More Bad News On Boat Dealer Financing

One of the major problems in our industry right now is dealers getting financing to pay for the boats they carry in inventory until they get sold. For quite a while Textron and GE were the companies that provided most of this financing. However, Textron just got out of the business, leaving GE as the only major player. Now it looks like GE is tightening up the credit they offer and making things even more difficult for boat dealers. It's pretty scary because, from what I can tell, they're pretty much the only choice out there and if you don't play by their rules (even if they change them mid-game, as it appears they're doing right now), you're kind of screwed.

http://www.tradeonlytoday.com/index.php/home/497051-ge-increases-rates-on-dealers.html

The letter was dated Feb 25th, what did it arrive by Pony Express? Talk about a monopoly on the industry...not good

I am in the financing business (albeit commercial real estate). We have done a fair amount of business with GE Capital. GE as a whole has made about half its income from the financing unit, GE Capital. They want to pare this down to 25-33% due to pressure from stockholders to avoid risk industries (a whole other debate on an over-simplified view by Wall St). GE, and others similarly, reducing their financing business is what is causing a lot of pain & difficulty in the market right now. Like the real estate industry, boat dealers and boat manufacturers are in for a whole lotta hurt for a while.

The following is abstracted from a 2002 New York Times article by Constance L. Hays, “Business; A Bet on Credit Cards Becomes Messy at Sears,” published November 10, 2002 (accessed at nytimes.com on Aug. 13, 2008):--

About 60 million Americans hold Sears credit cards [circa 2002], and credit provides 60 percent of the company's profits -- far more than at any other retailer. To Wall Street, in fact, the credit business often overshadows what happens inside the stores.
* * *
‘We think Sears has lost its retail identity, leaving it ill equipped to win much market share,’ Rozilyn Bryant, an analyst at Morningstar Inc. in Chicago, wrote in a note to investors late last month. ‘Given a flawed retail strategy and a credit portfolio that's beginning to resemble Pandora's box, we'd avoid the shares unless they fell to $10 to $12.’
* * *
Sears has become the world's No. 2 MasterCard issuer, according to the Nilson Report. ‘The Sears credit unit has delivered profits that any credit card issuer would be delighted to have as their own,’ said David Robertson, the publisher of the report. ‘Over the last few years, analysts have come to view Sears as a credit card company that has a retail arm. It hasn't led the market on the retail side in a long, long time.’

JB,

A very prophetic point.

While these may be smart moves for various companies reducing their lending businesses, the lending market as a whole is contracting significantly and while not altogether halted, it's close. This over correction (in my viewpoint) is causing HUGE problems in virtually every corner of the economy. Anything that requires finance right now (autos, homes, commercial RE, equipment, large consumer purchases, etc.) is seeing drastic decreases in volume. The auto industry is down to about 40% of it's typical unit volume. Drop any company's sales by such an amount and you will see them take drastic steps to stay alive.

Such as we are seeing in the pleasure boat industry right now (bankruptcy or not).