Ellsworth “Ellie” Clarke is president of Bank of America Dealer Financial Services. Based in Jacksonville, Fla., he heads a department including 1,300 associates involved with sales, underwriting and customer service for the auto, marine and RV industries. Clarke’s staff includes 100 sales associates scattered around the country, nationally supporting dealer floorplan, retail direct and indirect loan programs for the RV sector.
Clarke provided an overview of Bank of America programs and the RV market during an interview with Jeff Kurowski, director of industry relations for the Recreation Vehicle Dealers Association (RVDA). This story appears in the July issue of RVDA’s RV Executive Today.
RV Executive Today: Over the past year, terms have changed significantly for both RV retail and wholesale loans. First, what are the factors driving bank lending policies on the wholesale side of the business? Dealers tell us there have been significant changes in what the bank considers a “new” unit and in curtailment policies.
Clarke: As the economy turned down, unemployment went up and investment portfolios lost value, more people have defaulted on RV loans, putting more product on the market. Thus, product values declined as the supply went up. To protect the bank from large losses on repossessions, we are asking customers to put more down payment into the product.
Concerning dealer inventory finance, we require dealers to begin paying curtailments after 12 to 18 months. Curtailments are a portion of the value of the RV being floorplanned.
If a dealer goes out of business, then the manufacturer buys back the units that were floorplanned, less the amount of the curtailments paid by the dealer. If a manufacturer goes bankrupt, curtailments are the only protection we, as a lender, have against taking a loss. This hasn’t changed; it’s always been our operating model.
When extending floorplan credit, we focus more on the financial health of the dealer than the financial health of the manufacturer. We underwrite based on the financial strength of the dealer. If an otherwise profitable dealer has been struggling financially through the recession, we will work with them as long as they have a well-defined plan to return to profitability or to re-capitalize.
RV Executive Today: On the retail side, we are hearing that some financing deals that would have been approved quickly last year are now being rejected by the bank, or offered at terms that customers won’t accept. There are RV dealers who say their customers cannot get loans for more than $100,000, and in some cases, $75,000. What has changed on the retail side? Is there a “cap” on the amount the bank will loan for the purchase of an RV?
Clarke: There is no cap from our perspective. The problem is that with the rough economy, there is a larger number of consumers who don’t quality any longer. When considering loan to value, we base value on dealer cost, and we’ve lowered loan to value, on average, from 105% of dealer cost to 95% in the past 12 months.
As an illustration, if an RV has a sticker price of $100,000, let’s say the dealer paid $80,000 for it. Now, we will loan the customer up to 95% of $80,000, instead of 105% a year earlier.
The reason we’ve lowered loan to value is when we, as a lender, sell a repossessed unit, we get considerably less than we did two years ago. So, we attempt to get more equity in our collateral. In order to reduce our potential losses and lower our risk, we’re asking consumers to make a bigger down payment.
Otherwise, the terms have not changed. You can still get a 20-year RV loan, but if you’re wanting to buy a $500,000 RV, the added amount you will need for a down payment now is a large amount of money.
In the case of 2008 model year product, we have lowered the value of those units, which makes sense because they have less value on the market.
RV Executive Today: What do sales and F&I professionals at RV dealerships need to do to help prepare their customers so they can get financing in today’s market?
Clarke: The days of 100% financing are pretty much out the window. Dealers and F&I professionals need to change their sales model to collect larger down payments, because the market will not support these higher loan to value.
This is the time to de-leverage, so dealers may need to sell the customer a less-expensive product in order to qualify them for a loan.
RV Executive Today: Bank of America received billions in TARP funds, and now the bank has stated its goal to repay that government money by the end of the year. What can you tell us about the connection between the TARP program and its impact on bank lending policies?
Clarke: We are lending out every nickel we can to any qualified borrowers. I have no restrictions, but the economy is rough and there are large numbers of consumers who don’t qualify any longer. The government didn’t say, “Go make bad loans that won’t be repaid.” They said, “Go make good loans.”
RV Executive Today: What is Bank of America’s outlook for the RV market? Has it hit bottom yet? When do you think the RV market will show signs of improvement?
Clarke: I wish I knew. It will depend on when home prices and unemployment stabilize.
Sales are still down and we’re out of season (Editor’s note: as of the end of May). People are more likely to buy an RV or boat in June than in September. Repossessions are declining, but I think it will be pretty rough the remainder of 2009. I think we will start to see some slow improvement by late 2009.
Late 2009 will feel much better than late 2008, because in late 2008, we were trending down. But I think 2010 will be a good retail year. It won’t be as good as 2007, but better than 2008 and 2009.
By 2010, dealers will have right-sized their businesses and should be profitable. When we come out of this, those who make it will have some tremendous money-making opportunities.
Bank of America is the largest bank in America, we serve one out of every two U.S. consumer households, so there’s no reason why we wouldn’t be in the RV industry both wholesale and retail. There’s business out there; it may be smaller now, but it’s out there.