Inside GE, Part Four

Boating Industry: Bruce, you’ve spent most of your 30-plus-year career in marine financing. Can you describe for us how this downturn – and the industry’s response to it – has compared to other ups and downs in the market? And what unexpected lessons it has taught you?
Bruce Van Wagoner: It has certainly been the biggest in terms of the way it has impacted the industry. I don’t think there’s anyone who hasn’t been affected. And I think given the size of the downturn, the recovery will be slow, and we will see an industry that is smaller than it was in the past. I anticipate dealers and manufacturers will be more focused on inventory turns.
The most significant difference I have seen is the way manufacturers have responded. Through this cycle, most manufacturers have acted very responsibly by cutting back or eliminating production and postponing the 2010 model year launch, enabling dealers to sell through their current inventory. This type of support and response tells me we have all learned a lot as a result of this recession.
I think that you learn the most from the most difficult times. At GE Capital, we’ve certainly been presented with challenges we hadn’t seen before and I think we have reacted well. This recession has also reinforced the fact that it’s really the liquidity of the market – the flow of capital from consumer to dealer to manufacturer and back – that is of the greatest importance. All three levels need to have adequate liquidity for a healthy industry.
Boating Industry: You have a unique window into the financial health of your customers’ businesses. Can you share with us the best practices you’ve observed as marine dealers and manufacturers attempt to adjust to today’s conditions? And what are the most important things that set the highest performing boat builders and dealers apart from the others in this economic climate?
Bruce Van Wagoner: I mentioned this earlier, but it bears repeating – the most successful dealers have been those that had backup sources of liquidity ready to help with cash flow through this cycle, and those that paid close attention to inventory levels and started to reduce them in line with waning demand. I think slimming down has worked in terms of the number of brands a dealer carries or the number of dealers a manufacturer works with. It gets back to planning and management – businesses in general must understand the importance of scenario planning for their businesses and always be thinking about the steps they would take if faced with extraordinary factors, such as a fall-off in revenue or a dramatic increase in demand.
Other best practices we have seen have been where there is a willingness on the part of dealers and manufacturers to communicate and work together. It makes things much better when there is an understanding of each other’s challenges and an interest in finding a way to mutually solve the problem. It comes down to the people, ultimately, and how you work together in tough times as well as in good ones.
Boating Industry: This industry certainly functions best when its members are working together toward mutual success. We’ve seen a few great examples of this in how boat builders and dealers are working together to get through this downturn. How would you describe the current state of boat builder/dealer relations?
Bruce Van Wagoner: I think you hit the nail on the head here, and I think these best examples are the ones who are going to survive. Manufacturers that have helped dealers clean up aged and excess inventories should maintain good distribution networks. Loyalty will hopefully pay dividends. And I think many of the folks who have been in business for a long time have built relationships not only with their manufacturer and dealer partners, but with us as well.
Boating Industry: How will and/or should the boat builder/dealer relationship change as a result of this downturn? For example, many builders and dealers have speculated that the amount of inventory a dealer holds and the party financially responsible for such inventory will likely change going forward. What do you think? How wills the size of dealer networks change? The average number of boat brands held by a dealership? Dealer agreements? Etc.
Bruce Van Wagoner: I think we may see some long-term changes on how many of the larger vessels are built and sold. This segment of the industry has been the hardest hit by this downturn and dealers with disproportionate levels of this product in their inventory are suffering the most as the product ages.
Ultimately, I could see manufacturers cutting back on stocking requirements on the larger products and sharing more product among multiple dealers, as well as taking more responsibility for managing field inventory. I also think that total inventory on dealer lots will be reduced, and as we’ve said before, this will drive the business overall to be smaller long-term.
Boating Industry: What advice do you have for dealers and manufacturers competing in today’s market?
Bruce Van Wagoner: Short-term, I think we all need to work together to get through this downturn and to smartly balance our inventory levels so that all three parties, dealers, manufacturers and finance company alike, can get to the other side in a position to take advantage of the upswing. We all need to move aged inventory through the channel so that new product can be produced. We all need to manage our inventory effectively and our cash flow carefully to ensure we can take advantage of opportunities and continue to honor our obligations.
Longer term, I think we need to remember the lessons we learned here – the economy will be cyclical and we can’t get too far ahead on the ups so we don’t go too far behind on the downturns.
Boating Industry: Dan Coughlin was a speaker at a Sail America event last summer, and he spoke about a 1, 3, 6 exercise that seems to have made an impact on many of the executives in attendance. The exercise involves asking yourself: What is the one most important business outcome you want to improve in the next six months? What three things can you do that would have the greatest positive impact on improving that outcome? What six things do you need to stop doing so you have the time and the energy to do the three things you know would have the greatest positive impact on improving your most important desired business outcome? If you had to complete this exercise for the industry as a whole based on your observations in your current position – or perhaps separately for the dealer and boat builder segments of the industry – what would your answers be?
Bruce Van Wagoner: I like this type of exercise, but I think that the details may be different for different dealers or manufacturers. What is most important is what’s behind what Dan brought up – the need to have a definite business plan, executing on it, and reviewing it continuously to make sure it’s valid. That plan must be realistic to today’s environment, as we have activity levels at less than half of what they used to be.
I think that the single most important thing anyone in this business can do is to develop a plan – a written plan – that guides business decisions. Some may prefer to just go “from the gut” or have their plan in their head, but that’s not the same thing. Having a written plan helps distill what your goals are and how you are going to reach them. It shows what is important to your business, it identifies what you (and your entire workforce) should be focusing on, and it removes much of the ambiguity or emotion in decision-making.
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 third installment of this report, click here.