Inside GE, Part One
Boating Industry: While the marine industry has certainly followed your actions closely over the past year, it hasn’t had a window inside GE’s marine business as your company has encountered and responded to this downturn. Can you tell us the story of the impact GE Commercial Distribution Finance’s marine business has felt from this downturn?
Bruce Van Wagoner: We have certainly taken our lumps along with everyone else. As you know, we provide financing and funding for both manufacturers and dealers. When we saw the slowdown coming late last year, we took a number of steps to ensure our viability in this space so that we’d be there for customers over the long-term. We restructured our business to significantly reduce our expenses in line with the losses we were seeing in the industry. Our employees are doing extraordinary work to help our customers and us navigate through this time. Many of our existing agreements have had to be re-worked. While I can’t give specifics, I can say that we have taken losses in terms of write-downs and write-offs.
We also have been forced to come up with new ways to help the industry move product through the pipeline. We have focused on helping our customers manage through the downturn, and will continue to educate them on the importance of diligent inventory management and of aligning secondary sources of liquidity through all cycles. It has forced all of us to look at the business differently. But we believe in the industry, which is why we decided to see the downturn through and be there for the marine business as the economy begins to rebound.
Boating Industry: How have events like Textron’s exit, Crownline’s shut-down and Genmar’s bankruptcy affected GE’s business?
Bruce Van Wagoner: I think these are all prime examples of how difficult the situation is. Like other parts of the economy, the marine industry is going through a fundamental restructuring.
While we have seen some new business generated from the exit of competitors, we think that as the economy improves, more competition will enter the industry. In the mean time, we will continue to work hard to do business where it makes good business sense.
Boating Industry: Earlier this year, GE came out with new rates, a new, stricter curtailment payment schedule, and what seemed to be a warning that a number of non-performing dealers might be cut off from financing options. In many people’s eyes, GE became the bad guy amidst this economic mess. Explain this from your vantage point.
Bruce Van Wagoner: Due to the unprecedented changes in the economy, it was necessary for us to take measures to ensure we could continue to service the marine industry. That included raising our rates to reflect our escalating cost of funds and our higher levels of losses resulting from delinquencies and business failures of manufacturers and dealers. Our approach and routines for non-performing customers have not changed through this cycle. Our business is based on being paid under the terms we mutually agree to with our customers.
With respect to curtailments, commercial finance companies serving the marine industry have always had the right to adjust curtailment policies. In today’s economy the amount of aged inventory has risen significantly, putting great downward pressure on the value of that product, which in turn has led us to revise our curtailment policies.
In our talks with dealers, most of them agree that paying down on aged inventory ensures a proper valuation as the item depreciates. This helps to keep credit moving through the system and encourages dealers to move older inventory before taking on new inventory.
We made some tough decisions that were necessary during the restructuring period to make sure that we could remain here short- and long-term. We have found many in the industry who support us and the position we have taken, because while other loan companies decided to leave the industry, we decided to remain.
Boating Industry: How has GE CDF’s health evolved in response to these actions? And how do you expect its health to change going forward?
Bruce Van Wagoner: Our employees have been working very hard to keep us on target. We believe our actions are moving our business in the right direction, and we remain cautious but encouraged. It is our intention to continue to monitor and assess our progress as the market searches for equilibrium.
Going forward, GE Capital overall intends to be a smaller business component of GE Company. This will translate to our division as well, as the marine market’s size after the economy rebounds will likely be smaller than it was before the downturn began. We, too, will be leaner and more efficient in the way we do our business.
Boating Industry: Rumors this winter were that CDF’s parent had given the company one year to turn its marine business around or it will be forced to get out of the business altogether. Some rumors today still suggest that GE may be exiting the marine business. Are these merely rumors or is there any validity to them?
Bruce Van Wagoner: That is simply speculation, nothing more. What we did do earlier this year, across all GE Capital, was to evaluate the health of all the industries we were in. We found that in the marine industry, there were a lot of great manufacturers, dealers and products.
However, similar to the RV industry (which we also fund), there’s slowing demand for many of the ‘large-ticket’ items. For that reason, we re-evaluated our programs and procedures surrounding the different product segments we finance in the industry, as well as re-emphasized our curtailment collection and risk requirements. We also began interacting more closely with our manufacturer customers, to ensure we are all communicating better together.
We are a leader in dealer and inventory finance. Our company has provided us with the capital and resources to maintain this position, and it is our clear intent to remain a leader in the marine business.
Boating Industry: Are there conditions under which GE would consider exiting the boating industry altogether?
Bruce Van Wagoner: I think overall, as long as there is a market for us to offer funds to the industry to help move inventory through the system in a way that is efficient for everyone, we will remain.
Boating Industry: What, ultimately, will determine the future of CDF’s marine industry involvement – and the future of commercial lending in the marine industry in general?
Bruce Van Wagoner: The four biggest things that will affect the marine industry are customer behavior, consumer demand, the availability and cost of funds, and government regulation. When we emerge from the current reset, we hope to see strong manufacturers and dealers, an increasing consumer demand, improving capital liquidity and smart financial regulations. That will ultimately serve the marine industry well.
Boating Industry: How does GE see its rates and curtailment payment schedule evolving over the next year?
Bruce Van Wagoner: This is tied to the level of risk in our business, the health of the marine industry and the economy overall. Our rates and schedules are designed around those elements. We don’t plan to increase our rates for the time being, and we could see a reduction as the economy improves, but that is not something we can forecast at this time.
If you would like to read the second installment of this report, click here.
If you would like to read the third installment of this report, click here.
If you would like to read the fourth installment of this report, click here.
