Inside GE, Part Three

Boating Industry: We have heard that GE has been playing an important role in negotiations related to the purchase of troubled boat builders, such as those between Godfrey/Rinker and Crownline, and may actually impact the outcome. Can you explain how you’re involved in the potential sale of boat builder assets?
Bruce Van Wagoner: We are a financing company, plain and simple. Our business helps companies that build or sell marine products so they can keep their operations flowing smoothly. In some cases, companies will acquire assets from other businesses and look for financing from us as well as other lenders to facilitate the transaction. Within GE Capital, we have financial products that can help complete these purchases.
Like any business transaction, discussions surrounding our evaluations of risk and repayment terms are to be expected. Also, like any other type of loan, the ultimate loan structure for this type of acquisition needs to work for all parties involved to be successful.

Boating Industry: How is GE involved in the Genmar bankruptcy or how has it been involved? What repercussions does the case’s outcome have for your company’s marine business…as well as the industry at large?
Bruce Van Wagoner: We provided Debtor-in-Possession (DIP) financing to Genmar after they filed for Chapter 11 bankruptcy protection. We have been working with Genmar in this capacity to help them manage through their bankruptcy.
Genmar has many dealers who carry their brands, which are strong and familiar names in the industry. I think it remains to be seen what the ultimate structure of Genmar will be post bankruptcy, and until we do, it is unclear as to what the industry repercussions are.

Boating Industry: Given the significant impact that your actions can have and have had on dealers’ and boat builders’ ability to afford to stay in business, it might be said that GE is shaping or will shape the future of the marine industry, whether that’s your intention or not. What do you think of that conclusion?
Bruce Van Wagoner: The actions we have taken to stay viable in this business are a direct result of our decision to remain in the marine space while others exited. We think marine is a great industry with great people who truly love what they do, and we’re all experiencing tough times right now. It is our intention to be there for the builders and dealers now and in the future.
But I think it’s also important to acknowledge that it’s up to each business, whether you’re a builder or dealer, to find the appropriate capital structure, service offerings and business plan that will best position your business for success. We certainly don’t shape that. We take pride in our support of this industry, and we certainly believe that we can be a positive influence in providing that support.
It will be the combined efforts of everyone to help shape the marine industry’s health and future. Boat manufacturers have a big impact through innovation and new programs to entice consumers. Dealers and associations can help in much the same way.

Boating Industry: Is the number of GE CDF’s marine dealers served growing, or do you expect it to grow going forward, because of the exit of CDF’s competition? Or has the result been that there are simply a large number of dealers without a source of floor plan financing?
We have seen some business increases due to other floorplan lenders exiting the marine business, but we have seen a continual reduction in the number of customers we finance since 2007. As the overall industry contracts to meet a lower level of product demand, so will the overall number of dealers and manufacturers. We expect to grow in the market where it makes good business sense, but a smaller overall market size would suggest fewer dealers and manufacturers for the foreseeable future.

Boating Industry: In the summer of 2007, GE reported that it increased 1,400 marine dealers’ credit lines on average by 25 percent for a total of more than $500 million, representing the largest mass increase in CDF history. Knowing what you know now about how economic conditions have evolved, if you had it to do over, would you go forward with that same increase again? Why or why not?
Bruce Van Wagoner: We certainly wish we had less exposure today than we do, so I guess the simple answer is “no.” We did increase our credit facilities in 2007 to meet the needs of our valued customers. At the time, this was an appropriate response to the overall market demand and was done in accordance with our rigorous underwriting standards.
That being said, while our amount of overall financing volume today is less than a year ago, we haven’t stopped lending.

Boating Industry: How would you gauge the current make-up (quality and quantity) and health of the North American boat dealer body?
Bruce Van Wagoner: I think as we are in the middle of this global economic reset, we’re also in the middle of a reset of the dealer side of the industry. During difficult times, it’s always toughest on the businesses that have the highest level of risk, defined by low margins and limited fallback positions from a liquidity perspective.
In this cycle, we’ve seen some of the larger, most well-established businesses struggle to survive. Even some businesses with reasonable levels of liquidity that failed to cut back expenses fast enough have had a tough go of it. Overall I would characterize the health of the general dealer base as weak, but recovering. We have definitely seen a reduction in the quantity of dealers. But as with any adversity, the ones that survive will ultimately be stronger, well-run businesses set up to take advantage of what we all hope will be a healthy future.
If you would like to read the first installment of this report, click here.
If you would like to read the second installment of this report, click here.
If you would like to read the fourth installment of this report, click here.

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