LOUISVILLE, Ky. -- Throughout this recession, recreational vehicle manufacturers and dealers have continually condemned lenders for turning off the financing spigot. The industry has said the lending rules have become too stringent, arbitrary and have crippled RV sales.
Even so at the 47th annual National RV Trade Show, GE Capital, the financing division of General Electric Corp., is not hiding. It has a booth in the middle of the manufacturers' displays and company representatives were keeping a hectic pace Tuesday, meeting with industry clients.
Two leaders from GE Capital -- Peter Lannon, president of motorsports and recreational vehicle group, and Bob Parish, vice president of manufacturer relations, recreational vehicle division -- took time before the show opened and sat down with The Elkhart Truth to discuss the lender's role in the RV market and changes that are occurring.
Q: Considering the number of financial institutions that have dropped out of the market, why has GE Capital continued to offer floorplan financing?
PL: First of all, we believe that there is a strong business case here, given our position in the industry. We had to come out early, make some changes. We were successful in implementing those changes.
Q: What kinds of changes?
PL: Again, due to competition, the whole industry got lax with collecting curtailments or forcing dealers to actually put money into the units aside from just paying the monthly interest bill. The consequence was what we saw a year ago which was a tremendous ballooning of aged inventory. When the retail sector started to slow down in 2007, dealers kept buying because of terms being offered by the manufacturer, because they only had to pay interest for a while and they thought, not unrealistically, there was a turnaround a couple months away and they didn't want to be caught short without product.
Everybody's approach is different but the institutions that I'm aware of that are staying in this business have all come up with new, more rigorous curtailment programs. We each do it differently but we're all getting dealers used to the idea that somewhere around that 6 to 9 months period, you've got to start putting some money against the principle and start amortizing out these units. So therefore the focus has got to be on turning those units, not just letting them just age on the lot.
Q: Could anything that happen within GE or its financing arm that would change GE's relationship to the RV?
PL: We've gone through a difficult period here. We certainly questioned hard about why is this a good business for GE to be in. We've met those tests and we're here. Now, is anything forever, I'd have to answer no. We have to prove our results every day, every month, every quarter, every year. We've shown we've got the discipline, we've got the team and we have the returns that make this a worthwhile place for GE to continue to invest its capital.
Right now, we're being told to grow. We've signed up, I'm going to say, probably 30 to 35 new dealerships since September 1st, roughly. Tens of millions of dollars of new credit lines put into place. We've put increases in place for existing dealers. We're not only open for business; we're here to grow but in a responsible fashion. Not just growth for growth's sake but disciplined, well-thought out, well-planned growth.
Q: Through this downturn, dealers and manufacturers say demand is there but the banks are not lending. Do you think financial institutions are being blamed unfairly for industry's woes?
PL: I don't think anything's unfair. I think what is there might be is a little too much emphasis and it's probably a little too much emphasis on the floorplans. Manufacturers, they get paid when the unit is shipped off their lots at their factory. What more of them need to do is keep a line of sight for when it moves off the dealer's lot because that's the ultimate sale. Really if you think about it, the dealer is really nothing more than an extension of the manufacturer; selling to the dealer doesn't put it in the consumer's hands. The real focus in this industry probably has to change slightly from shipping from the factory to the dealer but really to the consumer. I think the better manufacturers over the last year and a half have gotten that, have gotten more focused on what do we need to do to help our dealers get the units to our customers. I think that's been a mindshift that probably wasn't in the forefront before this crisis.
Q: What is the credit market like currently?
PL: Things are thawing a little bit. Now, on the consumer side, things are not going to be the way they were. A lot of dealers who are bemoaning the credit crunch, what they're telling you, you hear these stories, "I've got an 820 FICO score customer I can't get financed." Wrong. Frankly, what is happening they're not getting financed at 130 percent of invoice with another $25,000 in negative equity being rolled forward.
Even if you've got a great credit score, those types of deal structures which were common two years ago aren't happening anymore. They're not sound because if you do take a loss on one of those, even though it's typically smaller on the probability of taking that loss when it does happen, your loss is quite large and regulators don't like to see that.
Q: So deals are not a sweet as they were in the past?
PL: Right, they are more structured. So they have more down payment and less room to tuck other things into the deal.
Q: Other things like what?
PL: Like negative equity from your trade-in.
BP: Add on service, extra accessories, things of that nature that dealers used to be able to pack in to a loan. They would be able to finance the balance of the coach but also the accessory sales, warranty, service agreement sales.
PL: Tire guard, towing packages.
BP: Loss of employment insurance.
PL: All of these are valuable services but you have to keep them in perspective when you repossess those things don't bring value because they're with the owner, they don't necessarily go with the coach. Those things don't really translate to recoverable debt.
Q: Some manufacturers are now offering financing. How does that change the market?
PL: This is part of that whole mindset change where manufacturers are partnering with their dealers to come up with a strategy that actually focuses on getting a unit into retail customers' hands instead of just park on a dealer's lot. Manufacturers can't exist without dealers. Their whole model is not set up to do direct sales to customers. They need their dealers. But what they typically need is they need stronger, better dealers who can then better represent the manufacturer's brand.
Q: What will GE Capital be doing this during the RV show?
PL: We're going to be writing orders. We think there's a pent-up demand, we think we're going to be getting applications, again, from more new dealers. I think it's going to be a markedly different show than what we saw a year ago.
Q: Why different?
BP: Last year, dealers were looking for discounts. This year they're looking for inventory. They're focused back on product and product mix.
Q: How do you see this recovery?
PL: I don't see a rapid recovery. I see a slow, steady recovery. I think we would all be foolish if we tried to immediately jump back to 2006-2007 because then we would ensure ourselves of a (double-dip recession). There isn't going to be enough retail activity to do that and I will tell you, based on the way we've retooled our business, dealers have got to start paying for inventory. They can't afford to pile it on and let it sit around to 6, 12, 18, 24, 36 months which is what happened before.