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.
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.”