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
Click here to follow me on Twitter.