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 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.
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.
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 RVBUSINESS.com, 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.
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, 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 RVBUSINESS.com:
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.
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.”
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.
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.
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.”
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.”
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.”
In 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.”