A View from Here

Bill's Sisson's weekly Trade Only blog

Why the marine industry needs a credit union

Early this year a group of marine industry professionals got together to discuss their frustrations with, at that time, the traditional banking industry. Many key topics were discussed, from boat loans to floorplan financing.

A dealer in the group mentioned that he switched his banking to a local credit union and was pleased with his results, but he did say that his credit union fell short meeting all his needs. Most of us had some success working with local credit unions on deals that the traditional banks have declined.

So we as a group agreed that a marine industry federal credit union would be a major asset not only to our day-to-day business but for everyone involved in the marine industry. The group did a little research and spoke to a few other industry leaders, but the concept did not move forward anymore than just a discussion.

With the recent events in the recreational lending business, we all met again to form a Marine Industry Federal Credit Union organizing committee. We outlined the basic structure of the MIFCU, consulted the NCUA office, identified an outside start-up CU consulting firm, and started the business plan. We have also started our required member survey and have received over 100 surveys back from one local region.

The plan is to open the first branch location in Southern California. The reason for California to have the first branch is because the local trade associations have shown tremendous support and understand what a MIFCU would mean to their members. The MIFCU will have all the services that a traditional bank or credit union has plus a few services that this industry needs but are currently not available. The second region will be determined by local trade associations and their members.

A few people have asked, “Why does the marine industry need a CU?” The answer is pretty simple in today’s economic climate. We as an industry need to take control of our own financial destiny. Yes, there will be those people that say there is nothing wrong with the banking system and that they have the perfect floor plan. Some will also say that every boat that does not get sold because of a bank’s decline should not be sold to that buyer.

For those lucky few that are extremely happy with their success and have all the business they can handle, then a MIFCU may not be for you. Don’t get me wrong; we do not believe that a MIFCU will have all the answers. But we as an industry must do something not only for us but for those who follow in our footsteps.

Their will be challenges during the charter process. We have anticipated problems and with the help of our CU start-up consulting firm we will navigate through the process. We are also asking anyone in our industry that can help in anyway please feel free to contact us. For more information on our first MIFCU call me at (949) 400-9001 or e-mail me at yachtmoneyman@yahoo.com.

Chris Lyons
Co-chairman, MIFCU organizing committee

Comments

10 comments on “Why the marine industry needs a credit union

  1. Randall Burg

    The Boating Industry , like every other industry, is based on the concept that each company supplies the service that they know and do best: Brokers sell boats, engine builder build engines, service companies service boats, and banks and finance companies supply funds to boat buyers. The entire process is linked together, however, when one of the links is broker then is it time for a change.

    Banks and finance companies have failed to do their job- to supply finds to boat buyers. I’m talking about funding buyers that have negotiated a significant reduction in the asking price, have a high FICA score, show significant income, owns property, is a company owner, etc – and the banks have elected to pass on finding the purchase.

    Shame on the banking industry!! Wake-up – cannot cherry pick your loans and expect the industry to stand by and take it. We are partners in every transaction and when the partnership fails then it is time for our industry will find a way to eliminate you from the process.

    With the advent of a Boating Industry CU we are putting the banking industry on notice –
    WE WILL NOT TAKE IT ANY LONGER!

    I fully support a Boater CU that give back to the industry control of our transactions.

    Randall Burg

  2. Arch

    RANDALL BURG,
    Marine lenders are in the business to make loans. It’s the only way they can make money. They don’t profit from turning away good business. What is your explanation for the banks turning down those deals?
    There is no doubt they have tightened up considerably, but if you researched the topic and spoke to the lenders out there right now, they are struggling to maintain profitability.
    Why do you think so many have gotten out of the business? You think they are rolling in profits?
    These marine lenders have had to deal with a 2 to 3 fold increase in defaults and frauds. So you think them buying more of the marginal deals would be smart on their part?
    I realize that you are probably in the business to sell boats, but it isn’t a banks responsibility to take on a risky loan just because you need to get a boat over the curb.
    Marine lenders are buying solid deals right now. Just because someone has a high FICO score and owns property, that doesn’t mean they qualify.
    Do you believe in free enterprise and capitalism? If so, then why, after all these years, don’t we have a bank buying those SO CALLED good deals you are talking about?
    I can assure you, if they were good deals and low risk, some lender out there would buy them.
    The credit union might start out buying those deals, as many marine lenders do. But when the stockholders and board members review the performance of the portfolio, REALITY will set in. Inevitably, they will tighten up, as ALL marine lenders eventually do.
    NOW, If they offer floorplanning, and I hope they do, there is a desperate shortage of that right now.
    Either way, I do hope the CU works for the industry. I’m not knocking it, just trying to get the people thinking about it to get be more realistic and look at the facts.

    CHRIS LYONS works or worked for NEWCOAST FINANCIAL, the marine lender owned by MARINE MAX.
    IS THIS CREDIT UNION CONNECTED TO MARINE MAX IN ANY WAY?
    If any of the Newcoast or Marine Max folks are connected, then we should all PROCEED WITH CAUTION.

  3. Chris

    Arch – What are your concerns about me? I am strictly one volunteer on a committee that Newcoast nor MarineMax has anything to with, and, for the record, Newcoast/MarineMax has nothing to do with forming a credit union. Why should as you say “Proceed with caution”? What has made you so bitter? You have my phone number and my personal e-mail address, but you don’t seem to want to talk with me direct. If you give me one good reason why I should not be on this committee, then I will step down. Please feel free to call me at anytime at 949-400-9001.

  4. Randall Burg

    Arch,

    I think you missed one very important difference between how traditional lenders operate and how a Boat Industry CU would operate: The Boating Industry CU would be owned, operated, and funded by the boating industry.

    Why is this so important?? A traditional bank addresses a non-performing asset in a very different way then a CU operated by the industry – they are tasked with getting the non-performing asset off their books as fast as possible. Translation – dump the boat at any price and to hell with the client and the effect dumping will have on the market.

    Because a Boating Industry CU will be owned and controlled by the industry, i.e., dealers and brokers who understand boats and the boating market, non-performing assets will be handled in a very different way. When was the last time a bank sent out an email to the 10,000 brokers in the US requesting help in finding a buyer for a non-performing asset?? The answer is never. They turn the boat over to an auction house or other liquidator. But a Boating Industry CU has a vested interest in not only keeping the owner in his boat and/or finding a suitable buyer for the boat that does not adversely affect the owner’s credit or the value of the boat. A Boating Industry CU, because it is involved in the industry, has far more tools available to them and very different goals the traditional banks. The CU will see the boat owner not as a number on a spread sheet but as a partner!

    I recently got a call from a bank that wanted to repo a client boat when they got behind one month!! I made one call and within 30 minutes put the boat owner together with a “Angel Partner”, i.e., a partner that, in exchange for use of the boat, paid all the expenses, including the monthly bank payment. The boat stayed in the name of the owner – everyone won. The bank had a “performing asset”, the owner had his expenses covered, and the “Partner” got the use of a boat without putting up a down payment or having to apply for a loan.

    This is the kind of action that banks should be taking but are not because they do not have the industry knowledge or simply do not care!

    Brokers earn their money from commissions while bankers get a salary. Brokers are on the docks, on the water, at the marinas building personal relationships with their clients – when was the last time you saw your banker walking the docks??

    A Boating Industry CU, owned by and run by the industry, will be run by and for its’ members. The members are the stockholders!!

  5. Randall Burg

    Arch,

    I failed to add to my last comment that the boat the bank failed to finance – I sold a week later to an all cash buyer. Please explain to me why a buyer will put up $235,000 CASH to buy a boat that the bank would not finance??

    The original buyer, having given up on using bank financing, the one that was turned down, is buying a boat for all cash – $115,000 boat (the original boat the bank turned down was $245,000). Please explain to me how the bank can justify walking away from a buyer with this kind of buying power! You can’t – it does not make sense on any level. The smart bankes lost not one but two loans – so how happy are the banks stockholders knowing their manager are walking away form very profitable, very secure loans and very possible repeat business from these clients??

    Another client called me to say that he put 50% down on a brand new 47 Rivera but his dealer would not or could not arrange financing for the balance of the purchase! A new Riveria 47 is in the range of $900,000 and my client ( I did not sell him the Rivera) had $500,000 cash for the down payment. I got to work and found him $250,000 from one bank and then personally lent him $150,000 for 6 months. Yes, my client secured my personal $150,000 loan with other assets BUT paid off the loan in full within 6 months!! I worked with the bank to look at his cash position , his cash flow and future earning power and his other assets. Welcome to the new world of boat financing!

    Arch, can you tell me why a bank would not fully fund a client with that kind of earning power?? It’s because banks rely too closely on in-house formulas and FICA scores and not enough on personal relationships, additional collateral, and assets and not FICA scores only.

    The cost of client acquisition is the most expensive line item in any business. Clients are the life blood of any business – there is no possible justification for banks to ignore this kind of high-quality clients. This client will stick with me for a very long time. We have become close friends and he calls me every other week with lead on buyers & sellers looking for boat to sell or list.

    Speaking of formulas, I suggest you read (and anyone else interested in our economic future) the article in the recent VANITY FAIR Dec. issue by Niall Ferguson titled “Wall Street Lays Another Egg”. The article talks about the Black –Scholes formula that guaranteed we would never have another market crash!! (Schiles & Merton won the 1997 Noble Prize for the formula!!). The reason I bring this us is because the formula failed to take into two very key factors: 1) it was based on 5 yeas of data but should have been based on 90 years of data, and 2) it failed to take into consideration the Human Factor. Sound familiar? Banks using rigid formulas and failing to work with their very Human clients to solve problems and make loans??

    Like I said, it is time for a change.

  6. Arch

    I”m not bitter, I”m experienced. My “proceed with caution” comment was very clear. I specifically said it only pertains if Marine Max or Newcoast was involved in the venture.

  7. Arch

    RANDALL,
    You make some good points, but it’s PROPAGANDA. It reminds me of the election, short on facts and reality and LONG ON RHETORIC AND PROPGAGANDA. Those scenarios you mention are the exception and not the rule. With all due respect, you obviously have NO banking experience.
    1- A non-performing asset for a bank, is also a non-performing asset for a credit union. Just because you were able to salvage a deal for a bank, that doesn’t mean most non-performing (loans where account holder is behind in payments) are going to be salvaged. Unless you plan on running the CU into the ground, you will need to get them off your books too. And what is the difference between a CU sending out an email to 10,000 brokers to liquidate the boat, or a Bank of America having National Marine Liquidators sell it for them.
    A bank dumping the boat at any price does have negative affects on the industry, but they are not in the business of selling boats. And since when do they do that? They typically have a liquidator sell it and they might discount it anywhere from 10-25%, enough to move it. That is expected.
    You actually think a CU, even the one for the marine industry is actually going to help the owner of the boat (an owner that is NOT MAKING HIS PAYMENTS) to sell his boat in order to protect his credit? Or to try and keep him in the boat? First of all, more than likely, the boat owner is WAY UPSIDE DOWN. Secondly, if he isn’t making his payments, who cares about his credit. He stuck it to the bank, now the bank is supposed to further the damage by trying to find a buyer or “ANGEL PARTNER for his boat? PLEASE, YOU ARE SO OUT IN LEFT FIELD ON THIS. It’s insulting to be honest.
    THE DAY ANY LENDER/CREDIT UNION SEES THE ACCOUNT HOLDER (who isn’t making his payments) AS A PARTNER, IS THE DAY IT IS ON IT”S WAY TO FAILURE.
    Has this Fannie/Freddie situation not taught you anything?
    With yachts, I can see doing some of what you mentioned, but it’s not yachts that make this industry go around.
    2. Your example of a bank trying to REPO after the payment only being 30 days late is also an exception. Most marine lenders wait MONTHS to do this. In that case, there must have been some special circumstances where the bank knew waiting would make no difference. Such as the owner declaring bankruptcy, in jail, died, etc etc.

    You make this sounds so easy, but your lack of banking/lending experience doesn’t allow you to see the obvious. YOU mentioned banks not having any industry knowledge, well the same applies to you. You don’t have banking/lending knowledge.

    And just because the stockholders are boaters and in the boating industry, that doesnt mean the CU will be able to ignore tried and true banking/lending guidelines that have PROVEN to work. Guidelines that have taken DECADES to produce, ones that have worked through good and bad times.

  8. Arch

    RANDALL,
    Just because somebody is putting down $200,000 cash, it doesn’t make it a good deal. There are MANY different factors involved. Many of those guys are heavy in real estate, own many businesses and are very exposed, take the boat out of US Waters, charter the boat without telling the bank, don’t have captains and don’t have big boat experience, etc etc.
    EXPERIENCED MARINE LENDERS are very good at spotting those types of deals. You won’t necessarily see it, but they know and they have good reason to turn them down.
    Your comment about the bank stockholders being unhappy with their marine lending dept for NOT approving those deals is proof that you just dont know this end of the business. If they don’t approve those deals, it’s because they don’t want them. And there is a reason they don’t want them. LIke I’ve said before, if they were good deals, and were low risk, and made sense, the bank would buy them. These banks have been burned so many times, they know wha to touch and what not to touch.
    Sure, they get some wrong, but they get most right. It’s not different than the stock market or gambling. Your goal is to get as many right as you can while simultaneously minimizing the risk. They have to play it safe, and the CU will too, sooner or later.
    IN HOUSE formulas and FICO scores work and are time proven. They may not work for you, but they work for banks and will work for the Credit Union. A successful credit union will always look out for itself first and not the industry it caters too. If it starts looking more after the dealers and brokers, then that will be the beginning of the end.
    Can you say UNIONS, FANNIE MAE, FREDDIE MAC, GOV’T SUBSIDIES, LIBERALISM, etc?

    Don’t get me wrong. I”m not saying a CU is a bad idea. What I’m saying is that your expectations are out of line. Banking doesn’t work that way, whether you are a local branch or a credit union.
    You sound like a smart guy. I’m not trying to disrespect you. But so much of what I’ve heard from you and Chris reminds me of this saying…
    ” THEY won’t acknowledge the law of unintended consequences from well-meaning, if misguided, acts”.

  9. Randall Burg

    I have been building, owning, and running companies for more then 40 years AND, I was involved with a business my family built in the 80’s – a 10 branch Savings and Loan based in Century City, CA, and along with being a licensed yacht broker, I am a licensed Loan Broker. I have 22 yacht salesman working out of four offices, and I know a thing or two about business, about loans and loan requirements, and about the Banking Industry.

  10. Arch

    Impressive resume, but you are fooling yourself if you think a CU doing your boat financing is going to make that much of an impact on business. This industry is struggling and retail boat financing isn’t even in the top 5 reasons as to WHY. The industry tanked WAY before the banks got tight. Retail financing has NEVER been a major contributor to the deteorioration of the boating industry.
    And by the time this CU starts doing boat loans, the industry will have partially rebounded and marine lenders will have loosened back up.
    I’ve seen MANY come before you claiming the EXACT same thing, talking the same lingo, and not one has worked.
    Don’t misunderstand me. I’m not hoping you fail. I have no dog in this race.
    I wish you all the best in your efforts.

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