Fresher inventory leading to improved balance sheets
With three decades of lending in the powersports industry, GE Capital has experienced the various twists and turns that economic turbulence brings. And while there was certainly a dip to be seen in 2008, the leaner, more focused powersports dealership in 2012 seems to be on solid footing rather than survival mode.
Sam Yourd, vice president of marketing at GE Capital, works on a daily basis to provide lending to both dealerships and OEMs, and knows firsthand the travails that both sides have endured over the past four years. We turned to Yourd for insight on the state of lending at the floorplan and OEM levels.
PSB: Looking at Q1, how would you assess the state of floorplan financing among dealers?
SY: These are good times because we’ve seen some very healthy changes taking place in the portfolio. We’ve seen lowering aging in the portfolio, and that’s always been a barometer of dealer health. We’ve seen improved turn in the portfolio. We saw some really sluggish turns in the 2009-10 time frame, and we’re seeing very healthy turns right now. Quite frankly, our volume from the OEMs is up. Dealers are ordering more and OEMs are producing and shipping more volume. It doesn’t necessarily mean our financed outstandings are increasing, but it does mean that the dealers are getting healthier. That translates specifically into fresher inventory at the dealer level. They can command higher selling prices because they’re not faced with discounting pressure on the aged inventory. That translates into greater profitability and stronger balance sheets. Demand appears to be up because volume is up.
PSB: What do you attribute to the lowering aging?
SY: Several things. We have been going out and talking to our dealers about reducing their aging levels, and OEMs have supported some programs where they’ve provided incentives to dealers to move aged inventory. They’ve done rebalancing of inventory from one dealer to another, and in some cases the OEMs have even participated in buybacks of aged inventory. There’s been a lot of manufacturer support and a lot of work by our account managers to help dealers identify the aging inventory and to work on reducing it. It’s a benefit to reduce aged product because aged product generally is not in the subsidized period by the OEMs and it has a higher cost to carry. Reducing that helps them in a number of ways.
PSB: What has that meant for your company 2012?
SY: Our volume in Q1 was up year-over-year and our outstandings are up year-over-year, but not significantly. The volumes are up but the outstandings are not up as much because the dealers are selling through. There’s good sell-through. Retail registrations are up significantly year-over-year, so that pull through is keeping the outstandings from growing that fast.
PSB: How have you seen the dealer principal make his business better over the past couple of years?
SY: From our perspective, we’re looking at the balance sheets of the dealers, and quite frankly we’re seeing that because of the leaner inventory, the great margins they’re generating and their work to control operating expenses over the past several years, the balance sheets are getting stronger. That’s our role here, that’s what we focus on. They’ve learned to make profits on leaner inventory; they’re more profitable on the units they sell. They don’t have that inventory pressure or that discounting pressure that they may have had in years past. They’ve learned to maximize profits in their service departments on new and used inventory across the board. Those that have come through from 2008 are stronger for it in the end, and now their balance sheets are recovering. There does appear to be more confidence to stock inventory by the dealers because they don’t have a lot of carryover, their sell-through is accelerated and we’ve even read in your publication where dealers are willing to stock more inventory because their floor traffic is up; their retail sales activity is up.
PSB: Why is it important for manufacturers to offer financing via a company like GE Capital?
SY: Quite frankly, banks have come and gone in this industry over the years and generally don’t provide 100 percent financing. For the most part a lot of them are regional. GE has been a stable lender to the industry for over 30 years. Even during the financial crisis, there was so much insecurity out there in other industries, but in the powersports industry we stayed the course through 2008 and ’09 and continued to support the OEMs and the dealers. We made capital available to them, and although times were tough, we didn’t waver from that support of the OEMs and dealers. With the indirect benefits from our portfolio analysis, we’re able to talk to OEMs about what’s going on on the trend line in turn, with aging, with inventory levels, with utilization, even down to what products are turning better in what markets. The relationship we have with the OEMs gives them that deep-dive read into what’s going on at the pulse of the dealership. They can’t get that from banks.
PSB: Not all lenders ‘stayed the course’ during the recession.
SY: The bottom line is uninterrupted; we’ve been a lender to this industry for over 30 years. We’ve seen some similar examples of economic crises in the past. We know how to get through them, and how to work with the OEMs and dealers to come up with programs that are necessary at the time to help dealers through. The difference today that wasn’t maybe there the last time around is that we have a deep understanding of portfolio performance. We have analytic tools that we can now share with our OEMs and dealers that are kind of a look at the performance of their portfolio. It allows them to see some trouble signs or problems. It helps them be a little bit more predictable in nature – rather than reactionary -- to help them manage through the crisis a little bit better.
PSB: GE Capital’s Locator/Transfer system would seem beneficial for the dealer. How does the dealer get involved with or have access to that program?
SY: It’s a key differentiator for us. It’s a great program we’ve developed where a dealer approved by GE can search within his franchise other dealers within the area to search for a unit that he doesn’t have in stock that might be in stock within a 50-100 mile [radius]. That way he doesn’t miss a sale today. It’s a great way for us to meet the dealers’ needs. It’s endorsed by the OEMs. We’ve done thousands of these. It’s a real value add for our customers. It’s a real win-win for everybody.