Analysts weigh in on GE lending plan

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Analysts say that GE’s tightening of its floorplan lending standards could seriously affect the marine industry, where it is the primary source of commercial credit.

GE recently announced substantially higher interest rates, tougher requirements on curtailments, higher up-front “stocking fees,” and extended repurchase commitments for manufacturers, Edward Aaron, analyst with RBC Capital Markets noted in a report.

He estimated that with the departure of KeyBank, Textron and others from floorplan lending, GE controls around 80 percent of the market.

“The good news is that GE is almost forced to stay in this business,” Aaron wrote. “A decision by GE to exit the space altogether would be highly destabilizing and would significantly devalue the assets that collaterize its loans.”

GE officials have said they have no plans to exit marine lending.

“We have supported this market for many, many years and expect to continue to provide funding and maintain our commitment to our marine industry partners,” said Bruce Van Wagoner, president of GE Capital’s Marine Group, in an e-mail to Soundings Trade Only.

Hayley Wolff, an analyst with Rochdale Research, said GE’s changes may lead to a “shakeout” in the industry.

“This puts added pressure on an already-stressed dealer base as they struggle to finance boats,” she wrote. “This likely will translate into fewer orders for new boats and hurt smaller boat companies. All factors that will lead to a shakeout in boating.”

Though The National Marine Manufacturers Association and others succeeded last week in helping get non-auto floorplan loans included in President Obama’s Term Asset-Backed Securities Lending Facility program, Aaron said he’s not convinced that TALF participation will solve the problem.

“Given the pressure that GE is facing in other areas of the business, we cannot foresee that marine lending will be a priority for its use of capital,” he wrote. “Any relief would have to come from the entry of a new competitor.”

— Beth Rosenberg
b.rosenberg@tradeonlytoday.com

Click here to follow me on Twitter.

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Comments

14 comments on “Analysts weigh in on GE lending plan

  1. brett

    Trust me, the “shakeout” won’t take too long. We have all been knocked to our knees and we are trying to get up…. and now the rate hike…. There won’t be much of a marine industry left after June or July. Boat buyers should be paying attention. Now is the time to buy because of the forthcoming monopoly and inflation.

  2. captkmn

    Our industry definately needs another major player in the floor plan business. As with any business, competition makes one work harder, be more competitive, and be more customer friendly. As has been previously discussed, a marine industry based or recreational based floor plan company should be more understanding of the needs and changes that our industry goes thru seasonally.

  3. Chuck

    What scares me the most is their new attitude, take it or leave it. They have mismanaged the company for so long that they are now going to to take it out on the dealers who are still struggling to stay alive. With their new attitiude they should be the biggest boat dealer in the world very shortly. We need someone to step in and change the monopoly they have on the market. They are getting a better return on their investments than most and they don’t need to force struggling dealers out of business.

  4. Don

    We are a Top 100 Dealer from Boating Industry Magazine, Marine Industry Certifed and have been in the boat business for over 20 years. We have cut our expenses, cut back on staff, sold unecessary assets all to help us survive the downturn in the economy.

    Mr. Von Wagner, from GE, sent us a congratulations letter for achieving the Top 100 dealer award and once again reiterated how committed GE was to the marine industry.

    Within a week of the congratulations letter, we received by certified mail, a letter from GE stating they would no longer floorplan our inventory and gave us 3 months to liquidate all…even though we were considered a good account with a great track record with the company.

    I called my rep at this point and stated this will probably put us out of business as no one in the industry was floorplanning boats including our own bank who just received TARP money!!! Without funding I can not buy inventory…without inventory I can not pay my bills, my employees, my ventors, etc….do they realize how many people and marine related companies will be affected…this snowball is getting bigger and bigger and out of control and there will be a lot of casualties along the way!

  5. Tom33455

    Every business must do whatever is necessary to insure its continuation…… and that includes lenders. One of the previous posts states that “with their new attitude, GE should be the biggest boat dealer in the world”. And, “We need someone to step in and change the monopolyh they have on the market”. How naive, simplistic and one sided can you get?

    Hello Chuck………..wake up!! Everyone else (B of A, Key, Textron, etc.) has abandoned the market and no one wants back in because of the huge RISK!! They’ll all gladly wait on the sidfelines until things settle down and then they’ll be back.

    OK, so argue over how we got to this point and whether the amount of rate and fee adjustments are right but to suggest that any lender should continue to watch its losses climb and not react strongly to a severely increased risk is ridiculous.

    Over aged inventory has balooned to extroardinary levels. The current value of aged inventory that secures a floor plan line is overstated in every case unless it has been curtailed……….even then the curtailment may not have been enough. So who’s on the hook if/when a dealer defaults on his floorplan loan? And what if the Manufacturer cannot meet its buyback obligations?

    What would you do if it were your billion dollars at risk????? ……nothing? And should any lender take the financial hit on behalf of a dealer who goes out of business and or a manufacturer who can’t live up to its repurchase obligations ………just chalk it up to the cost of doing business?

    It’s a difficult situation for EVERYONE, at least GE hasn’t turned its back on the industry at its time of need like so many others have…..that’s saying something huge about the company and its commitment to the marine industry. Think about that for a while.

  6. Capt Downeast n' Trawler

    This problem was comming for years. We all saw it. We tried to forge Dealer Mfg agreements which would prevent the very issue we are now facing. Problem is very few of us had the courage to back away long enough to pay GE off before too far into 2008!

  7. Arch

    UNBELIEVABLE that people want to blame GE here. GE is in business to make money, JUST LIKE YOU. They are not required to stay in the business, or to be your floor plan source. It’s ALWAYS been this way.
    We are all victims of the times. Don’t blame GE for protecting their stock holders.

  8. liz

    Dealers and Manuf. must wake up. If they tink GE won’t exit the industry, better think twice. Let look at it this way. If you wona to exit an industry, first you must reduce the risk to a liqudation ratio that is acceptable to loss risk. In order for you to do this (reduce risk) you must first find ways to liquidate aged inventory, risky dealers and manuf, and bring risk down to a ratio that will allow you to pull the plug. One way to do that is to raise rate (forcing accounts for move of fail) change curtailment policy to get euity for liquidation purposes, tighten credit policy to push away accounts that may be a risk in the future and etc; now look at what GE is doing? REDUCING RISK RATIO: when the lines of risk are even, goodby.

    Liz
    Risk Management manager

  9. Gordy McKelvey

    Well it was fun while it lasted. Six months paid floorplan interest for the dealers, zero down and financed for the rest of ones natural life on the consumer side. Makes me want to go back to 1981. Lets see, if my memory serves me, we dealers had to pay cash for our inventory or come up with our own floorplan programs by deveolping a relationship with our local bankers. Boat buyers had to finance their boats locally and they actually had to put about 20/25% down and the banks maybe would write a 60 month note. And another thing, consumer installment loans were running at an APR of 18-20%. Funny thing about that period of time, I sold just as many boats back then as I have in the recent past but I actuallay had higher net profit margins then than I did when I had all this “free” floorplan money and wide open consumer lending programs. Kind of makes you scaratch your head, doesn’t it?

  10. Carlm

    Gordy You are so correct. But put another way.
    In the past, If you had the passion & desire & willness to work hard & take the risk to be a boat dealer, you invest your own money & your good risk record with your local bank where you kept your money, & put it into your inventory. The way its been the last decade or so is as long as you didn’t have to use the money you didn’t have, any one with a credit rating & willing to sign dumb contracts with vendors(hot dog salesmen) & Floor Planners(loan sharks)could be a boat dealer. So easy a geko could be one….
    Boat manufacturers were just as bad managing their growth & operations, (look at the number of companies that changed hands in last 3 years mostly to investor types without boat passion(again- boat building so simple a geko could do it…) The MBA new way to run a bizness on OP money.
    Now these guys are the winers…
    So maybe the good old days will come back— Fewer lowballer manufacturers trying to demand to much inventory & fewer low margin dealers on every corner giving it away all the time.

  11. Curtis

    It is interesting to listen to everyone about how good and bad GE is. It is unfortunate that GE is the only floor plan lender left. It is fortunate that GE is still in the game. I think the biggest issue is we as dealers (at least myself) who have made it this far feel like we are being penalized for doing a good job. 1st. we are at a huge disadvantage in trying to sell product with all of the distressed inventory out there, which GE, Textron and Key Bank have dumped at 40-50 cents on the dollar. 2nd. Now we are going to be charge a higher interest rate when money to GE and everybody else is at an all time low, making up for the shortfall that was created from dumping boats at 40-50 cents on the dollar. 3rd. I have no problem paying interest payments based on our current agreement. If I could make the curtailments I would have. I think charging us 18% on outstanding curtailments is a little steep. It will not make the boats go away any faster.
    4th. If we make it through this mess the boating industry is going to need to do business differently.
    I for one will be negotiating with my manufactures to never pay interest again. I do not care about discounts. Discounts do not pay the bills until the boat is sold. The other thing it will do is make the manufacture help us in moving a model that does not sell in our area but is doing well in another. Right now nobody helps anybody. Dealers need to work together better in letting the guy in the next town know what you have so maybe he can sell the boat. Manufactures need to pay better attention to what the dealers inventory is so as to help them move product which will in turn make the manufacture better and make our industry stronger.
    It is not always about winning the battle but the war.

  12. Kathy

    Curtis,
    I completely agree with you. I, like you, have always done everything the right way. I’ve sold and paid off $60,000 worth of non current inventory in the last 2 weeks & the GE rep asked me if I was still going to be able to pay $5000 per month in curtailments.

  13. The Boat Place by DLD

    Re: Tom33455
    First many dealers should be grateful that GE is still hanging in there for the dealers that currently used their financial services as like Tom said, many have deserted us boat dealers.
    Turning inventory is the key here and not holding onto your normal standards of profits is one way to have been proactive in reducing your floor plan obligations and interest and have no curtainments to GE.
    There is a boat buyer out there for a boat at the right price and with what all the manufactures are doing out there inventory should start moving and if we are all thinking outside the box by moving inventory will take some hard work and creative planning.
    If GE and Dealers dig their feet in and work toward saturating the market with boats by LOW, LOW giveaway prices you rewards will come back to you in the Service, Parts and Warranty ends of the sale. It is a slower process to gaining money for past debt sins, but it will help bail you out.
    Just my opinion and my master game plan is a successful boat dealership.
    Hang in there!!
     
     

  14. JIm Sabia

    The posts here are very informative and more dealers and lenders should have exposure to them. Please visit http://www.marinedealer.org . Join and post there. It is a forum designed to promote inter-industry dialog. Thank you. 

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