Credit Market Contracts and Cleans Up Amid Meltdown

Posted on November 9, 2009 by - Also by this author

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LAKE SUCCESS, N.Y. — 2009 has brought a severe contraction in credit availability for new fleet vehicles while operators have cut back on vehicle purchases.

Two close observers of the fleet financing market see plenty of vehicle inventory, fewer credit sources overall, and no sign yet of a clear bottom to the market.

"It's really been catastrophic. We've never seen limo business as bad as it is now," said Eric Coolbaugh, a partner in Advantage Funding, one of the leading providers of vehicle financing and leases to the chauffeured transportation market. "Banking people around a year ago are either not there or not lending to businesses. Banks that offered low rates have run for the hills" amid huge losses.

The chauffeured vehicle market has seen a major "acceleration in depreciation," says Don Coolbaugh, vice president of sales at Advantage and brother of Eric. "We have not seen a 2010 vehicle financed or sold in a long time."

In fact, there is plenty of 2009 new and used vehicle inventory, much of it repossessed, Don says. Coachbuilders are not producing vehicles unless they are on order.

The Coolbaugh brothers underscore what has been hardening into a fact of limo life since last year: Unless an operator has sterling credit and financial statements, it is difficult to get financing on either a new or used chauffeured vehicle. Fleet vehicle inventory tracked by Advantage has depreciated about 35% overall during the last six to eight months alone. Vehicles retain little or no equity if sold or re-financed.

"A 2007 limousine that was in the high 40s/low 50s - if you can get a bid in the high 30s, you're doing good," Eric says. The industry now has so much inventory build-up that it has to be cleared out before prices stabilize and the buyer market returns to normal.

Banks hesitate to lend to buyers with non-spotless credit until there is a clear understanding of the marketplace and where it's going in 2010, Eric says.

"Used inventory is selling at depressed prices, meaning that newer vehicles will have to be sold at depressed prices also," Eric says. Since vehicle auctions bring only 20 cents on the dollar, buyers who need product can get aggressive in naming a price, he says. 

Business Advantages

Advantage Funding, a firm that has financed chauffeured vehicles for the industry since 1997, remains on solid ground after a near-two year recession because of its firm backing from Marubeni Motor Holdings, Inc., a Japanese trading company, and steep and steady growth based on sound financial practices.

The company grew about 20% for nine consecutive years, building a clientele through word of mouth and referrals. Despite the recession, its principals say the company remains healthy thanks to savings and reserves. It has grown in the last two and a half years, although not in the chauffeured transportation sector.

Overall, the limousine/livery market, which makes up about 35% of Advantage's portfolio, has fallen off about 50%, when comparing January through September of 2009 with the same period last year. That's beyond the company's initial forecast of a 30-40% decline. The company also is doing about 20% more vehicle re-financings when comparing the same time periods. Despite these trends and the fact that vehicle leasing dropped dramatically in late 2008, Advantage has a manageable delinquency rate.

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