General Electric’s finance unit is expanding lending to small and midsize businesses as confidence in U.S. economic strength grows.
Bloomberg reported that GE Capital said it increased proposals to U.S. commercial lending and leasing customers by 16% in the first quarter from a year ago. Earnings before interest, taxes, depreciation and amortization grew by 10% at companies to which GE Capital lends, Dan Henson, CEO of GE Capital, Americas, said in a telephone interview.
Small and midsize companies are becoming more optimistic about the outlook for their businesses, with 67% forecasting revenue growth this year and 74% expecting to hire additional workers, according to a GE Capital survey of 495 chief financial officers at companies with annual sales of $50 million to $1 billion. Ninety-four percent of the CFOs said the U.S. economy will grow or remain stable in 2012.
“Our customer base continues to become more profitable, which supports the view of these CFOs that we’re on more stable footing,” Henson, who oversees commercial lending and leasing in North America, said in an interview.
“More and more they see a growing environment,” he added.
Credit availability has improved for companies in the survey, with only 7% saying access to funds has decreased over the past year. That’s compared with 24% in the first quarter of 2010, when GE Capital first conducted the poll.
GE Capital’s North American commercial loans and lease volume grew 15% last year to $106.8 billion. Worldwide, the unit’s $45.7 billion of revenue last year accounted for 32% of GE’s $142.2 billion in total sales.
The company is scheduled to report first-quarter results on April 20.
National RV Communities LLC (NRVC) is seeking to finance an aggressive acquisition plan by tapping the private equity market for up to $400 million in new capital.
Woodall’s Campground Management reported that Scottsdale, Ariz.-based NRVC, doing business as Carefree RV Resorts, has held informal talks this spring with potential investors and has scheduled four formal sessions this week in New York City.
“It’s an exciting time. The initial response we have been getting is phenomenal,” said David A. Napp, NRVC chairman and CEO.
The new capital would help NRVC go forward with its plan to double in size within the next five years.
Founded in 2005, NRVC is the nation’s 10th largest owner/operator of destination RV and manufactured housing (MH) communities in the U.S. and Canada with 58 communities containing more than 13,300 sites. Of the 58 properties, 46 are located in Florida. Other properties are located in Texas (4), New Jersey (3) and one each in California, Ontario, Massachusetts, Arizona and North Carolina.
Napp told Woodall’s Campground Management that his company has its eye on a number of prime parks across the U.S.
“I have a priority list,” he said. “Once the capital needed is secured, I’ll be paying some people some visits. A good number are in Florida; some are in California and Arizona. The Eastern Seaboard also represents some great opportunities, like Myrtle Beach, Cape May and Cape Cod.” He was not more specific about locations of prospective acquisitions.
“A real driving force is being on or close to water,” he added.
Historically, the company has sought properties in key destination vacation markets that have a proven history of attracting both leisure travelers and retirees seeking warm weather.
NRVC wholly owns 47 of its RV and MH communities and owns a 20% interest in the remaining 11 MH properties, pursuant to a joint venture with GE Capital (National Home Communities or NHC).
The 47 RV and MH properties total 11,500 sites with a gross market value of approximately $380 million, according to an executive summary of the NRVC operations. The 2012 budgeted net operating income is approximately $26 million, including new acquisitions.
According to Woodall’s Campground Management, NHC owns and operates 11 MH properties located in Florida totaling 1,800 MH sites with a gross fair market value of approximately $83 million. The 2012 budgeted net operating income of these 11 MH properties is approximately $5.2 million.
Napp projects 2012 revenues from all 58 properties to reach $56 million and operating expenses to total $24.7 million, yielding net income of $31.2 million.
He places the fair market value of the combined properties at $462 million.
NRVC is owned by its management team and Almanac Realty Investors, formerly known as Rothschild Realty Inc., a New York City-based real estate investment adviser to public and private institutional pension plans, endowments and foundations. Almanac has invested $115 million in the company since 2005.
GE Capital has provided some $190 million during its long-term relationship with NRVC, Napp added.
Napp said he and founding partner Colleen Edwards are excited about their future in the RV and MH business.
“If the first quarter is any indication, we are seeing stabilization if not a slight upswing in our business,” he said. “I think the opportunities are good out there. We have done well in the recession. We are lining up all the elements for our next level of growth. Over the last 18 months we have analyzed our business internally and decided what we need to do to double our size over the next three to four years.”
In a somewhat related development, Napp noted that Carefree RV Resorts recently partnered with Resort Data Processing Inc., which will provide property management software and reservation software.
Carefree’s principals have a 17-year track record in the destination RV resort and MH industries. They have:
• Acquired and operated 106 RV and MH properties comprising over 30,000 sites.
• Raised over $250 million in private equity and borrowed approximately $880 million in mortgage debt for acquisition financing and refinancing.
• Become one of the first groups to bring institutional capital into the RV resort sector.
• Launched three national destination RV resort brands (Encore, Sunburst and Carefree).
• Operated two park model and manufactured home sales companies with over 2,500 new and pre-owned homes sold since 1996.
GE Capital, Commercial Distribution Finance (CDF), today (Nov. 7) announced upgrades to the Customer Online Management System (COMS), its proprietary inventory management tool.
According to a press release, the newest version provides manufacturers with their most-requested enhancements. “These new capabilities make it easier and faster for them to manage the inventory financing programs with their dealer networks,” the release stated.
“We know that our customers see COMS as the centerpiece of their inventory management systems,” said Jeff Malehorn, president and CEO of CDF and GE company officer. “That’s why we took their input to heart. The result is a significantly upgraded version of COMS with nearly 60% more features.”
A business of GE Capital, Americas, CDF provides financing that allows dealers in the U.S. and Canada to stock inventory from a wide variety of manufacturers and distributors of consumer durables such as technology and outdoor power products, electronics and appliances, recreational vehicles, boats and motorsports.
Manufacturers can now choose to receive alerts via COMS about key account developments. For example, they can be notified when their dealers are approved for funding, which helps keep the supply chain moving. They can also personalize COMS according to their own needs by choosing the most important information for display.
In addition to transactional information, COMS offers analytical insights by making CDF’s business intelligence tools available in one place. Manufacturers can target sales opportunities and assess risk in their dealer networks using these tools. By analyzing real-time information, manufacturers can examine trends related to dealer performance, including receivable outstandings, credit line utilization and repayments. In addition to assessing the financial health of dealers, manufacturers can gauge the popularity and turn-over rates of various models.
Other new features include:
• Expanded billing capabilities, including online one-click payments and electronic billing statements that can be downloaded.
• Enhanced search capabilities.
• Modern design that enables easier and faster navigation.
• Self-service administration that allows customers to update access locally.
GE Capital, Commercial Distribution Finance (CDF) has selected RV|ID to enhance its floorplan collateral management services for recreational vehicles.
According to a press release, the global positioning system-based (GPS) service will increase the ease and speed of doing business for both manufactures and dealers by providing real-time mapping, reports and alerts on RV assets in the U.S.
“This is an innovative service that can be used industrywide to efficiently and effectively monitor inventory,” said Pete Lannon, managing director for CDF’s RV business. “GE Capital is pleased to introduce new technologies like RV|ID to our customers — one more way we’re providing them with value beyond money.”
Developed by Red Lantern Labs of Solana Beach, Calif., the system provides RV makers with real-time logistics information as the assets move from factory to dealer to enable the monitoring of retail-level inventory and shelf space. For dealers — especially those with rental businesses — RV|ID provides mileage and usage information to allow them to better service and maintain their fleets. Similarly, CDF will be better able to track assets prior to retail sale.
“We’re pleased to be able to provide this important new tool to GE Capital,” said Jon Corn, president of sales and business development for Red Lantern Labs. “Using RV|ID, a manufacturer can improve production logistics and increase customer satisfaction while dramatically reducing its lemon law exposure; and a dealer can use RV|ID to improve inventory management. It’s a true win-win situation.”
Editor’s Note: The following story was written by Bob Sechler and was published by The Wall Street Journal.
GE Capital nearly sank General Electric Co. during the financial crisis. The unit faces an uncertain regulatory future and has almost nothing to do with the conglomerate’s other businesses. And Chief Executive Jeff Immelt is standing by the business.
Mr. Immelt acknowledges that he let the lending operation grow too large, calling that lapse the biggest regret of his 10 years as CEO. He also says many investors, including some big ones, would rather the company get rid of the operation.
But he believes GE can make lots of money from a safer GE Capital, focused on business loans to midsize companies, and he’s willing to let the unit account for as much as 40% of GE’s profit. That disagreement, he says, is the main factor holding back GE’s stock.
“I think it is rediscovering with investors the value of financial services,” Mr. Immelt says when asked what it will take to get the company’s share price rising again. “We obviously think it is worth more than they do right now. I think that is only going to come with time.”
GE Capital, which accounted for about a third of the parent company’s revenue last year, is a significant lender in its own right. The unit’s $606 billion in assets make it bigger than all but seven U.S. banks, and it dwarfs the lending arms at other industrial companies, such as Caterpillar Inc., whose financial-services unit has $30 billion in assets.
GE Capital relies on the financial markets rather than deposits to fund its loans. When that funding started to dry up during the financial crisis, GE lost its triple-A credit rating, saw its stock fall below $6 and had to slash its dividend.
The finance unit now is on significantly firmer, longer-term footing—thanks in part to paring back its reliance on short-term borrowing—and problem loans have been contained. But in a sign the crisis isn’t fully in the past, the U.S. regulator for mortgage giants Fannie Mae and Freddie Mac sued GE and 16 other big lenders Friday aiming to recoup billions of dollars in losses on soured mortgage loans.
“There’s a negative attitude toward financial stocks,” says Eric Boyce, a fund manager at Hester Capital Management in Austin, Texas, which owns GE stock. “That’s an anchor.”
While many industrial companies have set up so-called captive-finance units to help customers buy the companies’ goods and services, GE jumped into lending for its own sake. Less than 5% of GE Capital’s loans are made to help companies buy the conglomerate’s products. The unit puts the bulk of its effort into areas that include consumer finance, aircraft leasing and lending to midsize businesses.
The unit has been downsizing and sharpening its focus since the financial crisis. It has stepped back from real estate, where GE Capital had been among the world’s largest property investors, and sold off consumer-finance operations in the emerging markets of eastern Europe and Latin America. A key sign of progress should come next year, Mr. Immelt says, when he expects GE Capital to resume paying a dividend to GE proper.
Now GE has to convince investors that it has the finance unit under control and that the investment is worthwhile, Chief Financial Officer Keith Sherin says.
GE also has to navigate a new regulatory framework. Oversight of GE Capital in July shifted to the Federal Reserve, which is expected to be more demanding than the unit’s previous regulator, the Office of Thrift Supervision, which was dissolved in the wake of the financial crisis.
“We have weathered the storm as well as anybody and we are well positioned to come out the other side,” Mr. Immelt says. “Investors are going to have to triangulate what they think that set of financial-service earnings are worth.”
EDITOR’S NOTE: The following is an article authored by Caroline Steele, Growth & Innovation Leader, GE Capital, Americas, and Jeff Malehorn, president and CEO of GE Capital, Commercial Distribution Finance, on innovation in today’s retail marketplace.
To most dealers, innovation means having fresh new products to stock in their showrooms. But innovation can also occur by serving customers better, enhancing their experience and bringing them new value. Retailers of everything from appliances to lawn and garden equipment to recreational vehicles have boosted revenues using practical and relatively inexpensive ideas that can be as powerful as new product introductions.
The Innovation Investigation
Broadly, innovation is the development of new ideas but it can also be defined as the process of applying current thinking in fundamentally different ways, resulting in significant change. Apple’s Genius Bar and Best Buy’s Geek Squad are prime examples of the creativity retailers are capable of when they look at their operations with fresh eyes.
Retailers can look for innovation opportunities throughout the value chain but customer interaction may be the most obvious place to start. Define the customer experience as a journey with three stages, each of which offers innovation opportunities. Awareness is when the customer first learns about a product, service or brand. Commitment is when the customer chooses to buy it. Usage is the actual use of the good or service over time.
A company might ask: What is the current customer experience with our product in the awareness stage? Perhaps raising awareness involves direct mail, event participation, advertising, cold calling, or social media. Next ask: What are the customers’ frustrations with this experience? Maybe your company doesn’t have an efficient way to route incoming calls so consumers can reach a human quickly; maybe they receive too many pieces of direct mail; maybe sales reps call at inconvenient times.
Probing further, a company exploring the awareness stage might ask: How do customers want to learn about our product or service? It’s possible that consumers want a single point of contact to call with questions. With this groundwork complete, the company can finally ask: How can we fulfill that desire? In this case, the solution might involve building a web page with the local representatives’ contact information. Or maybe the phone system can be re-programmed to route calls according to consumers’ zip codes.
Non-product innovation can take many forms but there are three areas that dealers can tackle easily and relatively inexpensively: Marketing and selling through the Internet; promoting a lifestyle/mood around a particular product or brand; and aligning with affinity groups.
Non-Product Innovation #1: Selling over the Internet
The Internet is how many customers want to learn about products and services. One RV dealer who embraced Internet sales grew revenues from a few million to $100 million in just seven years. He turns over his inventory at more than twice the industry average and has increased his credit line more than ten-fold during that time period.
This kind of success requires more than simply building a Web site. It requires analyzing the entire shopping experience both in-store and online. This particular RV dealer has a team of sales people dedicated solely to handling questions and orders coming in over the Web. The dealer also pays for various search engine optimization techniques that return its listing in relevant Internet search results.
Retailers that don’t want to go to the expense of enhancing their own Web sites are selling their wares on high-traffic Web sites such as eBay and Craigslist, which are proving to be an efficient way to move older or difficult-to-sell merchandise.
Non-product innovation #2: Promote the lifestyle
The RV industry fully embraces the concept of experiential marketing with mock campsites in-store so potential customers can absorb the experience. RV dealers also understand the importance of extending their promotional activities beyond the showroom. Participating in events such as home and garden shows generates buzz around their lifestyle and run rallies create a clubby atmosphere. Some RV and marine dealers even establish relationships with specific campsites and marinas to give customers preferred access to hot spots.
Non-product innovation #3: Find affinity groups
Instead of marketing directly to a target audience, dealers can build relationships with those who might influence their targeted consumers. For instance, one Texas-based dealer of luxury appliances invites local real estate agents to cooking demonstrations in its showroom so he can highlight his products to those who might provide input to new homeowners planning kitchen remodeling projects. These agents are likely to be friendly with area contractors too – another affinity group.
A long-time appliance dealer in Montana launched a store that sells the newest electronics such as Apple computers and iPads. By appealing to a young, technologically savvy demographic, and by subtly promoting its nearby appliance store brand, the company hopes to cultivate a new generation of appliance consumers.
On the Internet front, consumer brands such as Victoria’s Secret and The Gap and retailers such as Sears are realizing the benefits of building relationships via social media, especially Facebook and Twitter. Creating a digital community of local enthusiasts for your products may attract younger generations. To encourage online interaction, some retailers offer a small prize or a limited-time-offer discount.
Ultimately, doing business in the 21st century means new players and new rules. Dealers have realized they can’t rely solely on manufacturers to deliver innovation in the form of new products. To create a true strategic advantage, they must continually pursue innovation in their own showrooms.
GE Capital Commercial Distribution Finance (CDF) will offer a show special for all orders booked at the 2011 North American Trailer Dealers Association (NATDA) Trade Show set to run Sept. 8-10 at the Dallas Convention Center.
The company emphasized that the offer will be valid only during the three show days for dealers in attendance. The program is limited to manufacturers and dealers active with the
CDF Strategic Industries Trailer Group only. It will extend suppliers’ standard financing terms by 60 days; this includes dealers in the light- and medium-duty enclosed cargo, open utility, dump, auto hauler and horse-livestock trailers. This program is only available at the 2011 NATDA Trade Show.
GE will have staff on site for dealers wanting to take advantage of the show special. For credit lines up to $300,000 GE has implemented a streamlined approval process. Trailer dealers will be able to apply with GE at the show, and if approved will be eligible for the plus-60 program.
GE will also host a free workshop and seminar on its new floor plan program on Sept. 8, at the trade show. The class will teach dealers about floorplan finance, inventory turns, what to expect from their lender, when to turn aged inventory back to cash and online management tools for inventory control. GE will make sure dealers understand the new GE programs and how to make them work for their dealership.
GE Capital plans to nearly double the number of its employees in Chicago to more than 2,000, in part because of Mayor Rahm Emanuel’s economic plans for the city, according to an Associated Press report.
Officials with the financial services arm of General Electric joined Emanuel at a news conference, saying 500 of those new jobs – skilled commercial, technical and regulatory positions – would be added within the next year. The other 500 jobs would come in the next few years.
The company also is looking for a new office in Chicago to accommodate the growing work force.
During his mayoral campaign, Emanuel touted his relationships with business and government leaders from his time as an Illinois congressman and when he was President Barack Obama’s chief of staff. Monday’s news conference served as a reminder of his national stature, as well as a pep rally for Chicago.
Emanuel, who is trying to attract business to the nation’s third largest city to help overcome its budget shortfall, downplayed the effect his relationship with GE CEO Jeff Immelt may have had on the GE Capital decision. However, the mayor mentioned that because he had Immelt’s phone number and e-mail address, he was able to set up a meeting in March.
“Having a personal relationship obviously didn’t hurt,” Emauel said. “It pushed it a little, tilted it a little.”
But, he said: “If this didn’t make economic sense to GE and their bottom line, they wouldn’t have done it. … You’re not going to do this as a favor.”
Chicago’s projected budget deficit next year has been estimated at $500 million to $700 million.
One GE executive said Emanuel’s “economic platform” helped prompt the company to bring more jobs to the city, saying Chicago is the right place to expand.
“There is a wealth of financial services and banking talent available to us in the city of Chicago at a very good value,” said Daniel Henson, President and CEO of GE Capital, Americas.
Demand for big ticket leisure items such as caravans (RVs), sailing boats and leisure motorcycles in the United Kingdom improved in the first quarter of 2011 but growth remained extremely weak for the second successive quarter, according to data released today by GE Capital.
Sales activity grew by just 0.58% in the three months to March, following a 0.13% increase in the fourth quarter of 2010. Across Europe the GE Capital Big Ticket Leisure index rose by 3.41% in the first quarter of 2011 and remained significantly higher than UK growth for the second successive quarter (Q4 2010: 0.13% vs 9.68%).
In Europe, a return to modest growth in Q1 follows a surprisingly strong performance in the fourth quarter of 2010, which had been the second largest increase seen since the index began at the beginning of 2008, but returns the index closer to the quarterly growth rates seen in the second and third quarters of 2010. The sustained recovery that had been seen since August 2009 also looks to be losing steam across Europe as continued macro-economic concerns hit consumer confidence. Prior to August 2009, sales activity showed a sustained decline as the global recession hit hard at European consumer demand for big-ticket items.
Despite recent stagnation, UK sales activity relating to big ticket leisure items has now grown for seven straight quarters, with activity in August 2010 returning to and eclipsing levels last seen in January 2008.
The GE Capital European Big Ticket Leisure Index offers a monthly view of consumer demand for ‘discretionary’ high value leisure goods, such as motorboats and yachts through to caravans and quad bikes – using the length of time it takes for these products to sell. The Index is compiled using data from more than $4 billion of annual sales, financed by GE Capital’s distribution finance unit, from a wide range of manufacturers across the European leisure industry.
Despite slowing growth, the European index climbed to its highest level since September 2008 on the back of a sustained recovery in activity from the August 2009 low point. Activity had shown a strong recovery in the last quarter of 2010, driven by strong activity in the recreational vehicle and motorsports sectors. That growth slowed in the first three month of 2011 in the most part due to a slight overall decline in the motorsports constituent of the index being only partially offset by strong growth in the marine sector.
In the UK specifically, sales activity has struggled to remain positive over the past two quarters following four successive quarters of over 5% growth. The UK index fell in December for the first time since August 2009 and was also negative in January as cold weather and falling consumer confidence hit activity.
“For the UK, it seems that the slump in consumer confidence and GDP in the fourth quarter of 2010 and concerns around the austerity measures limiting future growth acted to subdue sales activity on big ticket leisure items. Growth has been very weak for two consecutive quarters and we are seeing monthly declines for the first time since escaping the full force of the recession in 2009,” said Stephan Caron, Commercial Leader at GE Capital UK. “What’s positive, however, is that activity is still growing and that we are now above levels of activity seen in early 2008.”
GE Capital is uniquely placed to develop this indicative index as the company is a leading provider of asset finance, inventory finance and working capital/cash flow financing to manufacturers and dealers across Europe.
“As a leading European market player in distribution finance, which provides manufacturers with working capital secured against finished goods from the moment they leave the production line through the dealer network until sale to the end customer, we have a unique insight into the activity of both manufacturers and dealers across a wide range of industries,” said Caron, “We have worked hard to develop intelligent process technology that is embedded into our customer systems and gives them a real-time view of which products are selling, in which countries and through which dealers. These systems also give us a fantastic macro view of economic activity and we’ve used these to build the index.
General Electric Co. posted a fourth straight quarter of profit growth, beating analysts’ estimates, as equipment orders increased, and boosted the dividend for the third time since July, Bloomberg BusinessWeek reported.
First-quarter profit from continuing operations rose 58% to $3.58 billion, or 33 cents, excluding pension results, up from $2.26 billion, or 20 cents, a year earlier, GE said. That exceeded the average estimate of 28 cents a share from analysts surveyed by Bloomberg.
GE Capital, the company’s lending business, continued to recover from the financial crisis, with profits more than tripling profits to $1.8 billion in the quarter. GE’s transportation, health care, aviation, and home and business solutions businesses also posted increased earnings.
CEO Jeffrey Immelt plans to speed sales and profit growth this year and in 2012 by focusing on energy, aviation, transportation and health care as well as a slimmer GE Capital. He is spending on research and more than $12 billion of acquisitions since October, mostly in energy, as he builds technology offerings and the oil and gas division.
“GE has emerged from the recession a stronger, more competitive company,” Immelt said in the statement.
GE gained 2.9% to $21 at 6:43 a.m. before regular New York Stock Exchange composite trading.
The dividend will rise 1 cent to 15 cents a share payable July 25 to shareholders of record at the close of business on June 20, Fairfield, Connecticut-based GE said.
The company’s total order backlog, a gauge of future profitability, was $177 billion, exceeding the fourth quarter’s $175 billion. Orders at large-equipment divisions including energy, aviation and health care rose 13 percent to $19 billion.
Sales rose 6.2% to $38.4 billion, helped by more selling days as the quarter ended April 3 rather than March 28 a year earlier. Revenue included proceeds from the disposition of NBC.
“A few extra days will not normally make much of a difference in the big lumpy equipment businesses (unless you luckily catch an extra lump),” Jeffrey Sprague, co-founder of Vertical Research Partners, wrote in a note to clients this week.
The sale of NBC generated 4 cents a share, tempered by 3 cents in restructuring, acquisition and disposition costs, GE said.
The company doesn’t provide profit or sales forecasts, instead giving investors a “framework” on which to compile their own. Analysts estimated first-quarter sales of $34.3 billion, on average, according to a Bloomberg survey.
This is the first quarter the company has broken out pension costs or benefits in its income statement on a per-share basis. Including a pension cost of $163 million, net income attributable to common shareholders was $3.43 billion, or 31 cents a share.