Banks are introducing services to grab dealers' floorplanning business from the automakers' captive finance companies.
As interest rates rise and problems at General Motors and Ford Motor Co. affect their captives, U.S. Bank, of Minneapolis, reports steady growth in its dealer business.
Tom Pritchard, 48, became president of U.S. Bank's Dealer Commercial Services group last month. He spoke with Special Correspondent Laura Clark Geist about his plans to acquire business from dealers.
How many dealers do you do business with?
We have 400 dealer relationships in our portfolio. Of those, 246 include floorplan relationships. We've seen double-digit growth in our portfolio year over year.
Where does U.S. Bank rank in your share of the floorplan business?
We're in the top 10. It's not our goal to be the biggest in the industry. We're really looking at managing the clients we're doing business with by offering class-leading products. That doesn't mean we're not focused on growth. We are going to be in this business for a long time.
What size is your floorplan portfolio?
We have commitments of approximately $3 billion. Over the last three years, we've developed a national team that focuses on the large publicly traded auto dealership groups.
What types of loans do you offer dealers?
We offer capital financing. We offer term loans, in case a dealer needs to do any sort of improvement to the dealership. We'll provide commercial real estate loans to support dealership facilities. We also provide personal banking relationships, so if (dealers) have other investments, we support those.
Are you offering any new products?
We have a subordinated-debt product that bridges the gap between traditional bank financing and the need a dealer may have for additional equity to help facilitate an acquisition or buy out a partner.
How have GM's and Ford's slide in debt ratings to junk status affected their captive finance companies' competitiveness in floorplan business?
It's created opportunities for us. We're in an environment of increasing interest rates. That's impacting (the automakers') borrowing rate. We've been very competitive in this market.
What carrots have you thrown out to potential dealer customers?
When we go up against the captives, the thing that we provide to (dealers) is the ability to hedge against rising interest rates. A good portion of dealers' expense structure is centered on that flooring expense. That's a huge variable-rate component on their financial statement.
Being able to control a portion of that is very important to a lot of our dealers. We performed a record number of interest-rate swaps last year. That trend is evident into 2006.
Is it difficult to woo business away from the captives?
We're in a very competitive market. If our customer can acknowledge the importance of a banking relationship that's more holistic, in terms of providing more than just a flooring relationship, our chances improve dramatically. We talk to dealers about establishing a relationship that includes the full array of products and services we bring to the table.
How are dealers responding to rising interest rates?
Dealers are being more conscious than we've ever seen of the inventory levels they are holding. Dealers are very interested in interest-rate hedging. That's a competitive advantage for us against the captives. It really provides some control and predictability over their profitability.
Are dealers shopping for competitive floorplan lenders?
Without a doubt. We're right there in the mix with a number of other financial institutions. When dealers are looking at the rising interest-rate environment that they are in, they are very cost-conscious. They are looking to control expenses. They are looking for the most competitive deal in the marketplace. If we have a whole banking relationship, we can look at becoming even more competitive on the pricing side (for floorplanning).
Have the numbers of import and domestic dealers in your portfolio changed?
The mix of our portfolio is weighted a little bit heavier toward the import side than it ever has been. It's been about a 15 percent increase in imports relative to domestic. We are talking about the floorplan side.
You may e-mail Laura Clark Geist at [email protected]