Credit Crunch Affects Disney's Timeshare Division

[poohstx]

Orlando Sentinel 2/12/09

http://www.orlandosentinel.com/business/orl-diztimeshare1209feb12,0,4931450.story

 

[eliza61]

Orlando Sentinel 2/12/09

http://www.orlandosentinel.com/business/orl-diztimeshare1209feb12,0,4931450.story

Sure doesn't surprise me. This economy sucks. It might have a positive affect (or is it effect, I can never remember ) for any one who has been really considering purchasing.
Just like in Disney's regular division, DVC is bound to start loading on perks for folks with the ability to buy.
I would love to add on, at the new Contemproray. No way am I parting with that much cash right now.

 

[MiaSRN62]

Interesting article....thanks for posting poohstx.

A quote from the link :

Any slip at Disney Vacation Club could have broader implications for Disney's parks-and-resorts division, where the time-share unit has become an important growth engine. The theme-park division accounts for more than a quarter of Disney Co.'s total revenue.

can't help but think this recent allocation, which has ticked off more than a few Members could have longer term ramifications. I think if people feel they are getting less out of their ownership, they could decide to sell. We're getting one day less of a vacation stay every single year. I think recent BLT and AKV owners could hold slight grudges for lack of disclosure on the allocation just prior to the Jan 15 point price increase. Time will tell......
Dh and I did say we felt blessed and almost felt guilty about going to WDW when so many others are losing jobs and homes.....

 

[abner1776]

What surprised me was the 75% number.... I did not realized how many people financed their DVC purchases thru DVC....wow....

 

[keishashadow]

if anything, their deep pockets re relatively short-term financing commitment abilities will insure their position in the TS market. They r in a unique position in that they can offer the financing & probably still turn a profit on interest rates (think 0% prime rate vs interest rates charged of 10% or so, even factoring in administration costs)

will be interesting to see if a cash purchase discount (new or add-on) may be offered in lieu of incentives in the future

 

[eliza61]

What surprised me was the 75% number.... I did not realized how many people financed their DVC purchases thru DVC....wow....

That actually didn't surprise me. I know most of my friends (and me too) fianced (not through disney though) some of their cost.

 

[spiceycat]

timeshare are hard to finance and didn't want a second mortgate or any other loan on my condo.

so went thru DVC.

you can write the interest off on your taxes so it isn't that bad.

okay should get together and send the contract they just send to me back - before they go up on the interest rates.

 

[Anal Annie]

OK, so things are down at Disney across the board. The suits in charge decided it was a good time to stick it to their DVC owners by thinking we'd always be loyal. And most will be. They depend on us to an extent.

So let's raise prices again and up the minimum buy-ins & add-ons. Cut the discounts a little. They won't care that they lose that extra $3 or 4 off per point. They love us! They're Disney Freaks! Let's re-allocate the points, they won't mind. Maybe some will buy more points to keep up! Now that they've bought we own them - they'll come anyway. Let's look at the membership perks. Wonder what we can take away next to save a penny? Oh to be a fly on the wall at these secret planning meetings they must have.

I really am bracing myself for things like the AP discount to disappear.

I am also not surprised at how many people financed. I think that's a lot of cash to plop down. I think at these prices for any contract of much size you really gotta be well off to not need to keep the cash laying around for something else like groceries or the mortgage or the kids 529 plan payment or whatever. We basically had the cash for ours but put it on our equity line instead because I'd rather have access to the cash for a big emergency or something than feel compelled to sell for the money if something came up and we needed the cash.

 

[logan115]

I am also not surprised at how many people financed. I think that's a lot of cash to plop down. I think at these prices for any contract of much size you really gotta be well off to not need to keep the cash laying around for something else like groceries or the mortgage or the kids 529 plan payment or whatever. We basically had the cash for ours but put it on our equity line instead because I'd rather have access to the cash for an big emergency or something than feel compelled to sell for the money if something came up and we needed the cash.

I'm considering buying into DVC via resale in the next few months, and what you posted is exactly the reason that I will most likely finance most of the purchase.

Do I like paying 10%+ interest - no. Does it makes sense to pay 10%+ interest while only earning 2% in a savings account - no. Do I sleep better at night knowing that I still have immediate access to that money in case of emergency - yes.

Chris

 

[DisFlan]

DVC's pockets may be deep, but they aren't unlimited. They have a lot of irons in the fire, and the time share market is in a major downturn in general. DVC isn't totally immune to this downturn. I think the article is probably right - they'll have to tread carefully. At least for a while.

I agree - it'll be interesting to see what incentives pop up in the near future. With fewer consumers wanting to part with hard cash or go into more debt, it'll likely be something pretty enticing.

As for us, we bought a BWV resale 5 years ago for cash - and I'm glad we did it this way. We got a great deal and we didn't want to go into debt for vacations. Would we do it now? We've enjoyed our membership to this point, but honestly, I have doubts that we'd now buy DVC at all. And not directly from Disney (or with 10% financing). Definitely not with the changes or at the current point prices. $107 or $112+fees (or whatever it is - and likely more soon to come) would pretty much out price its usefulness to us. We'll stay with what we've got.

DisFlan

 

[glennbo123]

I'm surprised that 75% of purchases were helped by Disney financing, per the article. I'd think you could do better elsewhere. I'm not surprised that 75% are financed, but that 75% are Disney-financed.

 

[oakmanner]

 

[amyup]

I think the 75% is a lot but who knows how many actually keep the loan. I know if you look at our contracts through Disney it has us as financing through them. But we financed through them and have paid it off as soon as the first statement came. We are probably included in the 75%.

 

[tjkraz]

If there is to be any discussion of recent sales price increases / incentives / role of the reallocation, the most noteworthy sentence of the article is this one:

"Disney said time-share sales rose during its fiscal first quarter, which ended Dec. 27..."

Sales are up. Credit BLT sales or whatever folks may choose, but DVC doesn't appear to be hurting at this point.

Disney PROFITS are suffering because Disney has been unable to generate cash from DVC purchases in the manner they have in the past. Basically the article is saying that DVC used this line of credit to finance new purchases. That asset (the mortgages of thousands of new members) was then sold off on a regular basis for a quick bottom-line infusion.

But with the credit crunch Disney apparently isn't finding any takers for the mortgages. If Disney is forced to hold them, they stand to make a lot more $$$ in the long run (after all, there's a reason investors were willing to pay $40 million for those mortgages), but the money will be realized over the long term (up to 10 years) instead of being immediate.

Disney's P&L will definitely suffer since it's more cash not realized. But in this case the profit is simply delayed rather than lost. If DVC were to go all of 2009 without selling off any of these mortgages, they'll just have more to sell in 2010 when (hopefully!) the credit markets begin to right themselves.

The major question here is how much debt Disney is willing to hold and whether they may get more restrictive about financing approvals as a result. It's a delicate balance between getting points into people's hands vs. the risk associated with lending more and more money.

Is Disney raising prices and reallocating points to compensate for this? No way. The extra revenue earned from those moves (if any!) is a pittance compared to what the mortgage sales normally generate.

 

[Chellymouse]

Interesting...wonder what they will do increase their sales? perhaps better incentives for the rest of us? DH and I are very fortunate that we have jobs that are pretty much "recession-proof" but we've cut back a bit anyway just in case. We were looking at doing an add-on through Disney until we started looking at the resales.

 

[calgarygary]

Personally, if I was considering buying DVC (which I am not) I would definitely put those plans on hold as this news will have significant impact on DVC. Disney will eventually be forced to choose between using their limited dollars (it only seems unlimited) to carry new mortgages versus exercising their ROFR. I would anticipate that DVC will not want to carry empty rooms so they will use their dollars for new sales. That will eventually lead to lower offers passing rofr. Stay tuned folks, you maybe able to get into DVC at rates that haven't been seen for some years.

 

[DisFlan]

Tim, I'm not surprised sales are currently up. They're selling new resorts to the first flush of "must have" buyers with cash and/or credit. How long will sales stay up in a down market after they've skimmed off the cream layer of ready buyers? And from what the experts are saying, it looks like it'll be a down market well into 2012. Hawaii will likely be selling by that time, but a couple of years is a long time in the timeshare business.

I'm expecting to see a discount for cash sales through Disney. And I agree with calgarygary that accepted rofr prices will probably go lower.


DisFlan

 

[Sammie]

Personally, if I was considering buying DVC (which I am not) I would definitely put those plans on hold as this news will have significant impact on DVC. Disney will eventually be forced to choose between using their limited dollars (it only seems unlimited) to carry new mortgages versus exercising their ROFR. I would anticipate that DVC will not want to carry empty rooms so they will use their dollars for new sales. That will eventually lead to lower offers passing rofr. Stay tuned folks, you maybe able to get into DVC at rates that haven't been seen for some years.

I agree, I think that you will see owners who have been in for some time and feel they have already gotten their money out of their purchase, dumping DVC to get out of the dues which keep rising and fairly recent owners who bought and are now suffering financialy and unable to keep up with the payment and dues listing their points for resale.

I would not be surprised to see an increase in OKW and SSR listings in the upcoming months, and I agree I don't think DVC will have the money to keep up with ROFR at those resorts.

 

[tjkraz]

Personally, if I was considering buying DVC (which I am not) I would definitely put those plans on hold as this news will have significant impact on DVC. Disney will eventually be forced to choose between using their limited dollars (it only seems unlimited) to carry new mortgages versus exercising their ROFR. I would anticipate that DVC will not want to carry empty rooms so they will use their dollars for new sales. That will eventually lead to lower offers passing rofr. Stay tuned folks, you maybe able to get into DVC at rates that haven't been seen for some years.

That's a good point. There have already been signs that DVC is not being terribly aggressive on the ROFR front these days. Of course, in some cases they don't need to be. Thanks to all of the "buy where you want to stay" comments, I think it's becoming increasingly rare that buyers will simply opt for the cheapest Home available.

DVC doesn't have to be particularly aggressive with resorts like HHI, VB and even OKW since it's increasingly rare for people to buy those destinations just to get into the system.

Add-on demand still exists for VWL, BCV and BWV so reasonable ROFRs are still at least a break-even proposition.

BLT and AKV are in active sales so DVC has to be most aggressive there. DVC isn't going to let those pass for significantly less than retail.

The most interesting resort will be SSR since it is in active sales and has the most points in the system (meaning most resales.) Of course, adding the THV to SSR can only help resale prices.

When it comes right down to it, you first need a seller willing to accept a low-ball offer in order for the ROFR floor to truly be challenged. If I were in the market, I'd probably test the waters myself. It certainly is a buyer's market right now.

But even without aggressive price control from DVC, it's not going to turn into an immediate fire sale environment.

 

[kgc07]

I just got an e-mail for a free 3 night cruise with a 100 point add on.