Sels stepped into the position of European marine leader at GE Capital Commercial Distribution Finance in 2012 with the market still experiencing the repercussions of the 2008 crisis. he talks to IBI about the state of inventory finance in the boating industry
Q. How does inventory finance work?
A. The inventory finance model is based on a three-way relationship between the boatbuilder, the dealer and the lender. GE Capital finances a dealer’s inventory by paying the builder for a boat as soon as it leaves the production line to go to the dealer. As collateral, GE Capital acquires title to the boat and charges interest for the financing period. The dealer then pays GE Capital back for the boat either when it is sold, or on the “due in full” date at the end of the finance period.
The basis of the three-way relationship is the builders’ support for the financing, which includes covering the interest costs during the finance period − anywhere from 30 days up to the maximum financing period of 540 days.
Regular stock checks carried out at the dealer’s premises validate the presence of the collateral, and GE Capital has assignment rights to the receivable subject to local legislation.
Q. What costs are involved for the participants in the programme?
A. Marine floorplan finance in Europe involves interest payments and curtailments. Interest covers the cost of the financing for the boat, while curtailments are reimbursements of the loan to match the depreciation of the product while it remains unsold in the showroom. As boats age dealers may not sell them for the full value and must compete with newer models, so we have to manage the value of that asset over time. Curtailments also provide visibility to the lender on the dealer’s cash flow. If the dealer is having difficulties paying the curtailment of say approximately two per cent, it’s an early warning sign. Interest charges obviously reduce the profit margins the longer the boat sits in the showroom, so that creates a strong incentive to sell a financed boat as soon as possible.
Our current bases interest rate depends on the profile and volumes of a particular distribution network. Consistent rates are set that work for the vast majority of a builder’s dealers. We invest time with regular floor checks of the inventory to ensure that the collateral is secure.
Note: This is an excerpt of the interview with Sven Sels featured in IBI magazine Issue 397 (December/January). IBI Plus subscriber can visit plus.ibinews.com and read the full article.