Reuters Edge

GE exit from boat lending bad, but won't sink sector

CHICAGO (Reuters) - General Electric Co's GE.N decision this week to no longer lend consumers money to buy motorhomes and boats was more bad news for the recreational vehicle and boat industry.

A view from the bridge of a $1.6million Marquis 55 yacht of boats on display at the 2007 New York National Boat Show in New York City January 4, 2007. REUTERS/Mike Segar

While the move by GE Money is likely to prompt the many other lenders in this sector to tighten credit standards and push borrowing costs higher, analysts say it won’t significantly worsen the industry’s admittedly dismal fundamental outlook.

Even before GE, which operates one of the country’s biggest and most sophisticated finance companies, announced its intention to exit the retail RV market, rising gasoline prices, falling home values and tightening consumer credit had taken their toll on motorhome and boat sales.

In March, the most recent month for which data is available, RV industry wholesale shipments fell 17 percent, pulled down by a 27 percent decline in motorhomes and a 36 percent drop in shipments of the very biggest and most profitable vehicles.

Year to date, motorhome shipments have tumbled 24 percent and towables are down 14 percent as the U.S. economic downturn has eroded consumer confidence and kept buyers out of RV showrooms.

The recreational marine business is in the midst of a downturn that is just as stark.

Earlier this month, MarineMax Inc HZO.N, the nation's largest boat retailer, said its sales in the latest quarter tumbled 28 percent. Those declines come on top of the 13 percent decline in powerboat wholesale shipments the industry suffered in 2007,

“Same-store sales of boats have been horrendous,” says Marisa Thompson, an analyst at Morningstar.

So as the recreational vehicle and vessel business enters the normally busy spring and summer selling season, leading companies like Winnebago Industries WGO.N, Brunswick Corp BC.N and Fleetwood Enterprises FLE.N are scrambling -- not to ramp up production but to stay afloat.

They’ve been laying off workers, idling assembly lines, selling real-estate assets to raise money and, in the case of Winnebago, bringing back so-called van conversions, cheaper, more fuel-efficient RVs whose popularity peaked during the last oil crisis in the 1970s.

“It’s just one more burden to carry,” Bob Simonson, an analyst at William Blair & Co, says of GE’s exit.


But while Simonson and others say GE’s exit will probably translate into higher rates for borrowers, they doubt it will significantly worsen the admittedly tough environment that motorhome and boat sellers already face because the move says as much about GE as it does about the RV industry.

“GE purchased the boat and RV lending business a few years back and the market has gotten increasingly more challenging,” says Hayley Wolff, an analyst at Rochdale Securities. “GE’s mantra always has been to be No. 1 or 2 in a market and they weren’t able to get there in marine and RV lending.”

Craig Kennison, an analyst at R.W. Baird, says that because GE had been “more aggressive” than rivals in pursuing customers with credit scores below 700, “unattractive returns” as the U.S. credit crisis spread into the wider economy may have contributed to its decision to get out of the business.

He says there were signs GE was pulling back from the consumer end of the RV and boat market months before it officially announced its exit, meaning the impact has, to a large extent, already shown up in wholesale shipment data.


GE Money was a small player in the RV and boat retail lending market -- with somewhere between 10 and 15 percent market share.

That put it well behind Key Bank, a unit of KeyCorp KEY.N, which is the largest player in the RV and boat lending space, as well as Bank of America BAC.N and Bank of the West, a unit of BNP Paribas BNPP.PA -- all of which continue to make loans to consumers.

As a result, William Blair’s Simonson doesn’t expect credit-worthy borrowers to have any trouble finding lenders. “A fair amount of (GE’s business) will be picked up by someone else,” he says.

Still, analysts like Morningstar’s Thompson predict GE’s departure will prompt the remaining lenders to “tighten standards even more” - and not just because they can.

“If you have a firm like GE backing away from it, it must almost certainly indicate that the credit experience has deteriorated,” Simonson added.

“When you get into a deteriorating situation that shows no sign of stopping stop, you might see lenders go to shorter terms. Or you might see borrowers having to have higher credit scores. Or you might see increased down payment requirements.”

Another likely loser is Thor Industries THO.N, which had a 50-50 joint venture with GE that contributed $1.5 million to its 2007 earnings. While that only translated to about 2 cents a share in terms of EPS, in this market, every penny counts.

What's interesting is that while GE is pulling out of most consumer boat and RV loans, it's going to continue to finance dealers -- a business that Wachovia WB.N, Wells Fargo WFC.N, National City Corp NCC.N, U.S. Bancorp USB.N and BB&T Corp BBT.N are active in.

GE is willing to finance showrooms that consumers are shunning for a simple reason, says Simonson.

“If you’ve got a loan with a dealer with a lot of inventory and he has problems paying you back, you can seize the lot and put a lock on it,” he says.

“If you have a retail contract with a guy who’s got a full tank of gas, you may have a little trouble finding him.”

Editing by Dave Zimmerman