Glendale International Corp. reported today (Sept. 2) that it has renewed its financing program with GE Commercial Distribution Finance.
This partnership enables Glendale dealers to continue to wholesale finance Glendale products, the compnay stated in a news release.
“Wholesale financing has changed industrywide,” said Terry Mullan, president of the RV operations for the Oakville, Ontario-based manufacturer. “The manufacturer now shares responsibility with the finance companies and dealers to ensure product turns and minimize aged inventory.”
The revamped 2010 Titanium model lineup includes new floorplans, décors and new construction material. Floors are now made of the advanced CosmoLite material which reduces weight significantly. The 2010 models also feature redesigned front and rear molded fiberglass caps with LED lighting.
Retail sales of the Titanium product line have been strong over the past 45 days. With dealer and factory inventories at an all-time low, Glendale is well positioned to take advantage of an improvement in the market, the company stated.
Glendale International Corp.’s RV business is comprised of two operating divisions: Glendale Recreational Vehicles located in Strathroy, Ontario, and Travelaire Canada located in Red Deer, Alberta. Glendale RV manufactures a broad range of RVs for both the U.S. and Canadian markets and Travelaire manufactures park model trailers and relocatable structures for the Western Canadian market place.
Is there a change afoot in the RV finance arena that perhaps reflects an overall prospect for improvement in the U.S. economy and the recreational vehicle marketplace?
That’s hard to say. Based solely on the fact that Bank of America Dealer Financial Services and GE Commercial Distribution Finance — the two big dogs in RV finance — are talking to the press lately after months of silence during the depths of the recession, it’s certainly beginning to look that way.
Ellsworth “Ellie” Clarke, president of B of A’s Dealer Financial Services, last week provided an overview of B of A’s programs and the RV market in an interview with Jeff Kurowski, director of industry relations for the Recreation Vehicle Dealers Association (RVDA), that was posted on RVBUSINESS.com. And only yesterday (July 1), GE Commercial Distribution Finance’s Pete K. Lannon, managing director and president of GE Capital’s Motorsports and RV Group, addressed modifications to GE curtailment policies in a wide-ranging interview with RV Business.
Lannon also fielded questions on an array of other related topics, the crux of which is as follows:
What can you tell us about finance rates in general? We’re told that they spiked for GE in March across the board – including both the RV and marine sectors. Do you anticipate any sort of an easing of interest rates?
There are a lot of factors that go into interest rates. Part of it is the macro-economic environment, the general cost of funds and what it takes to raise funds in the marketplace. Another component is our cost of operations, and then there’s a risk component. So, we’re attuned to all of these items, and we would make rate adjustments in accordance with what they are telling us.
The Small Business Administration is beginning to provide floorplan financing for RV retailers. Has this played into any of GE’s decision, announced yesterday, to moderate its curtailment interest rates?
I think it’s a little early to see exactly how it (SBA financing) is going to be implemented. The SBA is still concluding its regulations, formulations, etc. I think any additional (financing) capacity in the industry for dealers certainly is welcome, particularly for dealers that are challenged. We just need to see what the final formulation is from the SBA. It’s still somewhat uncertain.
We’re told that GE occupies about a 25-35% share of the RV marketplace’s wholesale financing. Is GE looking to increase that share?
We have a significant share. I’m not going to speculate as to the exact amount, but we know we’re a significant player in the industry. We look to increase business that makes sense, that’s profitable for both us and for our dealers. Whether that leads to market share or not … we’re still dealing with an industry that’s been heavily impacted, and I think most of us are thinking more about just getting to the right size versus getting into a market share ‘game’ at the moment.
‘Right size’ could be applied to the RV industry as a whole. Do you feel that there may in fact still be too many dealers, as some have argued, for a downsize market?
I don’t know about too many dealers… What we’ve got is a situation (where) there’s still an imbalance of inventory in the field to the sell-through at retail. I don’t speculate whether it’s too many dealers. I do know that there’s too many units available right now. It’s depressing the sales prices of the inventory dealers are holding, and there just aren’t enough customers willing or able to make the purchase at the dealer level. We need a better balance for the industry to get healthy again.
So, GE’s decision to eliminate the interest hike isn’t necessarily a reflection of the company’s more confident outlook on the state of the industry?
We do have a fairly confident outlook. Let’s put it this way: we’re ‘cautiously optimistic.’ At this point, I don’t know if we’ve found the bottom quite yet, but if we haven’t, we’re awfully close. We’re seeing some positive indications in our RV business with the way inventory levels have come down, and dealer performance metrics are improving. They’re not healthy yet – we’re not prepared to make that statement – but we’ve seen a couple of months of upward trends in some important performance metrics that indicate that we think we are near, or have found, the bottom.
If you want to take a step up and look across the entire economy, Jeff Immelt, GE’s chairman and CEO, was quoted in London today (June 30) on behalf of GE with an outlook that said, “things seem to be brightening.” Again, I don’t think anyone’s prepared to say that things are where they should be or that they are absolutely healthy, but I think overall in a lot of areas besides the RV industry we are seeing signs of improvement on a lot of different fronts.
Another leading finance provider is telling the industry right now that they are in it “for the long haul.” Is GE?
We are going to continue to invest in and support this industry. We’ve been a very long-term player in this industry. When you think about the predecessor companies that were acquired by GE, we go back in the RV industry at least to the late ’70s, and our intention is to make sure that we are here through this cycle and back when the industry is healthy again. We want to be a participant in that.
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.”