GE’s Lannon Addresses New Retail Program

August 27, 2010 by · 1 Comment 

Peter Lannon

Peter Lannon

The aggressive new finance program that GE Capital Commercial Distribution Finance has put together with Fleetwood RV Inc. is likely to cause quite a buzz as the industry turns toward the fall and RVIA’s 48th Annual National RV Trade Show, Nov. 30 to Dec. 2 in Louisville, Ky.

The new program, which involves all Fleetwood RV products invoiced on or after last Monday (Aug. 23), provides a competitive interest rate on financed inventory for 120 days and allows dealers to be reimbursed by Fleetwood for 100% of interest charges on new inventory financed through GE Capital and sold within 60 days. A second tier provides 50% interest reimbursement for inventory sold between 61 and 90 days.

Peter Lannon, managing director–RV, for GE Capital’s CDF Business, paused long enough earlier this week to answer a few questions about all of this during Fleetwood’s 2010 National Dealer Meeting in Fort Wayne, Ind. This is about as aggressive as it gets in the finance business these days, is it not?

It’s an innovative program. It’s aggressive, only because it combines two elements which have not been brought together before. There is the reduced interest rate for the first 120 days, which is kind of a standard offering. It’s been seen in the industry before.

But by combining it with the high-turnover option, which allows the dealers to recoup all of their interest expense if they sell through to retail in the first 60 days – or recoup 50% of it if they sell through in 90 days – that’s the unique feature, putting both of those together.

We’ve not done it before. It took somebody like Fleetwood to partner with us to see the value of it, and we’re very happy to innovate with Fleetwood to bring this to the market. It’s apparently based on the premise that fast turns benefit everyone, right?

It is. As we’ve said, we think one of the key lessons from the downturn is that there needs to be a renewed focus on turn at the dealer level – that the dealer has to get the product to the consumer and, frankly, hold margin for the dealers. It’s very important to keep fresh product at the floor, not to allow a lot of aged inventory to stack up, which then leads to discounting pressures.

So, with fast turn and rapid replenishment, which is probably a key thing that most manufacturers now are willing to talk about and encourage, that’s what makes it happen.

In the past, it was pretty much large orders at (the National RV Trade Show in Lousiville, Ky.), or maybe twice-a-year large orders were the norm because manufacturers wanted to level out their production. Now in the current environment, manufacturers see the value in taking more frequent orders, even though each order might be smaller, and responding with lean production.

Just like Fleetwood was talking about here at their dealer meeting, they can fill those orders much more quickly and be much more market-attuned and shorten down the inventory carry cycle for dealers, which is where dealers are probably at the most risk. The end result of all of this for GE is healthier clients, right?

Obviously, faster turn and the promotion of margin retention makes for healthier dealers, which reduces our risk and it also reduces risk for the manufacturers because they can develop stable, long-term dealer relationships without as much exposure to the market swings. Are you going to do this anywhere else? I mean, are we going to see any more aggressive programs out of GE?

At GE, what we are interested in seeing is improved turn overall from dealers, and we are open to working with other manufacturers that share that philosophy about promoting the turn from dealers to retail customers. So, yes, we are open to working with other manufacturers with programs that are designed to promote the turn.

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Fleetwood RV Kicks Off 2010 Dealer Meeting

August 25, 2010 by · Comments Off on Fleetwood RV Kicks Off 2010 Dealer Meeting 

John Draheim

John Draheim

Fleetwood RV Inc., a new company launched last year as the successor to the Fleetwood brand, kicked off its 2010 National Dealer Meeting Tuesday night (Aug. 24) with a rousing address by Fleetwood President and CEO John Draheim at the Grand Wayne Center in downtown Fort Wayne, Ind.

Fort Wayne is located less than a half hour north of Fleetwood’s new Decatur, Ind., headquarters and is a fitting site for a more low-key event that Fleetwood RV prefers versus the kind of glitzy annual dealer meeting that Fleetwood’s predecessor, Riverside, Calif.-based Fleetwood Enterprises Inc., used to hold in Las Vegas prior to the Great Recession.

Make no mistake about it, this is a “new Fleetwood,” Draheim reiterated in his address to a room full of attendees, including 30 vendors (24 of them with displays), three banks and about 100 dealer personnel from 45 dealerships. Draheim said Fleetwood’s focus today is on “creating partnerships” with dealers to whom he extended “a heartfelt thank you for helping us restart our company and be profitable.”

“We really do appreciate all the support that you’ve given us over the past year,” said Draheim, standing on a stage amid a display of 2011 product.

One of the company’s main missions in the near term is to explore new market opportunities, he reported, whether that involves extending existing brands or launching altogether new ones.

“We’re going to do that by looking for new market spaces that we’re not in that we can go into and both make money,” said Draheim, a veteran of Thor Industries Inc. and Monaco Coach Corp. before assuming the reins at Fleetwood RV. “We do that through providing exceptional product value that allows you to make money. We do that by trying to align ourselves with all the bankers in the room and promoting quicker retail turns because, after all, that’s what they’re looking for — quicker turns.”

Toward that end, GE Capital, Commercial Distribution Finance announced yesterday that it will be the exclusive wholesale lender for an aggressive new Fleetwood inventory stocking program designed to promote high turnover of new inventory. The program provides a competitive interest rate on financed inventory for 120 days and allows dealers to be reimbursed by Fleetwood for 100% of interest charges on new inventory financed through GE Capital and sold in 60 days or less.

Another key mission in rebuilding the Fleetwood brand, which soon will be part of a new consolidated Allied Speciality Vehicles Inc. (ASV) unit under the continued ownership of American Industrial Partners Capital Fund IV LP (AIP), is projecting an “extended family” atmosphere through which the company’s management, retailers and 1,200 employees can work amicably through any issues that inevitably surface in building a new company from scratch.

Lean production practices, warranties and Fleetwood’s new management team were all part of Draheim’s Power Point presentation. In addition to Draheim, that new team currently includes CFO Debra Pak, Vice President of Operations Luis Ortiz and new Vice President of Engineering, Development & Design Colin Roberts.

Draheim, by the same token, talked about how Fleetwood has gone about answering dealer requests to consolidate its product offerings. The result is that the company’s brands have been reduced from 27 in 2010 to 14 in the 2011 model year.

Fleetwood's new management team (l-r): Colin Roberts, John Draheim, Debra Pak and Luis Ortiz.

Fleetwood's new management team (l-r): Colin Roberts, John Draheim, Debra Pak and Luis Ortiz.

Fleetwood’s new approach to developing a dealer body was also on Draheim’s mind. Rather than assembling a big dealer body — Fleetwood currently has about 80 dealer locations, a tiny number vs. the 1,800 Fleetwood Enterprises once had — the company is more focused on establishing links with a smaller group of retailers that holds like-minded “core values.”

Draheim says that’s been a consistent theme with AIP and a real key to launching a new enterprise in these strange economic times. Keep in mind, he noted, that AIP and Fleetwood launched Fleetwood RV in 2009 in the middle of a daunting recession. “Now imagine in that environment, with the economy, fuel prices, the lending environment, the oversupply of product in the marketplace, the inability of most retailers and OEMs to hold margins, who in their right mind would start a new company?” he asked, rhetorically.

“Well, we did,” Draheim continued. “And we’re here to talk about it, and we’re profitable. That is a heck of a statement. We have no debt. We’re generating positive cash and have been for some time. We have engaged some of the industry’s best suppliers. We’ve developed relationships with the industry’s key lenders — both wholesale and retail. We’ve grown a dealer network, some of which we’ve had prior, some that we didn’t do business with prior.

“And if you gave that dealer list today to somebody who was familiar with the motorhome business today, they would tell you ‘this is a who’s who of motorhome dealers across the country,’” said Draheim. “We feel extremely humbled and confident in the quality of our dealer chain. And at the end of the day, it’s all about the quality of the dealer who creates the experience for the retail customer. So we’re honored that you’re here and that we’re in business with you.”

Fleetwood’s meeting agenda included a tour of the company’s Decatur facilities and an afternoon of meetings. The meeting ended Thursday with an awards luncheon.

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GE Capital Launches Program with Fleetwood

August 24, 2010 by · Comments Off on GE Capital Launches Program with Fleetwood 

GE Capital, Commercial Distribution Finance today (Aug. 24) announced it has been selected as the exclusive wholesale lender for Fleetwood RV’s new inventory stock program designed to promote high turnover of new inventory.

This program will provide a competitive interest rate on financed inventory for 120 days and will allow dealers to be reimbursed by Fleetwood for 100% of interest charges on new inventory financed through GE Capital and sold in 60 days or less, according to a news release. A second tier will provide for 50% interest reimbursement for inventory sold between 61-90 days. All Fleetwood RV products invoiced on or after Monday, August 23, 2010, are eligible under the program.

“At Fleetwood RV, we are focused on retail and creating additional margin opportunities for our dealers,” said John Draheim, CEO/resident of Fleetwood RV Inc. “This new program reinforces that ideology by lowering costs and adding more value into our products, which helps our dealer partners turn their inventory more quickly. We are excited about the opportunity it creates for our dealer body and appreciate the creativity from GE Capital in its design and implementation.”

“The Fleetwood RV interest reimbursement programs provide a strong incentive for dealers to sell through at retail in today’s market,” said Peter Lannon, managing director – RV, for GE Capital’s CDF business. “We have worked closely with Fleetwood on this program and we are pleased to be able to help them deliver this reimbursement program to their dealers.”

GE Capital’s Commercial Distribution Finance business provides financing options that include inventory financing, purchase order financing, accounts-receivable working capital loans and other programs for recreational vehicles and other industries.

The Fleetwood RV interest reimbursement program is an exclusive program for dealers in the U.S. GE Capital finances all purchases under the program. Dealers pay interest charges to GE Capital and then apply to Fleetwood for the interest refund. Fleetwood RV determines the dealer’s eligibility for the program and administers all payments.

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GE Capital to Provide $45M to UK RV Builder

July 2, 2010 by · 1 Comment 

Editor’s Note: Maarten Endel, GE Capital’s RV Industry Leader in Europe, shared some thoughts following this week’s announcement that the financial firm was providing a $45 million line of credit to Swift Group Ltd., a leading RV maker in the United Kingdom. The release, followed by Endel’s comments to, appear below.

GE Capital has agreed to provide Swift Group Ltd, the United Kingdom’s leading manufacturer of caravans (trailers), motorhomes and holiday homes, with a distribution finance facility that will provide the company with about $45 million (U.S.) of dealer stocking funds in 2010.

According to GE, Swift Group will benefit from guaranteed payment for shipped caravans and motorhomes, enabling the organization to focus on designing, manufacturing and selling its products.

A travel trailer made by United Kingdom-based Swift Group Ltd.

A travel trailer made by United Kingdom-based Swift Group Ltd.

Meanwhile, the extended terms provided by the GE Capital programm provide dealers in the Swift network with the flexibility they need to display product on site until it is sold onto end customers, according to GE.

The facility is expected to finance volumes exceeding $90 million U.S. in 2011.

“Providing adequate stock funding to our dealer networks is a vital cog in the retail chain, enabling dealers to display and therefore sell more of our products. GE’s support for Swift and the UK market is great news and will help the industry move out of recession more quickly,” said Nick Page, commercial director of Swift Group.

The agreement sees an extension of GE Capital’s support of the UK’s RV manufacturers, which has seen the company provide over $200 million of funding over the last three years, equating to more than 10,000 caravans, motorhomes and static homes, according to GE.

Maarten Endel, GE Capital, Europe

Maarten Endel, GE Capital, Europe

Maarten Endel, industry leader for RVs at GE Capital’s Distribution Finance business, said, “Swift Group is a great company with a stable and successful management team and we are delighted to play a role in the future growth of their business as they build on their recent success. Access to working capital is essential to manufacturers as we exit a recession and we are very pleased to be able to support Swift as the company returns to strong growth.”

Endel share these thoughts with

How will this deal support caravan, motorhomes and holiday homes sectors?

This financing arrangement will support Swift by providing the company with access to funds the moment a new caravan or motorhome leaves the production line. In the current economic environment working capital is really important to companies and not having to wait until their products are sold to end users before accessing funds will help Swift finance further production as the economy recovers further and orders continue to increase. Additionally, as we will also be providing finance to Swift’s dealers, this allows dealers to hold more stock and their forecourt and so reduce waiting times for customers and allows dealers to showcase models that they may not have been able to in the past.

Why have you decided to make this support available now?

We work with over 50,000 SMEs in the UK to provide them with the finance they need to help them run their day to day business. Swift is a successful, privately owned mid-market company that we are very pleased to be able to support. We work with a large number of UK manufacturers such as Triumph, Jaguar Land Rover and Sunseeker to provide similar “distribution finance” arrangements. As the financial arm of an industrial company we understand production processes and asset values in a way that banks can’t and that enable us to create financing partnerships with manufacturers that we feel are unique. It’s not just about the finance but also about accessing our expertise in processes.

How in layman’s terms will this financing agreement help Swift as the economy moves out of recession?

Swift will be able to focus on what they do best: producing top caravans and motorhomes for customers knowing that they won’t be waiting weeks or months for payment. Getting finance from the moment they leave the production line is really important in the current economic environment. In addition, by providing finance to Swift’s dealers, we are able to help dealers sell more caravans and motor homes by reducing customer waiting times, holding more show stock and allowing them to order in advance of busy periods safe in the knowledge that they will have access to finance for that order.

About GE Capital in the UK

GE Capital is one of the leading commercial finance providers in the United Kingdom with major operations in asset-based, fleet, leasing and healthcare financial services. GE Capital has major offices in Bristol, Manchester, Sale and the London area and focuses on providing leasing and lending solutions, from working capital and investment finance through to fleet management and equipment leasing to mid-market customers.

About GE Capital

GE Capital, headquartered in Norwalk, Conn, is a global provider of financial products and services to businesses, retailers and consumers. It finished 2008 with net income of $8.6 billion and total assets in excess of $572 billion.

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GE’s Lannon Sees ‘Plenty of Available Credit’

June 29, 2010 by · 1 Comment 

A top executive with General Electric Co.’s commercial finance arm says that wholesale borrowing by U.S. dealers of recreational vehicles rebounded in the first half of 2010, a sign the industry may be on the mend after enduring a five-year slump that pushed some manufacturers and many more retailers out of business.

In an interview with Reuters, Peter Lannon, managing director of GE Capital’s commercial distribution finance unit, also said there was “plenty of available credit” for dealers who had survived the downturn.

But utilization of credit lines, which the dealers use to stock their showrooms with towable campers and motorhomes that can retail for anywhere from $15,000 to more than $400,000, is “at the lower level … historically,” Lannon said, because RV sellers “are exhibiting some self-discipline in placing orders.”

Lannon, who spoke with Reuters last week, said GE Capital’s commercial distribution finance unit does, on average, about $2 billion a year in RV-related wholesale financing each year — about 10% of its overall business.

He said that requests for credit from RV dealers were up 800% so far this year and that lending to those dealers was up 400%, after dropping off significantly during the downturn.

“What’s happening,” he said, “is we’re approving but they’re just not utilizing. A dealer may come to us for a $5 million line, which we approve, but he may only turn around and order $2.5 million of product.”

Lannon insisted that caution was good news for the industry. “In the past, this industry … was much more focused on the manufacturer shipping out of their yards to dealers and frankly being a little less concerned about whether the dealer was able to sell it to a consumer or not,” he said.

“So in essence what you saw was an inventory transfer: You saw yard inventory going from an OEM and becoming yard inventory at a dealer.”

When the downturn hit, dealers were stuck with inventory that sat on their lots and aged, forcing them to offer huge discounts to sell it.

He said everyone in the industry — from manufacturers to dealers to lenders — was now focused on retail sell-through and inventory turn, metrics that were often ignored in the past and hit an all-time low last year, the industry’s worst since the early 1980s.

Improvement has come, in part, because lenders like GE now force dealers to begin paying the principal on their floorplan loans — not just the interest — after six or nine months. The tougher standards are working.

“I can’t speak for the entire industry. But holistically, from our standpoint, we had a turn rate that was under 1 times a year 12 months ago,” he said. “And right now we’re running between 2.2 and 2.4. And we judge that to be the healthy zone.”

That focus on velocity was, Lannon said, the No. 1 lesson the industry had learned from the downturn. “When that’s correct,” he said, “all the other things fall into line. You don’t get the pressure that leads to aberrant behavior at the dealers.”

Not all parts of the RV market are rebounding equally, Lannon said. Most of the strength is concentrated in the towable sector, where cheaper travel trailers, popular with first-time buyers, and more expensive fifth-wheels, often move-down options for consumers getting out of large motorhomes, have both seen a good resurgence in demand.

He said dealers were also seeing renewed retail demand for lower-priced motorized units, including Class C vehicles as well as lower-end Class A motorhomes, the industry’s biggest and most profitable vehicles.

“Where we’re not seeing, frankly, much action is … premium diesel pushers,” he said, referring to high-end, bus-like RVs propelled by rear-mounted diesel engines.

“That sector right now is pretty much a build-to-order. They’re having to put deposits down and factories won’t start to build an order unless they know there’s money down from an end user at the dealer.”

But the good news for sellers of highly discretionary adult toys is largely confined to the RV industry, Lannon said.

Although the powersport market — made up of motorcycles, ATVs, snowmobiles and jet skis — did not experience as dramatic a downturn as the RV market, dealers there are not experiencing the same rebound, he said.

The reason? Unlike RV buyers — whose purchases are financed with savings and other assets — motorcycle, ATV and snowmobile buyers are “paycheck buyers,” paying for their purchases using current income.

With unemployment still hovering near 10% “it’s causing a lack of confidence in consumers,” Lannon said.

And the recreational marine industry, he said, “is still experiencing difficulties … They entered a little bit later and their climb-out will be a little bit delayed as well.”

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GE Loans to RV Dealers in Next TALF Offerings?

January 22, 2010 by · 1 Comment 

Dealer-floorplan lenders are preparing an onslaught of securitizations, according to Asset-Backed Alert.

The offerings are expected to hit the market in two big batches, one in the first week of February and the other in early March, in order to qualify for the two final monthly rounds of buyer financing available through the Federal Reserve’s Term Asset-Backed Securities Loan Facility (TALF).

TALF’s next funding rounds go out Feb. 5 and March 4.

Most of the upcoming deals would be backed by loans that help car dealers finance their inventories. Ford, which is typically among the most prolific issuers of such securities, is expected to be behind at least two of the transactions. BMW and Hyundai are also preparing offerings, as is General Motors affiliate GMAC.

There’s speculation that Chrysler Financial is interested as well, although the source of its receivables remains unclear. When affiliate Chrysler entered a government-brokered bankruptcy arrangement last April, all of its dealers agreed to shift their floorplan financing to GMAC. But the still-solvent Chrysler Financial continued to hold a loan inventory that it might now hope to securitize. Or it could be trying to raise money to revive its floorplan business.

Outside auto-related issues, GE Capital appears to be lining up a deal. Most of its floorplan securitizations have been backed by loans to dealers of recreational vehicles.

Why the urgency to get in on TALF’s final rounds? With the auto industry on unsteady ground, investors are reluctant to take on exposure to dealer loans – and the program’s financing terms offer them a way to shift some of that risk to the Fed.

Indeed, spreads on non-TALF floorplan bonds would likely prove unaffordable for issuers at this point. That differs from most other asset classes, where months of improving market conditions have helped non-qualifying transactions trade at yields roughly equivalent to those on qualifying ones. The upshot: The next two TALF rounds are likely to be dominated by floorplan securities.

Once TALF expires, it’s possible that the supply of floorplan-loan securitizations will dry up. And it remains to be seen how the planned issues will fit into the overall funding strategies of Ford and GMAC, which indicated late last year that they would boost their production of auto-loan and floorplan bonds in 2010.

There’s a chance some issuers will turn to commercial-paper conduits for funding, although operators of those vehicles are also hesitant to take on the underlying loans.

Nine term securitizations of dealer-floorplan credits totaling $5 billion were sold in the U.S. in 2009, according to Asset-Backed Alert’s ABS Database. All but one, a $500 million issue from Ford in June, were eligible for TALF financing. However, the overall production of those issues was stymied by difficulties issuers faced in earning top grades for their bonds – a necessity for TALF eligibility.

Only one floorplan issue has priced so far in 2010, also from Ford. That Jan. 6 issue, which met TALF conditions, included a $1.2 billion slice of triple-A-rated 3-year bonds that priced at 165 bp over Libor. It was rounded out by double-A and single-A classes retained by the automaker.

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Suncoast RV Now Exclusive with GE Capital

January 19, 2010 by · Comments Off on Suncoast RV Now Exclusive with GE Capital 

suncoast-rv[1]GE Capital Commercial Distribution Finance today (Jan. 19) announced it has been selected as the exclusive wholesale floorplan financing lender for Suncoast RV Center Inc., Jacksonville, Fla., according to a news release.

The program will allow Suncoast RV to finance up to $25 million in new and used RV inventory for its six dealerships across the Southeastern U.S.

“Suncoast is pleased to be working with GE Capital on this program,” said Fred Hassan, Suncoast RV chairman. “During the current market environment of increased focus on lending and risk, we are confident that we have the backing of a strong financial provider like GE Capital.”

GE Capital’s Commercial Distribution Finance division provides financing options that include inventory financing, purchase order financing, accounts-receivable working capital loans and other programs for recreational vehicles and other industries.

“CDF is pleased to be selected by Suncoast to provide their inventory financing program,” said Peter Lannon, managing director – RV for GE Capital’s CDF business. “We look forward to providing them with funding, business intelligence and services to enable them to grow.”

Family-owned Suncoast RV operates dealerships in Florida, Georgia and Alabama. Established in 1982, Suncoast RV has grown to become a top 10 Winnebago Industries Inc. dealer, a top 5 Keystone RV Co. dealer and also represents more than a half-dozen additional RV manufacturers covering the complete spectrum of motorized and towable RVs types. Suncoast RV, a recipient of the Winnebago Circle of Excellence Award, also provides RV service, parts and accessories sales and RV body shop service, as well as being a regional leader in the sale of new and used RVs.

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Forest River Launches Interest Reimbursement Program

September 16, 2009 by · Comments Off on Forest River Launches Interest Reimbursement Program 

Forest River Inc. today (Sept. 16) announced that GE Capital Commercial Distribution Finance has been selected as the exclusive wholesale lender for Forest River’s 90-day interest reimbursement program.

This program will allow dealers to be reimbursed by Forest River for interest charges on new inventory financed through GE Capital. All Forest River products invoiced on or after Oct. 1 are eligible under the program, according to a news release.

“Forest River recognizes that recent market conditions have challenged the RV industry, and this is why we continue to provide dealers the opportunity to earn incentives on every Forest River unit,” said Joseph P. Greenlee, Forest River CFO. “Our interest reimbursement program through GE Capital gives Forest River dealers an added boost to help them during this selling season.”

GE Capital’s Commercial Distribution Finance business provides financing options that include inventory financing, purchase order financing, accounts-receivable working capital loans and other programs for recreational vehicles and other industries. The Forest River interest reimbursement program is an exclusive program for dealers in the U.S. All program purchases must be financed by GE Capital. Dealers must pay interest charges to GE Capital and then apply to Forest River for the interest refund. Forest River determines the dealer’s eligibility for the program and administers all payments.

“The Forest River 90-day interest reimbursement program provides a strong incentive for dealers to sell through at retail in today’s market,” said Peter Lannon, managing director – RV for GE Capital’s CDF business. “We have worked closely with Forest River on this program and we are pleased to be able to help them deliver this reimbursement program to their dealers.”

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Thor Stock Climbs 13th Straight Day on Wall Street

August 6, 2009 by · Comments Off on Thor Stock Climbs 13th Straight Day on Wall Street 

Makers of recreational vehicles and mobile and manufactured homes fared well on Wall Street on Wednesday (Aug. 5), led by RV maker Thor Industries  Inc. and by Drew Industries Inc., a maker of parts primarily used in travel trailers and fifth-wheel RVs, according to Investor’s Business Daily.

Thor climbed for 13 consecutive sessions through Wednesday, gaining 30% in July and 14% in August.

On Tuesday, the Ohio-based company said second-quarter earnings fell 92% to 4 cents, a full 60% below consensus views. Revenue dropped to $415.5 million, 41% below year-ago levels.

Despite the miss, the stock climbed 6% Tuesday and another 6% Wednesday in huge trade.

The trigger appears to have been a rising backlog of undelivered orders.

Thor’s total backlog rose 45% to $588 million by July 31, its highest level in two years.

Thor’s RV segment backlog was $298 million, up from $146 million a year ago.

The increase suggests RV dealers have worked through the bulk of an inventory reduction imposed by their lenders, primarily Bank of America and GE Capital, says analyst Bret Jordan with Avondale Partners.

That could mean increasing orders for manufacturers, Jordan says, but it doesn’t show an increase in consumer demand.

Drew, which reported July 31, saw second-quarter earnings drop 71%. That was 300% above analysts’ consensus views.

But the company says most of the surprise came from low-end, towable products, rather than its higher priced fifth-wheel RV lines.

“The RV category is not dead,” Jordan said, “but the consumer has sort of traded down.”

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GE Profit Tanks While Topping Wall Street Estimates

July 17, 2009 by · Comments Off on GE Profit Tanks While Topping Wall Street Estimates 

General Electric (GE) announced today that second-quarter 2009 earnings fell a smaller than expected 47%, as earnings from energy equipment somewhat offset declines in finance, health care and NBC Universal arms.

Profit from continuing operations was $2.9 billion. Revenue from continuing operations was down 17% to $39.1 billion. The results beat analyst earnings estimates,  but were below the top line estimate of $42.16 billion, according to AOL Daily Finance. 

“In a global economic environment that continues to remain challenging, GE delivered solid second-quarter business results,” GE Chairman and CEO Jeff Immelt said. But what Immelt calls solid and what the results show may not satisfy investors as the declines were widespread across many segments, and the good news kept being “offset” — a word that starred in the report — by less than stellar news.

Segment profit fell 36% compared with the second quarter of 2008 as 13% growth at Energy Infrastructure and solid growth at Cable were more than offset by:

  • An 11% decline in Technology Infrastructure earnings due to softened demand and pricing pressure in Healthcare and Transportation.
  • An 80% decline at Capital.
  • A 41% decrease at NBC Universal. 

The top line suffered, too, with GE Capital Services’ (GECS) revenues falling 29% to $13.4 billion, and industrial sales down 7% to $26 billion.

Investors’ main concern was GE Capital. As mentioned, revenue declined 29% in the second quarter and Capital Finance profit plunged 80% in the quarter to $590 million. Breaking down the segments, real estate revenue fell a larger-than-expected 48% from nearly $2 billion to $1 billion in the quarter. The real estate division lost $237 million, compared to a profit of $484 million in the same quarter last year.

“In a difficult environment, we are ahead of schedule on our plan to create a more focused financial services company. Capital Finance remains on track to be profitable for the full year,” Immelt said. Loan volume was 25% higher than the prior quarter, even as it continues to reduce its balance sheet. Borrowing by GE’s finance arm has been high thanks to its eligibility for the Temporary Liquidity Guarantee Program, which it used more than any other firm.

Cash flow was another concern investors had as the company has more retirees than employees. At least here, the offset was to the positive side as strong working capital improvements more than made up for declines in progress payments, leading to results ahead of operating targets. Cash generated from operating activities totaled $7.1 billion, ahead of plan.

Recently, with CIT Group (CIT)’s collapse, many have compared it to GE Capital because of the mix in its loan portfolio. However, analysts think the problems at CIT could actually be a boon to GE Capital, as it can lure customers away and in the event of its bankruptcy, even raise rates. It’s not clear how this would mesh with GE’s strategy of shrinking GE Capital to 30 percent of total profits from around 50 percent in the past.

In recent pre-market trading, GE stock traded 1.5% lower, reflecting concerns arising from the difficulties shown in the report despite Immelt’s assertion that “We continue to position GE to win in a reset economy.”

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GE Dropping Interest-Rate Hike on Curtailments

July 1, 2009 by · Comments Off on GE Dropping Interest-Rate Hike on Curtailments 

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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Reorganized MCI Emerges from Ch. 11 ‘Well Prepared’

June 19, 2009 by · Comments Off on Reorganized MCI Emerges from Ch. 11 ‘Well Prepared’ 

Bus manufacturer Motor Coach Industries (MCI) is stable and “well prepared” with sufficient cash following its recent emergence from bankruptcy which saw the company reorganized with a new majority stockholder, according to President and CEO Tom Sorrells.

National Bus Trader magazine reported that the No. 1 manufacturer of buses in the U.S. emerged from Chapter 11 bankruptcy in April.

“The completion of our financial restructuring is a major milestone in the 76-year- history of MCI,” Sorrells said. “I am particularly pleased that, given a very challenging economic backdrop and tight credit markets, we were able to complete the process in just seven months.”.

MCI, with headquarters in Schaumburg, Ill, is a leading manufacturer of intercity coaches. MCI bus shells also are converted into high-end Class A motorhomes.

An investment fund managed by Franklin Mutual Advisers LLC has become the company’s majority shareholder through the conversion of third-lien secured debt into common stock and the issuance of $200 million in preferred stock, according to the magazine.

The company was at one time owned by Greyhound Corp., and most of MCI’s $420 million in debt that was wiped out in the pre-negotiated bankruptcy was accumulated in a spinoff from Dial Corp., which acquired MCI from Greyhound in the mid-1990s. Because bus sales were on the increase, debt payments were taken from operating revenue until MCI’s bankruptcy.

MCI emerged from bankruptcy with $230 million in financing through $75 million in revolving credit arranged by GE Capital and $155 million in a second-lien loan through a group of lenders.

”We have secured a strong new financing package … to enhance the company’s post-emergence capital structure,” Sorrells said. ”With a strengthened financial base, we are well positioned to take greater advantage of the market opportunity and further grow our business.”

Even as overall bus sales declined while MCI Was in bankruptcy, a few days after emerging from bankruptcy, MCI was reported to have increased its market share to 60.2% of the bus market, according to National Bus Trader.

[Slashdot] [Digg] [Reddit] [Facebook] [Google] [StumbleUpon] Credit Crunch A Crazy Quilt of Circumstance

June 5, 2009 by · Comments Off on Credit Crunch A Crazy Quilt of Circumstance 

Editor’s Note: Here is the latest installment by on its look at Elkhart County, Ind., and the RV industry.

If you want to see what a credit crunch looks like, head south on Indiana State Road 19 out of Elkhart, Ind., – past the strip malls, bank branches and restaurants to the still-beating heart of “the RV Capital of the World.”  There, scattered along a 2-mile stretch of Nappanee Street, you’ll find a ragtag assortment of RV dealerships that are in many ways symbolic of the nation’s crazy-quilt lending landscape.

One has lost the battle for survival after its credit lifeline was pulled, as its vacant showroom attests. Others are hanging by a thread, trying to outlast an RV industry downturn that has been exacerbated by a lack of credit for manufacturers, dealers and customers. Still others contend that their credit problems have largely disappeared and that business has picked up substantially in the last few months.

The availability of credit, it seems, depends largely on perspective.

For the owner of Elkhart County RV, the situation remains “brutal,” following the sudden withdrawal of big national banks from what’s known as the floorplan financing market.

“I cannot buy any new product unless I use my own money,” said Tony Gaideski, who is down to seven units and can’t secure financing to purchase more RVs. “None of the banks in this town will lend me money, and I don’t know anywhere in the country where anybody is doing any financing for RVs. ”

Just up the road, however, Rob Reid, president of Great Lakes RV Center, said he still has the same $3 million floorplan credit line he had before the recession. He said his biggest problem is getting would-be buyers qualified for loans.

“The biggest thing is retail credit,” he said.  “They have to start giving the customers money to buy. That’s what’s going to get the whole thing going again.”

A block to the south, International RV World General Manager Dave Titus said business at the company’s three lots in Elkhart, northern Michigan and Florida is up 15-20% this year. That’s in part due to decreased competition, he said, but also because his company never relied on lenders to buy inventory.

“We planned ahead for a slow time,” he said. “A lot of businesses didn’t .”

Some in the industry see opportunity in the chaotic credit situation.

RV manufacturer Thor Industries Inc. this week launched its own credit service to provide retail financing for purchasers of its units, much as GMAC does for autos.

“So many lenders exited or dramatically scaled back their RV lending that Thor saw it as a need and a benefit to its dealers,” said Ed Arienti, president and CEO of Thor CC Inc., which is initially licensed to operate in eight states.

In Elkhart County, however, bankers willing to talk on the record about the credit situation insist they have money to lend.

‘Still making loans’
“We’re still making loans to qualified buyers, but that’s been part of our philosophy all along,” said Jim Hyatt, president of the First State Bank of Middlebury, which extended credit to Reid’s dealership after his previous bank, Goshen Community Bank, called in his line of credit. “We’re also seeing opportunities with some very good, very solid companies, where they have banked at other banks and are now saying, ‘We want to do business with someone who’s going to be around to take care of us.'”

His comments were echoed by Tom Stark, a commercial loan specialist with Lake City Bank.

“To be honest, we’ve been very busy with (businesses) who have been asked to leave other institutions,” he said. “They’ve had a couple tough years, but they’re going to come back and we’re going to help them as much as we can.”

Dallas Bergl, president and CEO of INOVA Federal Credit Union, a 67-year-old institution that was founded by employees of Miles Laboratories, the manufacturer of Alka-Seltzer, said his organization is limited in its ability to provide big commercial loans but is actively courting would-be RV buyers.

“We’ve done a whole marketing campaign around, ‘We do have money to loan if you’re looking to purchase a home or a car,'” he said. “The mortgage side has been fairly robust, but we haven’t seen much in autos or RVs.”

But another local banker, who spoke to on the condition of anonymitysaid his bank won’t be making new RV loans until there is solid evidence the local economy is reviving.

“Because of the uncertainty in our area, I almost have to project future losses over the next nine to 24 months,” the banker said. “If I’m not going to see profits, my capital will go down. If I fear I’m going to be undercapitalized, either I have to go get more capital or shrink my balance sheet. So, no, the situation hasn’t gotten easier yet. If anything, it’s getting more difficult. Until the economy picks up, until my commercial customers are making money again, I can’t really free up the credit.”

Strange as it seems, all of these representations may be true, given the uneven ways the credit squeeze has affected homeowners, would-be homeowners, prospective purchasers of big-ticket items, credit card users, retailers, investors, banks and just about anyone else with a stake in the economy. 

‘It’s hard to make sweeping statements’
“It’s hard to get our arms around it because you’ve got different situations in different parts of the country,” said Phil Ingrassia, a spokesman for the Recreation Vehicle Dealers Association (RVDA). “Just like with the overall economy, it’s hard to make sweeping statements that it’s getting better.”

That is borne out by conflicting signals being sent by federal agencies and senior officials in recent weeks.

Treasury Secretary Timothy Geithner told a banking group on May 13 that the national lending picture is improving.  Two weeks later, the Federal Deposit Insurance Corp. warned that “the credit picture remains grim,” The Wall Street Journal reported.  And on Wednesday, Federal Reserve Chairman Ben Bernanke warned that credit could tighten again if the U.S. does not begin to get its fiscal house in order. (Click here to watch a CNBC video on a new Standard and Poor’s report on the state of credit in the U.S.)

Most experts and government officials say the credit freeze has slowly been thawing nationwide as a result of massive infusions of federal money into the banking sector.

That meshes with the experience of many small business owners in Elkhart.

Thad Naquin, owner of Naquin Chevrolet-Cadillac-Nissan, said that his problems qualifying buyers for auto loans, which began in the fourth quarter of 2008, largely vanished in March, when $5 billion was released to GMAC for lending.

And Carl Higley, owner of Higley TV & Appliances, said his difficulties ended in early April when he changed buying groups and gained access to a new preferred lender. Independent retailers like Higley often join together in such groups to better compete with the big chains. “We had three (loans) approved in one day last week,” he said. “That’s huge.”

But the RV industry has proven to be a tougher nut to crack.

“Most dealers are OK with retail lending right now, but there still seems to be a big problem on the wholesale side,” said Mark Bowersox, director of the Recreation Vehicle Indiana Council. ” It’s one thing to make a loan to a consumer; it’s another thing to open a $5 million credit line to an RV dealer.”

Tom Walworth, general manager of Statistical Surveys Inc. (SSI), which tracks RV industry sales, said the inability to get product to the showrooms has played a large part in the demise of nine RV manufacturers  in the last year and a half.

He said that as of March, wholesale sales of towables – fifth-wheels and trailers – were down 60.9% from a year earlier, while motorized RVs were off by 78.2%. But at the retail level, the declines were far lower, at 43% and 55%, respectively.

“You can lay the lack of wholesale activity at the feet of the lack of wholesale flooring,” he said.

An exodus from the market
Walworth said the absence of wholesale financing was created by near total pullout from the market late last year by the big banks that controlled most of the market, including Textron Financial, GE Capital, Bank of America, KeyBank, U.S. Bank and Bank of the West. That’s a big problem for an industry in which 79% of motorhomes and 72% of towables were purchased with financing in 2005, according to statistics from the Go RVing Coalition.

And floorplan lending is not a niche that local and regional banks or credit unions can easily fill, because it is a labor-intensive practice that requires the lender to carefully evaluate the quality of the collateral, which means it typically takes a high volume to make it profitable. 

The Small Business Administration has moved to address the situation, expanding an existing loan program and initiating a pilot inventory lending program, which will take effect on July 1.

But Gaideski, the owner of Elkhart County RV, said neither of those programs will solve his liquidity woes.

“From what I understand they’re only offering a 75% (loan guarantee), which means I’d have to go even deeper in debt to come up with the rest,” he said.

Gaideski also feels that he got a bad shake from his former floorplan financier, Textron Financial, saying that the company suddenly sent him a letter on Dec. 30 withdrawing his line of credit.

“It said, ‘Here’s how we’re going to help you out, we’re going to pull our line … and we’re going to allow you to sell the inventory that you have on hand.'”

(A Textron spokeswoman did not return a call from seeking comment.)

Credit extended to some dealers
But several other dealerships contacted by said they were able to continue pre-existing credit lines with GE Capital and KeyBank, even as the companies were pulling back in the floor financing market and turning away new customers.

Dan Davis, owner of RAD Transport, an Elkhart company that delivers RVs to dealers around the nation, said GE Capital has simultaneously been weeding out other dealers. “GE Capital has foreclosed on a lot of dealers … taking their inventory and shutting them down,” he said. “Some of the factories are actually having to buy back the inventory.”

Ned Reynolds, a spokesman for GE Capital, acknowledged that the company made some “adjustments in the first quarter in terms of its credit program,” but said it intends to remain active in providing floor financing for the RV industry.

“We think this is a viable business for us,” he said. “We’re just making the best of a tough environment and working through this cycle.”

( is a joint venture of Microsoft Corp. and NBC Universal, which is 80% owned by GE Capital’s parent, General Electric.)

Big national lenders weren’t the only ones yanking credit lines when the freeze was at its worst last winter.

Steve Riegsecker said Goshen Community Bank pulled the plug on his business, rescinding his $350,000 line of credit and thereby forcing him to default on a $1 million floor plan loan from Textron that he had used to purchase inventory for his 20,000-square-foot showroom in nearby Middlebury.

“I was struggling at the time, but I was making my payments,” Riegsecker said. “But they always wanted to know, ‘How are you going to make it?’ Then they came in on a Tuesday night about 5 o’clock and handed me a letter (rescinding the credit line), and that was it.”

Reigsecker didn’t declare bankruptcy and is instead working to pay off the outstanding debt, though he’s not sure if he’ll ever be able to.

“I’m starting completely over, selling cargo trailers and mini-pontoons (small boats),” he said. “That’s how I started my business, and that’s how I grew it.”

Goshen Community Bank President Doug Johnston cited privacy laws in declining to comment on matters involving individual customers and said he had no comment as to whether the bank had rescinded credit lines extended to local RV businesses.

Survivors have a different view
Survivors of the RV retail downsizing see it in a different light.

“My opinion is that they simply culled the ones that weren’t operating good businesses,” said Todd Cornell, president of Tiara RV of Elkhart.

And Titus, the general manager of International RV World, said, “The (dealers) who are hollering about floor plans, sad to say, they shouldn’t have had them to begin with. There were guys out there with $10 million floorplans who couldn’t buy you lunch.”

While RV industry players are divided on financial strategies, they stand united in taking a bullish view of long-term prospects.

“Manufacturers are burning through inventory, and the dealers have developed new local credit sources like credit unions and regional and community banks,” said Walworth of SSI. “That’s going to pay dividends in the future.

“I’ve seen this industry go down in the early ’80s, in the late ’80s, in the early ’90s and after 9/11, and each time it’s come back stronger than it was,” he continued. “There’s been so many times when people have shoveled dirt on this industry, but it comes back every time.”

Keith Leggett, a senior economist with the American Bankers Association, said that even if demand for RVs picks up, it will take a while for the credit market to catch up.

“As the economy weakens, banks see a deterioration of their balance sheets,” he said. “But those sheets tend to lag the economy, so while most economists are looking for some recovery in the second half of the year, it’s going to be at least a year before you start seeing an increase in credit quality.”

That may be too late for Gaideski, owner of Elkhart County RV. He said he’s not sure how much longer he can last without being able to buy new inventory.

“My dream is to stay in business – I love what I do,” he said. “But the reality is a different story.”

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Dewalt’s RV Inc. Closes Sales Operations

May 15, 2009 by · 2 Comments 

Dewalt’s Recreational Vehicles Inc., a prominent towable and motorized RV dealership in Easton, Pa., closed its sales operations on Wednesday (May 13) but is keeping its parts and service operation going — at least for now.

”The rumors are that we are going out of business, and we probably will eventually,” said Greg Dewalt, president of the dealership that was founded in 1966 by his parents, Wayne and Sally Dewalt. “I will keep it open as long as the bank will let me.

”We were heavily into motorized and that market has disappeared.”

Dewalt said floorplan lender GE Capital on Thursday began removing about 70 units that remained at the dealership.

”The economy got the best of me,” Dewalt told RVBusiness. ”There’s a lot of distressed inventory out there to compete with. We were selling stuff at reduced prices already and there are others out there who are selling that same thing at below invoice. That makes it tough.”

At one time employing 48 people, Dewalt’s still has 11 working in the dealership’s parts and service department. “The service department is doing well,” Dewalt reported. ”We are booked out for three weeks.”

Efforts to sell the dealership had not been successful. ”I had hoped to find an RV dealer who would buy the property,” he said. ”That would have saved some of my people’s jobs.”

Dewalt has resigned his position on the board of the Pennsylvania Recreation Vehicle and Camping Association (PRVCA) where he also was president of the PRVCA Education Foundation.

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GE Sees Finance Arm Being Profitable in 2009

March 19, 2009 by · Comments Off on GE Sees Finance Arm Being Profitable in 2009 

General Electric Co. expects its GE Capital finance unit to be profitable in 2009, the U.S. conglomerate’s chief financial officer said on Thursday.

“We expected GE Capital to be profitable in the first quarter and we expect GE Capital to be profitable in 2009,” CFO Keith Sherin told investors in New York.

He said that the company had run extensive stress tests on GE Capital’s portfolio and found that even in its worst-case scenario GE would not see itself needing to raise capital.

GE Capital, which has businesses ranging from investing in commercial real estate to financing sales of heavy equipment made by the U.S. conglomerate, last year recorded profit of about $8.6 billion, about 33 percent of the GE total.

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