Furniture industry leaders urge government to support CIT Group

Argue that lender's failure would have domino effect on small businesses

Furniture Today Staff -- Furniture Today, July 17, 2009

HIGH POINT — Industry leaders are urging the federal government to keep CIT Group from failing, arguing that the company is an important financial player, especially in furniture and textile manufacturing and retailing, whose departure would create turmoil.

Meanwhile, CIT said late Thursday it was "in discussions with potential lenders to secure financing" and that it was continuing to serve customers.

"CIT appreciates the strong support it has received from many of its one million small business and middle market customers, industry associations and dedicated employees," the company said in a statement.

CIT, the largest factoring company in the home furnishings industry, is facing an uncertain future after its request for more federal bailout money apparently was denied this week. The company said it had ended talks with federal officials.

Many in the furniture industry worry that a possible bankruptcy of CIT could cut off a source of funding for suppliers and retailers. As a factor, CIT buys the invoices for furniture shipped from manufacturers to retailers. CIT immediately gives money for the product to manufacturers, less a discount, and then collects the receivables from retailers.

"CIT is a critical lender to the furniture industry," Andy Counts, CEO of the American Home Furnishings Alliance, said in a released statement. He said AHFA officials have told members of Congress that "a collapse of CIT would leave many struggling manufacturers at risk."

Counts added, "Contacts with other key lenders indicate that alternative sources of credit are not available to make up for the anticipated shortfall."

To the government, CIT's failure represents a "blip," said Jim Ziozis, president of furniture and rug source Linon Home Décor Products. But, to the industry, the loss of CIT would be more of a "bang."

But prospects for such a restructuring are uncertain. That was reflected in CIT's stock price, which fell 75% on Thursday.

Ziozis added that many vendors may not be borrowing from CIT, but factor their receivables through the company. Because of that underlying guarantee by CIT, the vendors' banks have been advancing them loans on the receivables at a favorable rate, he said. Now, all that could change, he said.

Ray Steele, vice president of sales for furniture source Ultimate Accents, said a CIT bankruptcy would affect not only furniture suppliers and retailers, but also businesses that revolve around furniture, from trucking companies to ocean freight providers to overseas factories.

He said his company was sending letters to congressional representatives to urge saving CIT, and was recommending that others do the same.

Michael Amini, CEO of full-line importer AICO, said his company is a former customer of CIT. He said CIT's problems are partly its management' s fault.

"Although the financial crises were a big factor in CIT's financial well being, I also believe that CIT's management's arrogance and ' We are very big' attitude and carelessness about customer satisfaction has also contributed and has a lot to do with their present situation," said Amini.

"I know of many companies like us that have left them not only due to sudden increase in factoring fees, but because of their unprofessional approach and ignorant behavior about keeping customers that have helped them to get where they were. The bottom line is no matter how big a corporation gets, sound decisions and customer satisfaction ... is essential in running a successful organization."

Bob Saquet, president of Eggers Furniture in Middleboro, Mass., said that at least three of his largest sources use CIT as a factor. He said he worries that if CIT fails, suppliers will expect their retail customers to come up with cash to pre-pay for orders, which would be impossible for many companies already struggling in this economy.

"Like any other business, we depend on cash flow to take care of our bills," Saquet said. "If we suddenly had to have an extra $100,000 to pre-pay factories, it's not going to happen. We'd have to change suppliers to those who can carry their own invoices."

He added that he doubts that government officials understand the disastrous domino effect the loss of CIT could have.

"It's nothing but massive business failures," he said. "The federal government gave GM several billons of dollars. Joe's Furniture fails and they say, ‘That's life.' But multiply Joe's Furniture buy a couple of hundred thousand, that's a major problem."