GE exit from boat lending won’t sink sector

CHICAGO – General Electric Co.’s 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.

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%, pulled down by a 27% decline in motorhomes and a 36% drop in shipments of the very biggest and most profitable vehicles.

Year to date, motorhome shipments have tumbled 24% and towables are down 14% 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, the nation’s largest boat retailer, said its sales in the latest quarter tumbled 28%. Those declines come on top of the 13% 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 receational vehicle and vessel business enters the normally busy spring and summer selling season, leading companies like Winnebago Industries, Brunswick Corp. and Fleetwood Enterprises 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% market share.

That put it well behind Key Bank, a unit of KeyCorp., which is the largest player in the RV and boat lending space, as well as Bank of America and Bank of the West, a unit of BNP Paribas – 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.