Dealers add more boats, seek larger lines of credit from floorplan financing

As the economy and the marine industry have improved over the past few years, the floorplan financing market has followed suit. Banks are lending more as dealers are looking to stock more boats to meet consumer demand, which is causing dealers to experience high turn rates. 

“Growth in the marine industry has been great the past few years and inventory turn is the strongest I’ve ever seen,” said Russell Baqir, senior vice president of business development at Northpoint Commercial Finance. “We see lower age inventory and a better-turning portfolio.”

Higher-turning products in the market are being stocked heavier in the fall and winter and flowing through the sales channel more quickly, and low-turn, high-margin product is being stocked at a “healthy level,” said Baqir. This provides a cost savings to the dealer and increases their cash flow. 

Last summer dealers spoke of experiencing rapid inventory turn, to the point where manufacturers couldn’t send new inventory fast enough. At the boat shows in the fall/winter, many dealers were displaying sold units. 

“I have never seen a season like we did last year. Our portfolio liquidated in marine in double digits in November and December. I’ve never in my career … seen a consistent liquidation go all the way through the fall. Basically, what it created was an atmosphere where the dealers were going to shows and they didn’t have stock,” said Baqir. “And so the manufacturers are having to heat up and drive as fast as they could all the way through fall and winter. The dealer profits we should be seeing from 2016, I would be shocked if it’s not at levels we’ve never seen before.”

The natural step when inventory turns are high is for dealers to apply for larger lines of credit in floorplan financing, which is exactly what companies are seeing.

Wells Fargo Commercial Distribution Finance says it has seen its dealer gross revenues grow substantially since the recession, which necessitates larger credit lines. Underwriting those transactions has become more complex and managing large or multi-location entities more demanding.

“The trend toward bigger boats and bigger facilities has meant that we needed to respond with larger credit lines,” said Bruce Van Wagoner, president of the Wells Fargo CDF Marine Group. “We are responding but we are in a period of unprecedented growth and keeping up is a challenge we face every day. … CDF is a proven leader in this regard and has seen our customers succeed in this rapidly expanding market.”

Baqir says his OEM customers are increasing production in order to fulfill their dealer’s floorplan needs. However, he sees a period of saturation coming in the industry’s future – even if it doesn’t happen this year or next. There will be a shallowing in growth and consumers will pull back on buying new products. 

“Unfortunately, our industry is driven by everyone ordering and buying their product in the summer at the dealer meetings, but they’re selling it in the spring or the following summer. There’s a window of time where things can happen,” he said. “All of a sudden [the consumer] doesn’t feel as wealthy where [they] can’t go out and buy a boat, so you have that backing off, and that’s what creates the aged inventory the following season, and that’s what creates the gulf we have on the cash flow.”

Trends in the industry would suggest it would be easier for dealers to obtain floorplan financing than immediately after the recession, which is half true. 

After the recession, it was harder for small businesses to get credit lines, as lending standards tightened and many businesses became less credit-worthy as their cash flows declined and their real estate collateral lost value, according to LH-Finance. However, this has eased in recent years. 

“Because their sales have increased and dealers are more profitable, it’s easier for them to get financing today than right after the recession,” said Herve Bonnet, president and CEO of LH-Finance. “As the market continues to improve and grow, increase in demand will boost their profits, which in turn could support bigger credit lines.”

Northpoint sees the ability to make a conscious decision on risk in cases of floorplan financing for OEMs and dealers because the economy supports a higher-risk scenario.

“Because the economy is strong and we’re seeing cash flow and balance sheets move in a positive direction,” he said, “the dealer’s financial status is warranting increased credit lines or somebody entering the market space has the ability to garner or gain a positive cash flow position quicker because of [the economy], which gives us the ability to allow them financing.”

While the industry is growing and financing is available, there are many factors to consider to be sure dealers, manufacturers and lenders continue to make smart decisions about floorplan financing. 

“To keep it healthy, there needs to be a balance between risk and reward,” said Van Wagoner. “That’s where CDF’s experience in underwriting and servicing play such a critical role. Knowing the regional markets and the trends is also a factor. Our Commercial Team works directly with the OEMs and new dealers to make sure their respective needs, in that market, are met.”

Smarter since the recession

Lenders remain cognizant that a recession is ultimately in our future, but the industry is confident lessons from the last recession have positioned dealers, manufacturers and lenders to meet the challenge and thrive through it.

“We’re still making decisions knowing that there is going to be a downturn. It’s not a matter of if, it’s a matter of when,” said Baqir. “We’ve all been around long enough that we know that 18 months, two years, somewhere out there we will have a market where it won’t be a crash but it will be a shallowing, and what will happen is you’ll have aged inventory go up and then you’ll have dealers that have understood and understand how to manage their inventory and cash flow to survive that period of time.”

While challenges exist for floorplan financing lenders, underwriting and credit line approval has improved since pre-recession days.

“There are multiple variations that can be developed to assist dealers during slow selling periods or to promote new product introductions by the OEMs,” said Van Wagoner. “Inventory financing is the key to being able to stock the right mix of inventory and not have to wait for it to be produced and shipped. In this consumer-driven environment, being able to meet a consumer’s desires immediately is critical.”

Much thanks is owed to improved online applications and dealer management systems from lenders. CDF offers its online dealer management system, COMS, to simplify the dealer experience. CDFconnect also offers additional tools and resources dealers can access to answer questions and provide training for complex business scenarios. 

“Inventory financing has evolved from the standpoint that we have become smarter at what we do. Sure the industry has grown and so has CDF but we have done it responsibly so as not to experience some of the pain of the past,” said Van Wagoner. “We have to be able to react at ‘market speed’ to the needs of the dealer and the manufacturer and we are doing that with our dedicated team of professionals to meet and discuss the markets the products and the outlooks as they happen.”

LH-Finance offers a web-based floorplan management system that gives dealers access to lines of credit, online bill payment and advanced reporting tools.

“With this tool, we now have even more time to focus on providing dealers with exceptional customer service,” said Bonnet.

Increased competition

While the number of players in marine floorplan financing is significantly reduced compared to before the recession, competition remains high in the category among its players.  

Northpoint believes its competitive advantage is their ability to make quick credit decisions and focus on the customer’s needs, and thus the company has more flexibility to meet the needs of the OEMs and dealers.  

“Our decision makers reside within the business. Dealers [and] manufacturers have direct contact with the people that actually make decisions in our company,” said Baqir. “Northpoint continues to experience significant growth, and recently added additional salespeople and continues to sign more manufacturers.”

Conversely, CDF says its acquisition by Wells Fargo has allowed the financer to offer more products to customers aimed at making their businesses more efficient and profitable. New products include treasury management services, real estate financing, investment services, insurance services and equipment financing

“It’s amazing that we have been part of Wells Fargo for over a year now. The products we offered pre-sale and post-sale were very well established and have not changed,” said Van Wagoner. “What has changed is the access to multiple traditional banking products not available previously. Introduction of these products is being rolled out thoughtfully, so our customers are not overwhelmed by the sheer volume of finance and banking options.”

As the marine industry recovers and grows, LH-Finance sees an opportunity to expand and offer new products. The company has a strategic global partnership with CGI Finance, a European company in yacht finance. Under this partnership, LH-Finance is able to provide a global offering for yacht manufacturers, dealers and customers seeking financing in the North American and European markets.

“Based on the feedback we’ve had from the dealers and manufacturers, we feel dealers are really looking for a joint and innovative approach where retail and inventory financing are combined to their benefit,” said Bonnet. “Through the years, we have established strong partnerships with global leaders and premium international brands in the marine industry. We have a highly experienced team dedicated to marine financing. That means that we can offer fast credit decisions and competitive marine lending solutions to help grow the boating community.”

A focus on customer service and relationship building is a high priority for lenders as well. Northpoint conducts an independent survey of its customers and states the company has consistently been rated nine out of a possible ten by its dealers in terms of overall customer satisfaction. Northpoint uses the survey to insure the customer’s needs are being met and that customer service remains at the forefront.  

“The survey is our way of holding ourselves accountable to our tagline that ‘extraordinary service should be standard’. We truly believe in having a personal relationship with our customer – whether it’s an OEM or a dealer,” said Baqir. 

CDF hangs its hat on its history as an industry advocate, investing in programs such as Grow Boating/Discover Boating and sponsoring the Boating Industry Top 100 since its inception. 

“We have established long-term, mutually successful relationships with the biggest and best manufacturers and dealers in the industry,” said Van Wagoner. “I believe that the value proposition we have developed and expanded over 50 years puts us in the best position to help this industry, its OEMs and its dealers grow and prosper better than any competitor.”