GE Capital Becomes Lender for International Trucks

This story appears in the March 15 print edition of Transport Topics.

GE Capital is taking over the role of lead lender to support the purchase of International trucks, as Navistar International Corp.’s in-house finance captive withdraws from the retail market to concentrate on wholesale activities to support dealers, the two companies said.

Navistar and GE Capital on March 9 announced the agreement, which enables Navistar to offer a wider array of financial products to even the largest for-hire and private fleets. It also allows the original equipment manufacturer the freedom to lower the debt on its balance sheet and concentrate its cash and efforts on making trucks, engines, buses and other vehicles.

GE Capital, a division of General Electric Co., already provides a lead-lender function for Navistar in Canada. A GE Capital executive said the company has been active in truck financing for years, underwriting purchases by buyers from Navistar and its competitors.

“This opens an opportunity for us to provide financial services to the largest fleets. We will aggressively address large fleet transactions,” David Johanneson, president of Navistar Financial Corp., said in an interview. NFC is the in-house finance captive that is being transformed.

Navistar documents said NFC handles 9% to 12% of the company’s retail truck sales, but it does 95% of the wholesale activities for dealers, such as floor plan, or inventory, financing and lines of credit for working capital and real estate. The wholesale and retail portfolios are of roughly similar size, but there is a great deal of fluctuation.

The size differential between the two companies is substantial: GE Capital had worldwide assets of $649 billion as of Dec. 31, the company said, whereas Navistar International’s revenue from all activities was $11.4 billion for the 12 months ended Jan. 31.

The brand name for the new program is Navistar Capital, and 60 employees will leave NFC to run the program for GE Capital. The ability of those people to maintain their efforts was called a crucial factor by one dealer executive.

“All dealers use a number of financing sources, but Navistar Financial has been our first source and they’ve had great service,” said Mike Kleespies, vice president of sales, leasing, rentals and finance for Sun State International in Tampa, Fla.

Kleespies said he has received some one-day turnarounds from NFC on loan applications, and customers appreciate when they are not left hanging. He said the possibility of new and better services to offer is intriguing, “but my biggest concern is, will the service to dealers still be there?”

Although the agreement is effective immediately, Navistar and GE Capital said it would take until June to fully implement Navistar Capital.

Navistar’s three main competitors in the North American heavy truck market — Daimler Trucks North America, Paccar Inc. and Volvo Group — all have in-house finance companies.

GE Capital also will become the major financial backer for Idealease, the leasing arm of most International dealers. The Navistar Capital program will replace Navistar Financial.

Businesses will choose between two main types of leases that Navistar Capital will offer, said Dan Clark, general manager of transportation finance for GE Capital — leases that isolate the fleet from the vehicle’s value at the end of the agreement, and those that do not.

After Navistar and GE Capital announced the agreement, Moody’s Investors Service said it would maintain its various ratings on Navistar’s creditworthiness but added, “This agreement . . . has potentially beneficial elements for Navistar.

“The chief benefit is that Navistar’s captive finance operation . . . should be relieved of the capital and liquidity burden necessary to support new retail and lease originations,” Moody’s said. “In addition, GE Capital’s stronger balance sheet and superior capital market access, relative to that of NFC, should improve the availability of the financing that can be offered to retail purchasers of Navistar equipment.”