GE CEO Jeffrey Immelt said the company has paid lower taxes over the past few years than what a company would typically pay mainly because of $32 billion in losses suffered by its GE Capital unit after the U.S. financial crisis of 2008.
He said GE’s taxes are expected to increase in 2011 as the company continues to recover and rebuild its profits, Market Watch reported.
The nation’s sixth-largest company has drawn sharp criticism after a New York Times article on how GE manages to reduce taxes — in 2010, it received a $3.2 billion benefit — often by lobbying Congress for special tax breaks.
The company has disputed many of the claims in the article and said it’s fully in compliance with U.S. law.
“Like any American, we do like our taxes low,” Immelt said.
Immelt offered a defense of his company during a speech at the Economic Club of Washington to outline how the U.S. can improve its economy and raise job growth. Earlier this year Barack Obama appointed Immelt to head the president’s Council on Jobs and Competitiveness, a somewhat controversial decision given the company’s extensive business with the federal government.
One way to achieve higher job growth, Immelt said, is to reform the domestic tax system like many other nations around the world are doing. He said the U.S. code increasingly discourages the creation of new businesses and investment.
“Our system is old, complex and uncompetitive,” said Immelt, reflecting the view of most American CEOs. He said he was willing as a chief executive to support reforms that would lower the corporate tax rate while eliminating unspecified loopholes or business tax breaks.
Immelt also said the federal government has to do a better job of getting rid of old and outdated regulations and not just pile new rules onto an already-creaky system of oversight.
Another goal of the jobs council, Immelt said, is to find ways to help small businesses grow. He said the creation of new small businesses after the 2007-2009 downturn is 23% lower than is typically the case following a recession.
Most of the ideas the council comes up with are unlikely to require any congressional legislation, he stressed. The one exception is trade. Immelt said lawmakers should act quickly to pass three pending free-trade deals with Panama, Colombia and South Korea.
“The rest of the world is signing free-trade agreements today as we speak,” he said.
In somewhat of a surprise, Immelt also declared companies are less likely to focus on countries with the lowest wages when deciding where to put a business.
Advances in technology and other factors have made it easier for companies to reduce costs wherever they go. As one example, Immelt said it only costs GE 10% more to operate a call center in the U.S. compared to India, where wages are much lower.
The company is also moving more manufacturing jobs in its appliance business back to the U.S. and plans to create 16,000 jobs at home over the next few years.
“I think the era of globalization around cheap labor is over,” he said.
What’s likely to become an even bigger factor in the future is the educational level of a nation’s workers. Like many business leaders, Immelt said the U.S. has to improve its education system, especially for math and science.
“We have more degrees in sports therapy than electric engineering,” Immelt said.
The RV Care network of dealers in Canada has grown by 12% since last year, bringing the national network to 54 full service locations.
The following dealers joined RV Care over the winter months, according to a news release:
- Horizon Lussier, Marieville, Québec.
- Moncton RV Center, Moncton, New Brunswick.
- Nor-Burd RV Sales & Service, Terrace, British Columbia.
- Roulottes MLR, Chicoutimi, Québec.
- RV World, Waasis, New Brunswick.
- Travellers Rest RV Center, Kensington, Prince Edward Island.
Every RV Care dealer is committed to ensuring that if a customer from another RV Care dealer anywhere in Canada stops in while traveling in their RV and needs help, they’ll receive the highest possible priority service in order to get them back on their way to safely complete their vacation.
“When you look at the map of where RV Care dealers are located, you can see that our strategy is developing well to have locations along all major RV routes and destinations across Canada” says Earl Manning, vice president of RV Care. “We continue to look for the right dealers in the right locations to grow the RV Care network for our traveling customers.”
As well as the added value that the national service network provides in the selling process, RV Care dealers also enjoy the benefit of strong relationships with a variety of top quality suppliers to the Canadian RV industry. This past year RV Care and GE Capital announced a new partnership program to help strengthen their dealers’ floorplan operations.
Just last month it was announced that RV Care dealers are the featured retailers across Canada for the public launch of the EFOY Fuel Cells that provide reliable off-grip power while producing no emissions and no noise.
The early retail shows are giving every indication that the RV Care dealers across Canada should be gearing up for a busy and profitable year in 2011.
For more information visit www.rvcare.ca.
National wholesale and retail lender Ally Financial Inc. made its presence known at the 48th Annual National RV Trade Show, Nov. 30-Dec. 2 in Louisville, Ky., with stand-alone booths and desks within the displays of Thor Industries Inc. with whom Ally established a “preferred lender” relationship earlier this year.
“We wanted to be in Louisville to support the industry. If you are going to be a major participant in it, there are obligations to support the industry event,” stated Tim Russi, Ally’s executive vice president for North American Operations, who was joined at the show by more than 20 associates from the Detroit-based lender.
“With the announcement that we are getting into wholesale financing — and knowing the season that we are about ready to get involved in from an RV perspective — we want to make sure the dealers have us on their minds,” said Russi.
Indeed, Ally has its sights set on becoming a major factor – a national-scale RV industry lender – along with GE Capital and Bank of America. And that’s pretty big news, considering Ally Financial extended $22.3 billion in U.S. auto consumer financing for the first nine months of 2010, making it likely the No. 1 ranked provider of new car financing in the U.S. in 2010.
“We want to be part of the upswing of this industry,” Russi, a former Bank of America executive who oversees Ally’s automotive and RV lending services in the U.S. and Canada, told RVBUSINESS.com. “Some lenders have left the market while others in it are potentially retracting, and there are not many providers in the industry. So, we think the time is right to enter the market.”
In a way, Russi points out, Ally has been in automotive financing as GMAC for a long time. Formerly the captive finance company of 90-year-old General Motors Corp., Ally became an independent financial services company in 2006 and a bank holding company in 2008, launching Ally Bank in May of 2009. Ally’s parent company changed from GMAC Inc. to Ally Financial Inc. in May, followed by the rebranding of its automotive finance business in July.
In 2009, meanwhile, President Obama named Ally Financial as preferred financial provider for Chrysler Group LLC. “We have preferred provider relationships with GM, Chrysler, Saab, Fiat, Suzuki and Thor,” said Russi. “And we’re looking to expand our relationship with other OEMS as well, which is an important concept as we diversify our book of business from what was historically almost 100% GM. As a bank, what you’d like to see is a diversified business.”
Ally Financial offers a variety of auto-financing products, indirect retail financing for new and used vehicles and RVs, auto leasing as well as wholesale financing and remarketing services.
Leading the RV industry lending team are some familiar faces, including the bulk of the former Thor Credit staff. Industry veteran Ed Arienti runs the retail sales force for the RV sector as director of recreational finance sales and teams with Rich Morrin, commercial operators leader, for RV dealer wholesale financing.
Also key is Mark Manzo, who, as vice president of alliance sales, manages OEM relationships, including that between Ally and Thor.
Ally’s RV industry entry started with an April announcement by then-GMAC Financial Services that it would provide RV consumer financing, working with Thor Industries Inc. as a preferred retail lending provider.
Then, on Nov. 23, right before the Louisville Show, Ally announced that it would diversify into wholesale financing, focusing from the outset on Thor’s dealer network.
“We benchmarked current options and needs in the industry and will offer a very competitive wholesale financing product for RV dealers,” Russi stated. “Our program is tailored to the recreation vehicle business with attractive terms and flexible credit lines that will accommodate the seasonal fluctuations in RV inventory. We view our retail and wholesale financing, along with remarketing tools, as a full-service offering for dealers.”
Qualified dealers may obtain wholesale financing from Ally Financial for all or a portion of their inventory, reported Ally, which currently extends retail financing through dealers in about 40 states and plans to expand its RV retail financing nationwide by the end of the year.
“The way we like to create a relationship is a full spectrum relationship credit offering through the dealer,” Russi emphasizes. “Everything centers around the dealer. The more we do with them, the better our value proposition is.”
So, is the Thor relationship exclusive to Thor dealers?
“We are not exclusively Thor,” said Russi, “but because of our relationship with them we obviously are going to focus on their dealer network needs first. That’s our entry point into the industry. Keep in mind that Thor dealers — and I think they number 1,200 — represent about 75% of the RV space. We think by focusing there, we are going to build relationships with the majority of the industry.”
When a Thor dealer has multiple brands and sells non-Thor brands, he noted, Ally will still provide retail or wholesale financing for the products of those other branded companies.
Is Ally in it for the long haul?
“We wouldn’t have entered it to exit it,” added Russi. “We’ve got plenty of auto business. We are not going to run out of capacity. We’d like it (the RV segment) to be substantial. We’d like to systematically grow our book.”
The fact that Ally has a dedicated RV sales staff based in Orange County, Calif., is also a testament to Ally’s commitment, adds Russi. “But we also intend to leverage our entire structure into the space,” adds Russi. “If we don’t have someone conveniently located from an RV sales perspective, we will leverage the existing sales force, which is a national sales force of about 200.”
GE Capital, Commercial Distribution Finance (CDF) today (Nov. 30) announced the launch of a new program with Spader Business Management.
Under the program, GE Capital is subsidizing a one-year subscription to Spader True, an online system that allows qualified recreational vehicle dealers in the U.S. to compare their business performance against industry benchmarks on a wide variety of financial metrics, according to a news release.
Spader True is an interactive system that provides a summary of more than 1,500 individual data points in a series of graphic displays, known as dashboards. It allows dealers to compare their performance on a wide variety of detailed metrics related to expenses, sales mix, and profit margins, by department, against industry averages.
“GE Capital wants dealers to have the best financial reporting and forecasting tools to grow their businesses,” said Pete Lannon, managing director-RV for GE Capital’s CDF business. “We are pleased to help make the new Spader True product available to dealers.”
Under the program, GE will pay 50% of the cost of a one-year subscription.
“Spader True contains live data that dealers can start using immediately,” said John Spader, president of Spader Business Management, in Sioux Falls, S.D. “Spader True provides a true measure of businesses performance to show where they are now, where they’re headed and where they need to be for a healthy organization. It was designed to be used by dealers and their management team so that, with one quick look, they can discover what’s working and what needs improvement.”
Dealers can learn more about the system by visiting the GE Capital booth (North Wing Lobby #24E) or the Spader booth (#94 or #308) Nov. 30-Dec. 2 at the 48th Annual National RV Trade show in Louisville, Ky.
About Spader Business Management
Spader Business Management offers a full range of programs, tools and applications to help revitalize businesses, restore optimism and create clarity and confidence for success. John Spader founded the company more than 30 years ago.
About GE Capital, Commercial Distribution Finance
GE Capital, Commercial Distribution Finance is a leading financing provider to manufacturers and their distributors. Programs include inventory financing, asset-based lending, private label financing, collateral management, e-commerce services and related financial products. Additional information can be found online at www.gecdf.com, or by following company news via Twitter (@GEInventoryFin).
About GE Capital
GE Capital offers consumers and businesses around the globe an array of financial products and services. For more information, visit www.gecapital.com or follow company news via Twitter (@GECapital).
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.
RVBUSINESS.com: 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.
RVBUSINESS.com: 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.
RVBUSINESS.com: 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.
RVBUSINESS.com: 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.
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.