Fortune Magazine: General Electric Mirrors Economy

As most of you know, GE Capital is a major player in the powersports industry. Its commercial division provides wholesale financing to thousands of dealers through relationships with most OEMs, as well as distributors like Tucker Rocky. The division also offers real estate financing and equipment financing for new shop equipment, lighting, kiosks or signage.

So what’s going on with the parent company? General Electric stock closed yesterday at $21. Twelve months ago it was trading at $41.

According to a Fortune Magazine article, GE Capital, an affiliate of GE, is mostly responsible. The magazine describes the business as “a liability that puts the future of the entire company at risk.” GE Capital’s profits make up about half of all its parent company’s earnings.

Fortune notes that GE profits fell 22 percent in the third quarter, driven down by a 38 percent drop in earnings from financial services. GE expects these services’ contribution to decline even further.

Money seems to be in short supply at the company. “Investors are pricing GE at a level that indicates that they expect it to shrink rather than grow,” Fortune says.

All this might lead to tighter lending standards for not only floor planning, but also retail financing. In June 2007, GE Capital’s retail division told Dealernews it underwrote retail finance programs for Arctic Cat, BRP, Ducati, Honda, KTM, Piaggio, Polaris and Yamaha.

Polaris also has a financing relationship with HSBC. In announcing its third-quarter results yesterday, Polaris included the following statement: “The availability of retail credit to Polaris consumers remains at acceptable levels as measured by approval and penetration rates. During the third quarter 2008, over 50 percent of consumer retail credit loan applications from Polaris customers were approved by either HSBC or GE, and 41 percent of Polaris retail customers in the United States financed their Polaris product purchases through HSBC or GE. Both the approval rate and penetration rate increased during the 2008 third quarter compared to the 2007 third quarter despite turbulent credit markets.”

But those results were for the quarter ended Sept. 30, just 16 days after the collapse of Lehman Bros. sent the world economy and credit markets into a tailspin and 12 days after Treasury Secretary Henry Paulson sought the $810 billion bailout package.

Lumping GE with HSBC muddies the waters. Early this month, the Star Tribune of Minneapolis provided more specific statements from Polaris CFO Mike Malone. According to the newspaper, Malone said that GE has tightened financing standards for boats, motorcycles and recreational vehicles.

The paper then quoted him: “GE expressed a commitment to our dealers and is assuring us that the powersports business is something they want to continue to do. But they have been making changes, and that is disconcerting. We are looking at contingency plans if things change. It’s a big deal for us.”

Still, dealers may have little to worry about in the long term. GE is still highly profitable, says Fortune, noting that analysts expect it to earn about $20 billion this year, down 10 percent from last year.

And just this month Warren Buffet himself invested $3 billion in GE. According to Fortune, in the statement announcing the move, GE quoted Buffet as saying, “I am confident that GE will continue to be successful in the years to come.”