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RVDA Praises SBA on Upping Floorplan Regs

February 4, 2011 by · 2 Comments 

The Recreation Vehicle Dealers Association (RVDA) praised the Small Business Administration (SBA) for reviving its pilot loan program aimed at increasing access to inventory financing for RV and other vehicle dealers.

The rules and regulations for the pilot will be available Monday (Feb. 8) on the SBA’s website and through links from the RVDA Lenders Toolbox at www.rvda.org. Dealers can start submitting loan applications for the federally backed loans on Tuesday.

“We are pleased that SBA is moving forward with the program and that the maximum size for floorplan loans is now $5 million,” said RVDA President Mike Molino. “RVDA worked with the agency on a number of ideas to improve the program. We look forward to reviewing the new rules and providing useful information to members interested in exploring SBA loans.”

SBA said that borrowers interested in obtaining a DFP loan should contact their lender or their nearest SBA field office to get a list of SBA-approved lenders in their area who may be participating in the program. Local district offices and contact information, as well as information on this and other SBA programs and resources, can be found at www.sba.gov or by calling the SBA Answer Desk at (800) U-ASK-SBA.

The Small Business Jobs Act of 2010 included a provision for continuing the Dealer Floor Plan (DFP) Pilot Loan program, which is part of the SBA’s overall 7(a) loan guarantee program. The Jobs Act also increased the maximum size for 7(a) loans to $5 million, up from $2 million.

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Lazydays Agrees to Financial Restructuring Terms

September 4, 2009 by · Leave a Comment 

Lazy Days RV Center Inc. today (Sept. 4) announced it has entered into an agreement in principle with its floorplan lenders and an ad hoc committee representing approximately 82% of its bondholders by value on a plan to restructure its debt.

If implemented as proposed, the restructuring plan will eliminate all of the company’s $137 million of debt (other than its ongoing floorplan credit facility), reducing its annual cash interest costs by approximately $16.2 million through the elimination of bond interest payments, according to a news release.

The company’s ongoing cash interest expense will be approximately $3 million incurred on its vehicle financing line, representing a reduction of 84% in annual cash interest expense from a total of $19.2 million prior to the restructuring.

“We believe the plan we are announcing today will help preserve and enhance our business for many years to come and are pleased to already have received support for this plan from a significant majority of our bondholders and our floor plan lenders,” said John Horton, president and CEO of the Seffner, Fla.-based RV dealership. “This debt restructuring plan will provide us with greater financial flexibility and more cash to invest in our business. It will allow us to continue to offer, uninterrupted, our customers the same great selection in RVs, the same high level of service, and the same unique experience they have come to expect. As the largest single-site recreational vehicle retailer in the world, we are in a strong position to withstand the turbulence in the market and to take full advantage of our leadership position as the market recovers.”

Support for the debt restructuring plan is currently being solicited by the company from its broader bondholder base. If approvals are received from the requisite percentages of the bondholders, as is expected, it is anticipated that the restructuring will be implemented through a so-called “prepackaged” Chapter 11 proceeding. A prepackaged Chapter 11 is designed to be completed promptly, within several months of filing, with minimal disruption to the company’s business and without affecting services to the Company’s customers. During the restructuring process, Lazydays will remain open for business as usual and will continue to serve customers in the normal course.

The company plans to move quickly through the reorganization process with its same commitment to professionalism, customer service and quality, Horton said. Customer benefits will remain unchanged.

Under the proposed plan, all suppliers will be paid in full — or “unimpaired.”

The company has adequate cash on hand to satisfy obligations associated with conducting business in the ordinary course. In addition, the company’s floorplan lenders, Bank of America and Key Bank, have agreed to provide interim funding through the company’s credit facility to support the acquisition of inventory during the restructuring period and have also consented to an amended floor plan agreement that will be effective on confirmation of the plan. The ad hoc committee of bondholders has agreed to invest $10 million into the reorganized Lazy Days.

The company’s legal adviser is Kirkland & Ellis LLP and its financial adviser is Macquarie Capital (USA) Inc. For more information on the restructuring, visit www.BetterLazydays.com.

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Glendale Renews Financing with GE Commercial

September 2, 2009 by · Leave a Comment 

glendale-logoGlendale International Corp. reported today (Sept. 2) that it has renewed its financing program with GE Commercial Distribution Finance.

This partnership enables Glendale dealers to continue to wholesale finance Glendale products, the compnay stated in a news release.

“Wholesale financing has changed industrywide,” said Terry Mullan, president of the RV operations for the Oakville, Ontario-based manufacturer. “The manufacturer now shares responsibility with the finance companies and dealers to ensure product turns and minimize aged inventory.”

The revamped 2010 Titanium model lineup includes new floorplans, décors and new construction material. Floors are now made of the advanced CosmoLite material which reduces weight significantly. The 2010 models also feature redesigned front and rear molded fiberglass caps with LED lighting.

Retail sales of the Titanium product line have been strong over the past 45 days. With dealer and factory inventories at an all-time low, Glendale is well positioned to take advantage of an improvement in the market, the company stated.

Glendale International Corp.’s  RV business is comprised of two operating divisions: Glendale Recreational Vehicles located in Strathroy, Ontario, and Travelaire Canada located in Red Deer, Alberta. Glendale RV manufactures a broad range of RVs for both the U.S. and Canadian markets and Travelaire manufactures park model trailers and relocatable structures for the Western Canadian market place.

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RVDA Proposes Changes to SBA Floorplan Program

August 5, 2009 by · Leave a Comment 

The National RV Dealers Association (RVDA) requested several changes to the Small Business Administration’s (SBA) Dealer Floorplan (DFP) loan program designed to get SBA inventory financing loans to eligible dealers.

In comments filed with the agency today (Aug. 5), RVDA said that while the association “appreciates SBA’s recognition that RV dealers are struggling with wholesale dealer floor plan credit . . . RVDA requests that SBA consider revising its DFP rules and regulations to encourage more lenders to enter dealer floor plan financing.”

RVDA revealed its request in a new release issued this morning.

The DFP is a pilot program that began July 1 and is scheduled to expire in September  2010.  DFP loans are available for a minimum of $500,000 up to $2 million and used to finance the purchase of floorstock for auto, RV and boat dealers.

 “Despite the best intent of the SBA, RVDA and its dealers are finding that the details in the proposed regulations of the program are failing to encourage new lenders to enter into dealer inventory lending,” RVDA told the SBA.

Based on comments from dealers and RV finance professionals, in the press release RVDA made several recommendations it said are designed to make the program effective, including: 

  • SBA Must Loosen Restrictions on Eligible Lenders. SBA’s DFP initiative unreasonably limits potential lenders under its “eligible lender” criteria, which require many potential new floor plan lenders to have an established business relationship with the dealer.  “The agency needs to begin by redefining eligible lenders to allow a significantly greater percent of the banks to participate.  If the SBA can remove/diminish this hurdle, then the dealers and the industry can move forward with increased efforts to sell the benefits of dealer financing to the lending community,” RVDAtold the SBA.
  • Maximum Advance for RV Inventory Loans Should be Modified. The SBA set up a two-tier system for advance rates and guarantees by the agency.  New automobiles gain the benefit of 90% advance rates with a 75% SBA Guarantee.  However, the SBA classifies RVs along with used cars, and allows only an 80% advance with the 75% SBA guarantee.  “RVDA does not find the SBA’s difference in advance rates justified.  Lenders have always structured floorplan loans on motor vehicle inventory with the knowledge that it is a depreciating asset.  Unlike the housing industry, the motor vehicle industry has always used common sense in its loans to protect against downside losses.  We do not see a greater risk in RV inventory losses than there is with automobile inventory,” RVDA said.
  • SBA Should Identify and Publish Participating Lenders. SBA could assist dealers and the RV industry by identifying lenders that are interested in making DFP loans. “A list of SBA lenders participating in the DFP program is vital to the credibility of the program and SBA,” RVDA said.

In the comments, RVDA also offered its assistance to SBA and the lending community to help make the DFP program a success.

 “RVDA is extremely supportive of the SBA DFP program and recognizes its potential, to help our small business members.  However, some structural barriers are apparent and need revision in order to stimulate lending activity.  RVDA stands ready to help educate financial institutions on the benefits of lending to the RV industry,” RVDA told the agency.

At the upcoming RV Dealers International Convention/Expo, SBA representative Ed Brown and RV finance consultant Bill Thompson of Cardinal Points Network LLC, will conduct a workshop on SBA Dealer Flooplan Financing on Oct. 7.  RVDA also has complete information on the SBA DFP program, including links to SBA regional offices, in the RV Lender’s Tool Box at www.rvda.org.

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Relationship Banking Crucial in Floorplan Resolution

July 23, 2009 by · Leave a Comment 

Editor’s Note: This column appeared in Monday’s edition of the Sarasota (Fla.) Herald-Tribune.

Floorplan financing may seem so “ho hum” to most of us. But if you drive an automobile, want to buy a boat or RV, the lack of it can severely crimp your choices.

That is because it is a line of credit that dealerships use to stock up on inventory. Without it, our “want it now” gratification would be put on hold until the dealer can get it from the manufacturer.

Procuring floorplan financing was not problematic until the automobile industry got into trouble, the economy tanked and credit got tighter than Scrooge’s piggybank. Lines of credit became harder to get.

The floorplan financing crisis came to my attention when I received e-mail from a small RV manufacturer and retailer in Southwest Florida. He has “25 years of manufacturing experience (and) maintained an impeccable track record with our bank.”

Yet, to continue providing floorplan financing, his bank representative got skittish securing it solely with the vehicles as collateral and asked him to pledge real estate as well.

Alternatively, the bank told him to find another lender.

This scenario is playing out nationwide.

“In recent months, we’ve seen a dramatic decrease in the availability of credit for financing dealership inventories,” says Karen Mills, administrator of the U.S. Small Business Administration (SBA). “We want to be a partner for these small businesses and help ensure they have the resources they need to help keep their businesses open, save jobs and survive these tough economic times.”

Thus, SBA launched its dealer floorplan financing program on July 1.

The program guarantees revolving lines of credit to lenders that make dealerships loans secured by inventory that can be titled, such as automobiles, RVs, manufactured homes, boats and trailers.

As the dealer sells each vehicle, the loan advance against that piece of collateral is repaid. After the loan is repaid, the dealer can borrow against the line of credit to add new inventory.

The loan amount ranges from $500,000 to $2 million, and SBA guarantees up to 75% against default.

Some lenders say that servicing floorplan loans are too management-intensive for the rates and fees SBA allows them to charge.

Dealers say they need more than $2 million to buy enough inventory.

Additionally, large banks prefer lending more that $2 million while many small community banks lack experience making floor plan loans.

So it is too early to tell if the well-intentioned SBA program will have an impact.

Meanwhile, the RV manufacturer mentioned above has taken his loan request to a higher authority within his bank. “It appears they are willing to work with us,” he told me.

When times get tough, relationship banking is often the best path.

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Floorplan Program a ‘Radical Departure’ for SBA

July 13, 2009 by · Leave a Comment 

sbalogo1The U.S. Small Business Administration (SBA) on July 1 rolled out a much-awaited pilot floorplan lending program designed to help recreational vehicle, automotive and boat dealers finance their inventories. The SBA’s action came after many dealers found their ability to finance floor inventories severely hampered after last fall’s collapse of global credit markets. Indeed, credit – or the lack thereof – has become one of the hottest topics in the recreational vehicle sector as it has throughout global business markets. The SBA’s new program allows RV, automotive and watercraft dealers to establish revolving lines of credit through 3,000 active, SBA-sanctioned banks ranging from $500,000 to $2 million, with the SBA guaranteeing 60% to 75% of the loan, depending on collateral. These floorplan loans, to be repaid within five years, are available under the SBA’s 7(a) program, which typically guarantees 90% of the amount. To further explore this new program, RVBusiness Senior Editor Bob Ashley recently interviewed Grady Hedgespeth, director of the SBA’s office of financial assistance.


RVB: So, how does this pilot program work? Do dealers apply directly to the SBA?

A dealer would not make an application directly to us. Most of the programs outside of disasters we guarantee are for loans that a lender would make. In that regard, this pilot is no different. A dealer would make the application to the lender and the lender would determine whether they are eligible conventionally or via SBA.

RVB: Is this a considerable departure from what the SBA ordinarily does?

This in many ways is a radical departure for us. For most of its lending history, SBA specialized in term loans with the philosophy that one of the toughest types of financing for small businesses is to get long-term fixed-rated financing. For most of our 40-some-year history of experience with loan programs, that’s what we did. It was only about 10 years ago that we actually started our first revolving loan program, and dealer programs are a type of revolving loan.

That was the CAPLine program, primarily for the financing of inventory where current inventory is put up as collateral. It’s different than floorplan financing because the collateral that backs the loan in a floorplan is actually the collateral you are trying to sell. In CAPLine, it’s the inventory that you already have in your possession that’s placed as collateral to get more inventory.

About five years ago we developed our SBA Express product that involves revolvers that allows for smaller working capital lines of credit, some of which may be revolvers. They are really for smaller dollar loans, under $150,000 to $350,000. Those two types of products were our most recent experiences with revolving lines of credit.

Importantly, because of the nature of revolving lines of credit and the risk, our maximum guarantee on those two products has only been 50%. That’s important because there have been some comments on the dealer floorplan program that the guarantee range is 60% to 75% and people are comparing that to the 90% that is now part of the Recovery Act.

So, compared to our standard revolving credit line product, the guarantee that we have for the dealer floorplan is quite generous.

Generally on the revolving lines of credit, we expect the lender to take on a fair amount of the risk. We actually think that we’ve improved upon on our typical revolving credit line product with what we are offering for dealer floorplans. We really provide an added incentive for lenders to consider prudently adding this particular product to help dealers who are facing a transition because of the current economic climate and downturn in sales. 

RVB: How many lenders do you expect to participate in this program, and is there a list of current participating lenders available?

At this point, we do not have a list. Frankly, we are still looking for which lenders will participate. With any new SBA loan program, very frequently it takes four to six weeks for lenders to decide if they are going to participate.

Floorplanning is kind of a niche marketplace. Larger banks are much more efficient at accessing the secondary market and that makes it less attractive for regional banks to be in the floorplan business.

RVB: Will both large and small banks be involved?

That’s the interesting thing. I think it’s going to be the latter. We’ve really designed this initiative to empower regional banks to have an opportunity to look at their customer base and take dealers that they’ve known for years — and have had credit relationships with and may have lost their primarily floorplan line from the larger national players — and step in to provide the kind of floorplan they need for their transition.

We also wanted to encourage some of the players who do floorplanning on a more limited basis to see whether they wanted to expand their floorplan line to step in to fill the void left by some of the larger regional players who have exited the business.

RVB: We assume that banks have to qualify for this program?

The basic qualification is that they have to be an SBA lender. But we created basically two categories for lenders. One is for lenders who are less experienced with floorplans, which we define as those with less than $15 million of floorplan business on their books or that have been doing floorplans for less than five years.

For these less experienced lenders, we are putting just a couple of restrictions on the program. One, they have to send all of their loans to our loan processing center in Citrus Heights, Calif. It’s for their protection. We review their underwriting to make sure it meets standards that are prudent and reasonable. So when we give the OK on a loan like that, they don’t have to worry that if that loan goes bad that we will second-guess their underwriting.

A second important restriction for those less experienced banks is that we are limiting them to doing floorplanning with customers that they had before the pilot program took effect July 1. We want to empower them to work with customers they know – dealership owners with whom they might have previously had a working capital or real estate or wealth management program. 

RVB: What about lenders who have floorplan experience?

For lenders who have been doing floorplanning, they can entertain new floorplan loans from any customer that they want. It doesn’t have to be an existing customer.

If they are a lender that has delegated lending authority from the SBA, their first loan has to come into Citrus Heights and we are going to ask for their policy on floorplan lending so that we have something to use if the loan goes bad to show that they did what they said they were going to do. But after the first loan, if they are a delegated lender, they’re free to use this program to entertain as many customers as they like.

RVB: Does this mean that dealers working with smaller lenders will be at a disadvantage because their loans will have to undergo extra SBA reviews?

No, we’ll get to know them pretty quickly and should be able to move their loans through our system quickly. We are going to give these loans a priority. We know the critical importance of these dealer floorplans loans. We are geared up to put it on an expedited track.

RVB: Is a small lender, a local bank, going to more than likely be an SBA lender already?

We have about 5,000 lenders out of 8,000 banks that have a Form 750 agreement with the SBA, which is the basic agreement between the banks and the SBA. Of that 5,000 or so, there are about 3,000 that are active. And because of the Recovery Act, 600 of those 3,000 have recently come back into active SBA lending.

There are a number of banks who may have done SBA loans years ago, but for one reason or another left the program who are taking a second look as a result of the incentives in the Recovery Act. We are hoping that this dealer floorplan program might be another incentive so that they will consider SBA again.

RVB: Do you have any sense of when this program will be getting underway?

No. I know we have had some active conversations going on with a couple of lenders, but they are intellectual ‘what ifs.’ They’ve got a dealer who has inquired informally and they are just asking if it’s likely that they would qualify. That’s a good indication for the first week of loan availability because that suggests to me that we’re going to start seeing applications begin to flow very shortly.

RVB: How this is going to split out between RV, automotive dealers and boat dealers?

I have absolutely no sense about that. I know we have a lot of business among our SBA lenders within industries covered by the major dealers types. The SBA has issued $1.125 billion of credit to these industry groups. That was another indication to us that our lending partners really do have an intimate knowledge of the credit worthiness of retail dealers of these types of assets.

RVB: We should point out that the maximum loan of $2 million is not a lot for an RV dealer. That could be 10 units.

Unfortunately, that’s a statutory restriction for the SBA right now.

RVB: Are you aware of the changes in the program that the Recreation Vehicle Dealers Association (RVDA) is promoting to make this program available to more dealers?

I’m not intimately familiar with their proposals, no. I will say this: We introduced a Federal Register notice with a 30-day comment period. Our key interest here was trying to get this to the marketplace just as soon as we possibly could. We think it met a lot of needs that we had to consider, such as prudence and compatibility with our existing SBA portfolio. But like anything else, it could probably be improved with a lot different eyes looking at it. So, we will be taking comments. There are some things we can’t do, such as raising the maximum limit on our maximum loans.

RVB: So, you can adjust this program as it goes forward?

Yes, we will consider adjustments. We have some constraints with the Office of Management and Budget that we have to meet. But we are open to suggestions. The other issue is that we will evaluate this pilot at the end to see whether or not it makes sense for it to be a more permanent part of the SBA portfolio.

RVB: And there’s a limit, we’re told, to the permissible number of loans?

There is a 10% limit on pilot programs in a fiscal year. This pilot program will straddle FY09 and FY10 so that would be 10% of the total volume in ’09 and 10% of the total volume in ’10. Right now we are running at about 50,000 (total) loans. I don’t think the cap is going to be a problem for this program in either ’09 or ’10 as well.

RVB: OK, then, what does all this mean to dealers?

I would encourage dealers to have a sound business plan. That is a key to communicating with their lenders. It’s also always good to start with people and institutions who know you, but that still may not guarantee that they are going to participate in floorplan lending. Interestingly, floorplans tend to be the best collateralized loans. It’s usually not just the inventory backing the loans, but very often real estate and personal guarantees of the owner. So as we look at the experience of major floorplan lenders, it’s the kind of thing that if you manage it well and you put in provisions that will allow lenders to do the extra servicing that is required of a floorplan, then this should be something that is an opportunity for moderate- and smaller-sized banks to step up to the plate.

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GE Capital Projecting a ‘Fairly Confident Outlook’

July 2, 2009 by · Leave a Comment 

Is there a change afoot in the RV finance arena that perhaps reflects an overall prospect for improvement in the U.S. economy and the recreational vehicle marketplace?

That’s hard to say. Based solely on the fact that Bank of America Dealer Financial Services and GE Commercial Distribution Finance — the two big dogs in RV finance — are talking to the press lately after months of silence during the depths of the recession, it’s certainly beginning to look that way.

Ellsworth “Ellie” Clarke, president of B of A’s Dealer Financial Services, last week provided an overview of B of A’s programs and the RV market in an interview with Jeff Kurowski, director of industry relations for the Recreation Vehicle Dealers Association (RVDA), that was posted on RVBUSINESS.com. And only yesterday (July 1), GE Commercial Distribution Finance’s Pete K. Lannon, managing director and president of GE Capital’s Motorsports and RV Group, addressed modifications to GE curtailment policies in a wide-ranging interview with RV Business.

Lannon also fielded questions on an array of other related topics, the crux of which is as follows:

What can you tell us about finance rates in general? We’re told that they spiked for GE in March across the board – including both the RV and marine sectors. Do you anticipate any sort of an easing of interest rates?

There are a lot of factors that go into interest rates. Part of it is the macro-economic environment, the general cost of funds and what it takes to raise funds in the marketplace. Another component is our cost of operations, and then there’s a risk component. So, we’re attuned to all of these items, and we would make rate adjustments in accordance with what they are telling us.

The Small Business Administration is beginning to provide floorplan financing for RV retailers. Has this played into any of GE’s decision, announced yesterday, to moderate its curtailment interest rates?

I think it’s a little early to see exactly how it (SBA financing) is going to be implemented. The SBA is still concluding its regulations, formulations, etc. I think any additional (financing) capacity in the industry for dealers certainly is welcome, particularly for dealers that are challenged. We just need to see what the final formulation is from the SBA. It’s still somewhat uncertain.

We’re told that GE occupies about a 25-35% share of the RV marketplace’s wholesale financing. Is GE looking to increase that share?

We have a significant share. I’m not going to speculate as to the exact amount, but we know we’re a significant player in the industry. We look to increase business that makes sense, that’s profitable for both us and for our dealers. Whether that leads to market share or not … we’re still dealing with an industry that’s been heavily impacted, and I think most of us are thinking more about just getting to the right size versus getting into a market share ‘game’ at the moment.

‘Right size’ could be applied to the RV industry as a whole. Do you feel that there may in fact still be too many dealers, as some have argued, for a downsize market?

I don’t know about too many dealers… What we’ve got is a situation (where) there’s still an imbalance of inventory in the field to the sell-through at retail. I don’t speculate whether it’s too many dealers. I do know that there’s too many units available right now. It’s depressing the sales prices of the inventory dealers are holding, and there just aren’t enough customers willing or able to make the purchase at the dealer level. We need a better balance for the industry to get healthy again.

So, GE’s decision to eliminate the interest hike isn’t necessarily a reflection of the company’s more confident outlook on the state of the industry?

We do have a fairly confident outlook. Let’s put it this way: we’re ‘cautiously optimistic.’ At this point, I don’t know if we’ve found the bottom quite yet, but if we haven’t, we’re awfully close. We’re seeing some positive indications in our RV business with the way inventory levels have come down, and dealer performance metrics are improving. They’re not healthy yet – we’re not prepared to make that statement – but we’ve seen a couple of months of upward trends in some important performance metrics that indicate that we think we are near, or have found, the bottom.

 If you want to take a step up and look across the entire economy, Jeff Immelt, GE’s chairman and CEO, was quoted in London today (June 30) on behalf of GE with an outlook that said, “things seem to be brightening.” Again, I don’t think anyone’s prepared to say that things are where they should be or that they are absolutely healthy, but I think overall in a lot of areas besides the RV industry we are seeing signs of improvement on a lot of different fronts.

Another leading finance provider is telling the industry right now that they are in it “for the long haul.” Is GE?

We are going to continue to invest in and support this industry. We’ve been a very long-term player in this industry. When you think about the predecessor companies that were acquired by GE, we go back in the RV industry at least to the late ’70s, and our intention is to make sure that we are here through this cycle and back when the industry is healthy again. We want to be a participant in that.

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GE Dropping Interest-Rate Hike on Curtailments

July 1, 2009 by · Leave a Comment 

imageIn a significant move for a major lender, GE Commercial Distribution Finance (CDF) has shelved a previously announced higher interest rate on RV dealers’ curtailment payments that are more than 30 days past due. A default rate of 8% per annum was to have been phased in starting today (July 1).

“We are pleased to report that CDF has decided to eliminate this higher default rate and will implement the standard ‘default rate’ as defined in your current inventory finance agreements,” the company said in a letter received today by dealers utilizing GE Capital for floorplan financing. “This new program also eliminates the 12 month due-in-full payoff requirement as an additional means of helping dealers preserve cash during this difficult economic period.”

Today’s announcement also included a modest new curtailment program schedule effective for invoices purchased by CDF on or after July 1. The new curtailments range from a payment of 1% of the original invoice amount due monthly beginning on day 180 and step up as the unit gets older, escalating to a payment of 3% of the original invoice amount due monthly for units aged at least 450 days. None of the revised curtailment payments under the new schedule will be assessed interest.

Pete K. Lannon, managing director and president of GE Capital’s Motorsports and RV Group, said the previously announced hike in overdue curtailment rates was misperceived by dealers and it therefore detracted from the company’s desire to refocus its clients on “the importance of making curtailment payments going forward.”

“It was just a means of raising that (curtailments) on the attention scale of something that needs to be addressed,” Lannon said in a wide-ranging June 30 interview with RVBusiness. “Some of the misperception of what happened in the industry is that people were taking it and then saying that we were now charging it on the entire invoice amount, which is wrong. Further statements we read said that we were going to apply it to the entire account balance, which was also wrong.

“The whole theory around making the curtailment payment itself was being lost in the ‘theorization’ that was being bandied about about the 8% rate,” he added. “So, instead of raising attention on the importance of making the curtailment payments, all the attention was being focused on a rate – which people were erroneously assuming was going to be applied much broader than it was … As we listened to questions from the dealers and as we listened to comments in various media that were being raised on behalf of dealers, we realized that the main part of our message was being lost.”

As Lannon noted, the use of curtailments – small incremental payments intended to reduce the ceiling of the unpaid loan as aged inventory declines in value – have always been present in the RV industry. At times when consumers were flush with disposable income, however, they were oftentimes overlooked.

“They were frequently waived, and not enforced,” Lannon noted. “That’s because the product was turning very rapidly, so dealers were in fact able to sell it for more than they invested in the product. When the retail marketplace slowed down – as it started to do dramatically in late ’07, and certainly we saw that through all of 2008 – the dealers’ aged inventory grew to such an extent that they were no longer able to sell product because it had aged into the next model year and beyond.

“So those sales that were actually consummated were made at a much lower price point,” he continued, “and dealers were not able to generate enough on the sale in order to pay off the unit. Or, if they stuck to their guns, they wound up foregoing sales that could have helped the dealers generate positive cash flow.”

All this, Lannon emphasized, underscored the need to regain focus on curtailments as a means of managing risk. “After a certain point, if the unit remains unsold, we want to see some progress made towards paying down the principal balance in line with what looks to be the declining value of the unit,” he explained. “We want to make sure that the dealer is investing in the unit so that when they can make a retail sale they are not ‘upside down,’ meaning coming up short on the amount they have to pay off versus what they could actually sell it to a retail customer for.

“When you have a discussion with a dealer, face-to-face, or a manufacturer, they all agree that, as a product ages out, they are faced with this dilemma,” Lannon added. “They understand that principal reductions are a healthy mechanism to help reduce the amount that’s invested in a unit.”

Curtailments on invoices purchased prior to July 1 will revert to previously agreed-upon plans “unless they’ve been modified – and in many cases, they have,” as the company worked with dealers in the soft market. “We’ve had to modify (some dealer’s agreements) because of their current circumstance,” he said. “They were so far deep into missed curtailments that they could not effectively catch up. So we’ve had to make some individual arrangements with them. It’s one of the areas we’ve been working on the hardest with our dealers since February and March.”

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