Develop Multiple Lines
Seminar presenters stressed the importance of establishing multiple credit lines to protect against a primary bank pulling funding. “Don’t let the grass grow under your credit lines,” said Yocum. “Get a second line, even if the rate is higher.”
The larger the credit line, the more detailed the financials should be, according the funding panel. Smaller lines can still get approved with one signature, but larger ones need to be reviewed by a credit board or executive committee and could take up to two weeks.
A local bank is a good place to start, said Joe Opferman of 1st Source/Trucker’s Bank, because they have your deposits, which minimizes their risk.
“Talk to local banks but have others out there,” said Yocum.
Stay Flexible and Diversified
Opferman stressed that banks look favorably on a company with a flexible fleet plan that can adjust to market conditions.
“Your ability to rightsize quickly is important,” said Opferman. “When we look at fleet plans, we want to know if vehicles are aged properly so at any given time, the operator can reduce his fleet size by 10-15 percent. If he doesn’t, he could be out of business.”
Repurchase cars used to provide some of that flexibility, but it’s getting harder with the move to all-risk fleets, Opferman said.
Optimally, banks look for cash flow of 15 percent or more to cover a company’s debt, though Opferman admitted he doesn’t see that very often in car rental.
Also, funders look positively on a fleet made up of a diversified mix of manufacturers, said Yocum.
Utilization figures are analyzed, but revenue per unit is more important. In general, RACs should be at 40-45 percent of the cost to finance the vehicle per month compared to RPU, said Yocum.
TARP and TALF
The Troubled Asset Relief Program (TARP) did its job to stabilize the banks, Opferman said. However, the program requires banks to pay a 5 percent yearly dividend on that money, which makes it prohibitive to reinvest in, say, Treasury bills. That means banks that took it, such as 1st Source, must be aggressive in finding good loans.
“Some were saying banks won’t loan that money,” Opferman said. “They can’t afford not to.”
TALF (Term Asset-Backed Securities Loan Facility) is geared to help financial markets dealing with consumer asset-backed securities by loaning to businesses, including car rental companies. However, any company looking to access those funds must have AAA credit, the highest rating—and car rental companies are not rated that high.
Moreover, the bill prohibits a company going through a third party with higher credit. It is possible to put cash out for the cars and have a third party rate the deal at AAA, but the down payment is a difficult proposition for companies in the highly leveraged car rental industry, Opferman said.
These issues, and the collapse of the securitization market, are forcing people out of lending to car rental, Opferman said. “The securitization market isn’t going to come back until people get confidence in the credit markets, and that won’t happen shortly,” he said. “That’s what is hurting our industry right now.”
Funding Available
Opferman expressed optimism in the fact that rental rates are going up and should continue to this summer, which will help improve companies’ financials. Plus, the dispersal of TARP funds is getting banks to loan.
Though funding choices are more limited than a year ago, Yocum, Opferman and Boskovich stated that there are credit lines available now to qualified candidates.
“We’re looking for new business,” said Opferman.