BUSRide Financial Roundtable: Part I
Guest panel explores the factors that influence financing
By David Hubbard
In February, BUSRide convened with a select group of financial leaders in the bus and motorcoach industry during the UMA Motorcoach Expo in Los Angeles, CA, for a roundtable discussion on the issues, trends and practices that affect operators’ borrowing, acquisitions and all-round financial health.
Part One of the conversation focuses on factors that influence equipment financing within a fluctuating economy, evolving technology and a more discerning customer base.
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The panelists at the table were:
Gregg Goedde, Vice President, ABC Financial Services (a division of ABC Companies), Faribault, MN
Eric Coolbaugh, Principal, Advantage Funding, Lake Success, NY
Lee Steinberg, Sales, Commercial Transportation Division, Advantage Funding, Lake Success, NY
Raymond Sullivan, National Sales Manager, Industrial Group, EverBank Commercial Finance, Hampton, NH
Dave Reynolds, President and CEO, Fleet Financing Resources, Riverside, CA
Garland Tillery, Senior Finance Officer, Fleet Financing Resources, Riverside, CA
Michael Denny, Vice President and General Manager, Motor Coach Industries
(MCI) Financial Services, Dallas, TX
Matt Hotchkiss, Vice President, Commercial Vehicle Group, Wells Fargo Equipment Finance, Inc., Minneapolis, MN
How do you see the current economic climate influencing bus operators’ financing decisions?
Matt Hotchkiss: From our perspective, the market is doing well. But then the motorcoach industry does tend to do well compared to other industries even when the market is down — and is often counter-cyclical to recessionary pressures. Even though operators did comparatively well during the “Great Recession”, many of them put off buying new equipment until the economy improved. We’ve seen a stronger market the last couple of years and expect the same this year as operators update their fleets and grow their business.
Raymond Sullivan: EverBank began its industrial group in 2011. We have been serving this market since 2012, coming in on the upswing following the ups and downs of the previous decade. Timing was everything, and in our short time in this industry we are pleased with the performance. It has been positive.
How do fluctuations in fleet size — growing or shrinking — figure in your work with bus and coach operators?
Mike Denny: I have seen a lot of different trends, but generally the coaches are showing a lot of wear and tear. Quite a few operators are still just unsure what is going to happen next. Every time we seem to build some momentum, something of some sort occurs and slows everyone down. Operators want to think about it before they go out and purchase a lot of new equipment.
Gregg Goedde: In terms of buying trends and the average size of fleets, the change I am seeing at ABC Companies has to do with the diversification of vehicles in the fleet. Customers in the past who have bought only motorcoaches are coming to the realization they need something to better serve smaller groups. One customer says his quotes are running 50/50; those for 35 passengers and below and those for 40 passengers and above. As a result, in addition to his eight motorcoaches, he is now purchasing smaller cutaways to better fit his needs and those of his customers.
Denny: We have some operators with large fleets on our books, but most of our operators run fleets of 10 to 20 units. Many of these companies were hit hard by the recession and forced to downsize, and have become somewhat gun shy as a result of the downturn. But at this time, we also are seeing them coming back and beginning to add and replace vehicles. So it is a good time.
Dave Reynolds: I think with regard to rates, the wind is still at our back. The current rates are helping us draw in the customers who perhaps hesitated last year.
Eric Coolbaugh: That’s a great point. The whole interest rate environment has been extremely favorable; much like it is been to the return of the real estate market. The added buying power that a lower interest rate brings, allowing as much $50,000 more coach value for the same monthly outlay.
What factors do you see currently influencing operators’ buying decisions?
Denny: I think it is customer based. For an operator with brand new equipment, customers learn to expect and request this level of quality and refuse older coaches. The challenge we hear from operators is typically that their customers want the newest best looking ride for the least amount of money.
Goedde: A few factors are pushing acquisitions. Some operators are bringing their coaches in for upgrades and refurbishments to get features that have become essentially standard to meet customer preferences.
An operator doesn’t necessarily have to buy a new coach to get such amenities as Wi-Fi and 110-volt outlets. However, once he starts adding up all the additional features and styling changes, his buying perspective changes and he just goes all in for the next level of motorcoach luxury.
Coolbaugh: In addition to the luxury amenities, safety is big with seat belts, lane departure, collision avoidance, new technologies automotive standards rolling over into the motorcoach industry. A lot of our customers say they have business with customers who require new equipment, less than five years old or less.
Sullivan: Not just in the motorcoach market, but in the specialty vehicle market as well. Across the board fuel savings has to be factored into the decision to purchase new vehicles. Improved technology, better miles per gallon cost justification are all important parts from our perspective.
Garland Tillery: There is a greater variety of high-end equipment available, which allows operators to operate coaches from 30 to 45 feet. Operators are also taking a greater interest in refurbishing their older coaches. We heard from an operator who is running an older 1998 40-foot coach and actually charges a premium because it somewhat unusual.
Is the availability of online technology and more outside sources changing how operators conduct their fleet financing? Are these options having an effect on the values of trade-ins?
Coolbaugh: Information is power. Generally speaking, more readily available information from all sources, online being the most prevalent right now, can only makes operators more informed, and perhaps that translates into becoming a better buyer. That is the power of the internet.
Goedde: However, it is more difficult to determine the real value from what is showing on the internet, because there are so many variables that can increase or decrease the value of a trade-in — mileage, condition, where it operated in the country. There is really no single source to say what buses are really worth or what they are selling for.
Sullivan: It is very helpful to work with knowledgeable lenders that operators can trust; that have the deep domain experience in the vertical sector. In this industry especially, they need that face-to-face experience to get the correct and accurate information.
Where does the used coach market stand?
Denny: I think it has stabilized, at least from what I can see since the earlier, dramatic depreciation of the industry. With so many fleets downsizing, volume affected the used coach market dramatically, which put a great deal of added pressure on used coach sales. At this time we have cleaned up a lot of liquidity, and today most of the OEMs don’t have much in the way of inventory.
The used coach market for late-model coaches has been strong for the last decade in our experience. A lot of that has to do with the reduced new coach sales during that time which tended to prop up used values because of supply.
What advice can you offer to operators in terms of financial best practices to better manage their budgets, P&L statements and cash flow to obtain the most attractive financing?
Coolbaugh: I am often surprised by the disparity of financial understanding and management practices on the part of motorcoach operators and their tax and accounting people. Good financial reporting and knowing your company is imperative when applying for the best rates.
Tillery: We notice that, in the end, many operators tend to base their decision on what they are most comfortable with. Rather than spending the extra time and effort to fully understand the advantages to all the other options.
Lee Steinberg: The quality of their internal accounting and financial support is critical. However, we do business in a very interesting industry, because we have people who operate out of a cigar box to people who live by their 20 groups — and everything in between.
Denny: The goal of everyone doing business in this industry is to make operators more profitable. They are generally good bus people. From the bus operations point of view, they know their craft. We can help them do a better job with the basic business and financial aspects.
What does that entail?
Goedde: It is critical for motorcoach operators to understand their financial statements. A monthly balance sheet and income statement can be the most important tools an operator has. It is a report on their coaches, shop facility and operations and company are performing.
This conversation will resume in June with BUSRide Financial Roundtable: Part Two; an in-depth discussion of financial best practices, leasing options and more on rates.