American General pulling back on financing
Company provides credit to numerous home furnishings retailers
Heath Combs, Furniture Today -- Home Accents Today, 5/26/2009 2:42:00 PM
Credit provider American General Finance is decreasing its exposure to retail financing according to a Securities and Exchange Commission filing and reports from several furniture retailers. The move dries up a major source of consumer financing for home furnishings retailers.
It is the latest in a series of actions by credit providers in the past year that have reduced or raised the cost of credit available to the industry. Some manufacturers and retailers have complained that factors like CIT have tightened credit terms, and GE Capital essentially ended unsecured inventory financing to reduce its exposure in a harsh retail climate.
In a late March SEC filing, American General - a subsidiary of troubled financial company American International Group - said its branch business segment, which provides revolving sales financing that retailers offer to consumers, would reduce its "active alliances" from 21,500 to 300 by the end of June.
Officials with American General and AIG did not return phone calls to Furniture/Today or were unavailable for comment.
Retailer Simon Kaplan, CEO of Crest Furniture of Dayton, N.J., a Top 100 company operating Value City Furniture and Ashley Furniture HomeStores, said American General had informed the company it was pulling out.
"It's over," said Kaplan. "I think they gave us until June 11 (to ship business through the program). They're not taking any more paper."
Kaplan used American General though a Furniture Marketing Group program. He said he had known something was coming and has been working on additional sources of credit, but "so far we have not been successful in replacing them."
Mike Herschel, executive director at the Furniture Marketing Group, said American General gave the buying group notice earlier this month that it was suspending its retail financing program on June 11.
FMG has been working with American General for about 15 years. Herschel said that many FMG members that have used American General are switching to the group's other retail finance provider, Wells Fargo.
"It no doubt surprised the industry and we wish they had give us longer notice," he said.
Retailers contacted in Tennessee and Virginia said American General is no longer offering home furnishings retailers a deferred interest program - or if it is, the rates are prohibitive.
Earlier this month, American General said it would consolidate branches and close 150 U.S. offices this quarter and would lay off about 500 employees in its three business segments.
The company also reported a first-quarter operating loss of $203 million, compared with operating income of $11 million during the same period of 2008. It attributed the loss to a $186 million increase in the provision for finance receivables losses, in response to higher delinquencies and charge-offs.
"We will significantly limit our lending activities and refocus our branch network activities primarily on non-real estate loans with limited real estate loan and retail sales finance activity until there is a significant improvement in economic conditions or we have a financially stronger parent," the company said in the SEC filing.
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