During the Q&A portion of “Pulling Through the Economic Storm,” a representative from a trailer manufacturer expressed frustration that she couldn't get any lenders to even talk to her about floor-plan financing, which allows a business to acquire inventory, with the loan being retired as the items are sold.
It was the same story with every lender, whether it was the Bank of America or a small local bank.
“Every place I go, they won't even look,” she said. “We're a financially viable company. But I can't get anybody to look at my financial statements.”
She is not alone.
One of the panel members, Stuart May, is national sales manager for Trail Boss Conversions Inc. He is a veteran of the financial-services industry, including 15 years with Whirlpool Financial Corporation and five years with Transamerica Distribution Finance Corporation, developing inventory finance programs for various durable-goods industries.
He said he was amazed how quickly things changed in the trailer industry.
“We have a few inventory-finance lenders in our industry, and when one pulled out, it caught people off guard,” he said. “I stayed in contact with these lenders, and there were people within the community itself who didn't realize it would happen this quickly.
“It dried up a lot of lenders' capability to provide inventory financing to dealers. As we look at that from a lender point of view, there are a few criteria: What is the risk of this industry and what are the returns? What is the capacity? Right now, capacity is constricted, and that is one reason why lenders have pulled out of this industry. Other lenders are constricted.
“In the flow of products in the trailer industry, we use various finance mechanisms. You use working capital in your business to support your manufacturing. We use inventory financing to move that product from your shop floor to the dealer lot, and we use consumer financing to move it from the dealer lot to the consumer. Initially, we had a breakdown in consumer financing. That has freed up somewhat. You may not be able to get the right rate or terms, but the consumer side seems to have eased. My concern is more on inventory financing.”
Picking and choosing
Curt Myers, president and COO of Fulton Bank, said banks are going to be more selective.
“We're going to pick and choose,” he said. “It's more of a funding issue. For instance, there was a lender (that stopped loaning) that had 75 dealers. So we'll end up financing five or 10 of those. We are selective because we need to have liquidity to fund loans for those players. It's very spotty. There are going to be some areas of the country that are not going to have sources short term.”
May said an analogy can be made to the auto industry, where a lot of suppliers reportedly may drop out, so when demand picks up, the supply chain will have choke points because certain parts won't be available. Same thing with lending in the trailer industry.
“It's going to take some time,” he said.
Myers said most of the banks are “just fine” — only 200 to 250 out of the nation's 8400 banks are in “significant difficulty” as a result of the subprime mortgage crisis.
“They don't have a lot of the issues you're reading about and seeing on CNBC every night,” he said. “You think, ‘Then why is credit less available?’ If you look at a bank balance sheet, we have funding from deposits; we have loans taken from the Federal Reserve and other sources; and we have equity. We don't really control those three things.
“On the flip side, what are our assets? Our assets are the loans to you. If those loans are in question and potentially not going to perform as we thought, what are we going to do? We don't control deposits and loans, and our equity is what it is. What do we control? We control lending. We can say, ‘OK , rather than lend with you, we're going to keep that cash because we're not sure if depositors are going to keep their deposits with us or take them out and put them in a mattress.”
The best way for a trailer manufacturer to get credit, Myers said, is to be proactively and aggressively managed. That includes managing the banking relationship.
“When credit tightens up you need to get out and see your banker and make sure you understand their position and they understand your position,” Myers said.
More data needed
May said one of the problems is that lenders don't have enough data on the trailer industry to make informed decisions about financing. One big question is how big the trailer industry is.
“I could not tell you how many units are represented,” he said. “I heard this morning 600,000 trailers. OK, that's a start. But what's the dollar amount? You need to build a fact book about the industry, and I think that can be done at the NATM level. Segment the market by category and identify units and dollar amounts represented.
“Lenders don't know the trailer industry. We have to help educate them. That's how you get a lender comfortable. Get that data into a format that's feasible to present to lenders. When Mr. Floor Plan walks into your office and says, ‘I'd like to set up a program,’ you can lay out this data: ‘Here's the industry and where I fall into the industry.’ ”
NATM president Travis Eby said the association has experienced some success by sending out questionnaires. But the response has been well short of the goals because many companies are spooked by what Eby says are “potentially damaging” questions: How many employees do you have? How many trailers do you make? What are the annual sales?
“We need to find a way to get more of the manufacturers to answer those questionnaires,” he said. “We need to find more ways that we can assure them that information is held strictly in confidence and is only used in aggregate, and no board members look at it.
“Until we can say, ‘This is how many trailers are built in Georgia,’ and, ‘This is how many people get paychecks in Idaho,’ it makes it harder for us to find touchpoints and the Congressional districts where we need to go out. Please keep an open mind. Your response isn't so we can learn about your business and steal your work. We're looking at ways to aggregate information so we can go to Capitol Hill and say, ‘This is who we are.’ ”
Eby said the lending crisis is a huge problem that doesn't just touch the trailer industry — it touches the whole economy.
“We understand this is near and dear to your heart,” he said. “The association is here to serve the industry from a trailer safety and government affairs standpoint. We have never had trailer financing as a part of our mission and we've never made it our business to help our members sell trailers. But from what we heard from the panelists and the questions, we have some things we can build on.”
