immediately. We put our first deal together with them and the customer was happy because he couldn't be bonded anywhere else, so it was perfect for us since we would have had to turn him away.”
Because the vehicle is acquired by the equity group, the dealer is at no risk and the rider need not qualify for financing. Fuel Capital has a high comfort level working with credit risks, Wasmer says, because if the lessee defaults on payments, the bike is picked up and sold back to National Powersports Auctions for the current residual value.
The program also allows the lessee to rebuild poor credit with the option to purchase the motorcycle at wholesale at the end of the lease. Or, he can trade it in at lease termination, or even earlier, for another bike. That creates repeat business for the dealer and residual sales for the equity fund.
“Leasing benefits us in that the customer who has had a rocky past or might be the kind to trade his bike in every three years,” says Coon. “Right now, a lease is not a bad option for people who are not just rebounding in their credit, but also if you can get rid of your bike every three years and upgrade it, that brings them back to us as repeat customers."
In addition to service, another Fuel Capital advantage, in reaching dealerships like Lucky U Cycles, lies in its software. It provides a fast, paperless transaction for the dealerships and their customers that can be executed on a computer, tablet or smartphone. It’s a plug-and-play model, Wasmer says, that will allow the company to expand into servicing leases on other rolling stock — be it other brands of motorcycles, watercraft, ATVs and more.
“What you build in terms of your structures and modules should be flexible enough to where you can pick up your module and plug it into another business sector," says Wasmer. "In all cases, you have to look at the end game and determine how much the asset is really going to be worth in residual value.”
Wasmer does intend to expand Fuel Capital into vehicles beyond Harley-Davidson, and each new sector will require a separate fund. The company leases some 10,000 square feet in Poinciana Professional Park in Naples, where a mere 12 employees occupy about 20% of the space. As new modules are added over the next five years, he expects the staff to exceed 100.
Although he can offer the Harley-Davidson lease model as proof of success to future investors, Wasmer says investing in funding for leasing operations isn’t for everyone.
“We've talked to a number of what we call ‘family offices,’ but they are not the type of people to be the first one in the pool,” says Wasmer. “They want someone else to jump in first and tell them it's fine. We were fortunate to find visionary partners who are not just looking to make a buck, but they understand the value in the originator, which is what we do. The capacity to originate is imminently important, especially in the consumer space, and to do it in a fashion like we do because it represents a good long-term value.”
The model also represents, Wasmer says, a solid return on investment. "The investor gets an excellent return, it’s highly secure and its short term," he says. "Once we start showing that to people, they are enthusiastic.”