GE Capital stops making boat & RV loans

[Westfield 11]

I read today that effective Aug. 1 GE Capital will no longer be making any new boat loans. I hope this is not a harbinger of future changes in the market. The loss of financing could be the last nail in the coffin if any other players follow suit.

[Passages]

I've read that boats loans have a rather low default rate. Of course this may change if folks have to choose between making payments on homes vs boats.

Agreed if GE starts a trend regarding RV's, it will not bode well for the used boat market.

[Genesis]

Credit is massively tightening.

You folks who are in the delusional camp that believe that we will just sail through all this without that happening are going to find yourself on the wrong side of a major trend shift in finance.

I've tried to warn people....

[Westfield 11]

Agreed if GE starts a trend regarding RV's, it will not bode well for the used boat market.

I think that it would hurt the new boat market a lot too.
In the past when I was unable to afford something new, I would buy a Fixer-upper and put money and sweat equity in to it as I could afford it. Eventually I would end up with something as good or better than new and it would be set up just the way I wanted it. If we become limited to only what our cash down payment will afford to buy there will be a lot smaller boats being sold and a lot more that need some work.

[spindrift]

Genesis is absolutely correct. In late October the B-School where I teach responded to a request from FOX News for a prof to respond to the economy by sending me. I will repeat some key points I made on air.

We (the US Economy) are not in a recession at technically defined and we are in an election year with the government really juicing up the economy. There are pockets of recession in the US (defined as 2 back to back quarters of negative economic growth) such as Michigan, Ohio, and Rhode Island. What I did say at the time is that I did not know how deep the credit crisis arising from the subprime lending market was going to be. My fear is that as a bank absorbs losses, it flows through its income statement and reduces capital. Due to the requirements of banks to maintain certain minimum capital levels (Tier I capital ratios) they must shrink the asset base due to a lower captial base. As banks shrink, but still wish to maintain earnings, they are going to elminate lower profitable lending, such as boat loans, and shift into higher yielding lending, such as credit cards and commerical finance. Despite the relatively low historic default rates on boat loans, they don't provide a sufficent rate of return at 6% to enable banks to clawback up the earnings chain.

A second issue that is going to happen (I saw this in Atlanta in 1973 and 1974) is that people on the margin (those who might own that 30 foot Searay) are going to walk away from the boat or RV. By walk away I don't mean just park it or dock it; I mean just drop the keys on the friendly banker's desk. I had so many motor homes turned in to my bank in Atlanta in 1973 (over 400) that I had to rent a field to park them all until they could be auctioned off.

While most Hatteras owners are more experienced and rational boaters, the deriviative of what happens with these smaller power boat owners defaulting is going to impact lenders' percpetions of risk on boat loans in general are and most likely result in the spigot (monies to lend) being turned down.

Today, I note that the leading I Bank (Goldman Sachs) is prediticing that oil most likely will rise to $150 to $200 per barrel. Thus, I think diesel at $6 per gallon plus is not out of the question. If you own a Hatt, I think you should figure out via fuel consumption charts, prop changes, cruise speed changes, how to operate the boat more efficiently. For example if you own a Hatt 53 keep careful fuel consumption records that you can show a perspective buyer (eg 1MPG at 9.5 knots ....maybe better MPG at 8 knots). I know tha this sounds like a ridiculously slow speed but the trawler long range cruiser market is holding up. Anyone who wants to go fast is not going to be looking at an hold Hatt 53... they will be looking at one the go fast Italian craft.

So, look in your rates, document your econ level fuel consumption, adjust your props and whatever else it takes to be efficient. That's all the news from Boston.

Spin