Looking for Floorplan Relief
Floorplan funding, as the industry painfully knows, is in short supply and thus its cost is rising and borrower loan terms are becoming more stringent. The few sources that continue to provide marine flooring are looking to find ways to keep loans active and funds flowing. Meanwhile, industry and lending associations are working to urge federal policymakers to both broaden and accelerate credit programs designed to assist manufacturers and small businesses, especially retailers, with flooring.
Tightness in flooring programs is not unique to boating. It extends to all that want help with product bridge loans before customers buy. As such, competition for the loans is strong from retailers of automobiles to washing machines.
During the Miami International Boat Show earlier this year, there was palpable fear that the industry’s recognized major floorplanner, GE Commercial Distribution Finance, was contemplating leaving the market. That did not happen, but to continue offering loans, GE needed to raise rates and shorten curtailments — actions with obvious unsettling results for those with floorplan programs extended by GE or others.
“To keep GE invested in the boating business, we needed to take those actions,” explains Bruce Van Wagoner, president of the Marine Group of GE Capital Solutions’ Commercial Distribution Finance division. “Borrowing costs to support floorplan loans and losses have escalated, which precipitated our increase in rates, and adjusting curtailment schedules was required to bring inventory more in line with remarketing value.”
The impact of the credit freeze was more severe because several other marine floorplan lenders were forced to exit the business.
“We heard from some of our customers that they were unable to find any alternative funding or plans with comparable rates and terms,” Van Wagoner adds. “By the way, we would be delighted to have more competition for floorplan loans to underscore what we feel have been our reasonable reactions to current economic challenges.”
Van Wagoner says he sees some benefits emerging from the floorplan predicament. “From the early signs of this down cycle, boat builders have been cautious and realistic about monitoring their field stocks and trimming production. Thus, inventories at dealers are being cleaned and will lead to more healthy levels. There is also greater willingness by the builders to support dealers in shouldering inventory costs. Over time, this should identify the manufacturers and dealers who can best serve the future boating consumer.”
But the core underlying competition is attracting investors willing to put money into financial products — including retail and wholesale marine loans — that they deem safe and profitable. That choice in today’s credit cauldron includes readily available corporate bonds that can be purchased for 70 cents on the dollar, yielding 8- to 10-percent annually and that are guaranteed by the federal government. If investors were even able to buy securities backed by pools of inventories of boats or other products at face value, yielding less and without government backing, which would they choose?
New tools and programs have become available that will assist in reaching out to lenders, including community banks, that may be in a better position than money center institutions to support local businesses.
The National Marine Bankers Association has produced a Webinar titled “Finding Funding, Building Lending Relationships,” directed primarily to marine manufacturers and retailers. It is posted on the organization’s Web site, www.marinebankers.org.
The Webinar is a course on how to approach lenders and encourage them to consider serving boating. A second posting at the NMBA site was produced by lenders, for lenders, offering an overview of the marine market, a prediction that boating will rebound and pointing to opportunity for financial institutions to participate in the next cycle of growth.
Expansion of the Term Asset-Based Securities Lending Facility, or TALF, to include floorplan loans for boats in March was another step to gain more funding. What’s needed for that to function is a system to bundle such loans into allowable securities so that they can be offered to investors. Ultimately, adjustments to TALF — including collateral quality, terms, fees, etc. — must also be urged to better accommodate the boating industry’s specific needs and to attract investors.
Maintaining or gaining the attention of lenders and investors to serve the boating market needs to remain a priority of the industry. Growing funds and sources for boat loans and marine-backed securities is critical in order to return to normal credit conditions for all who sell and buy boats.