Financial Crisis Affects Timeshare Industry (Part 1)

The current global financial crisis has created a troubling situation for timeshare owners. As most sectors of the economy are feeling the squeeze, the nation’s timeshare industry is being pounded from both sides as banks cut back on lending and consumers cut back on spending.

As a result, at the same time as individuals have to deal with stagnating or falling incomes, deteriorating retirement funds, and a higher cost of living, timeshare resort companies that are feeling the pinch are passing their financial burdens on to the consumer.

Consumer Spending

Currently individuals, families and companies are severely cutting back on leisure and travel spending faster than was anticipated, reports The October 23rd article notes “forecasts [show] that the deterioration in leisure and business travel is accelerating as corporations and consumers contend with higher food prices, declining home values, job losses and scarce credit.”

Lisa Ann Schreier, author of Timeshares for Dummies, says that people simply do not have the disposable income right now. “People are scared, “says Scheirer. “And with the credit crunch, it will be harder and harder for people to finance timeshares. I think the time-share industry for too long has thought itself recession-proof, and I don’t think so.”

The Frozen Credit Market

If the timeshare industry did at one time consider itself recession-proof then that is certainly no longer the case. The timeshare industry is strained not only because consumers are spending less but also due to the fact that this industry has largely relied on mortgage-backed securities.

David Siegel, Company President of Westgate Resorts, the largest privately held timeshare company in the world, attributes his company’s “financial squeeze” to the fact securities are no longer being bought.

In a September article in the Orlando Sentinel, Siegel explains that the timeshare companies “[keep] money flowing through lines of credit that are then paid off when [these companies] bundle and sell their mortgages as securities” says Siegel. “All of a sudden no one is buying those securities.”

Siegel’s Westgate Resorts employs more than 10,000 individuals nationwide and has had to recently shut down much of its sales and lay-off hundreds of workers.

Two other major players in the timeshare industry that are worth noting here, Starwood Hotels & Resorts Worldwide Inc. and Wyndham Worldwide, have seen profits and sales fall, with Starwood’s timeshare sales falling 11 percent in the third quarter. Starwood, the third largest US lodging company, has cut employees, shut sales centers and trimmed expenses at Starwood’s Sheraton and Westin hotels.

Wyndham Worldwide has laid off hundreds of employees, ranging from marketing directors, to managers, to financial analysts.

And now the government is being asked to step in.

As reported in an October 29th Orlando Sentinel article entitled, “Time-share industry seeks relief,” American Resort Development Association (ARDA), a timeshare trade group, is asking the federal government to step in and guarantee time-share mortgages in exchange for an insurance fee.

Howard Nusbaum, CEO of ARDA, warned that the timeshare industry was “selling itself out of business.” “If our business model gets interrupted, that costs jobs,” said Nausbam. “It’s not good… for timeshares if there’s not liquidity in the marketplace.”

Like any business these days, it’s hard for timeshare companies to get money. And now it’s becoming increasingly difficult for these companies to use their customers’ mortgages to raise cash.

In the recent past timeshare companies were able to leverage their current income to build more timeshare units in different locales in order to magnify profits. This strategy worked well in good economic times but unfortunately multiplies the draining effect when credit is scarce and when revenue decreases.

Next post: So what does this mean for timeshare owners?

One Response

  1. […] we’ve written about how the poor economy has negatively affected the timeshare industry (Part 1 / Part 2).  In addition to some incredible special assessment fees timeshare owners have received, […]

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