Building Hitachi Finance on U.S. Shores: How to Succeed in Business Without Speaking a Word of Japanese
by William H. Besgen Monitor 100 2016
In April, Bill Besgen stepped down as vice chair of Hitachi Capital America’s board of directors. Besgen started at HCA in 1990 when the Japanese company initiated its U.S. finance efforts. He looks back at his years building the company into a strong player in the U.S. equipment finance business — without speaking a word of Japanese.
William H. Besgen, Senior Advisor/Vice Chairman Emeritus, Hitachi Capital America
In April 1990, after 21 years with Citicorp, I joined what is now Hitachi Capital America (HCA) as executive vice president, chief operating officer. Both the company president and treasurer were Japanese, and I didn’t (and still don’t) speak a word of the language, but that didn’t stop us from creating a company that is celebrating its 26th year in business and now has more than $2 billion in assets and more than 225 employees in the U.S. and Canada.
The company was incorporated in October 1989 as an independent finance company in Delaware with $6 million in capital. The company was, and remains, 100% Japanese-owned with corporate headquarters in Tokyo.
At the start, the president of the company and I established three goals. We wanted to focus on the commercial equipment marketplace, not consumer finance, even though Hitachi makes consumer products. We wanted to be conservative and not take a lot of risk. And, of course, we wanted to make money as soon as possible. We hoped to build on Hitachi’s reputation as a manufacturer of reliable products, even though the company was not known as a finance company in the U.S. at the time.
Understand Your Target Market
Since I didn’t speak Japanese, I knew I had to establish a common language with my team to explain how to evaluate good credit. Our parent company was AA rated and grandparent Hitachi Ltd. was AAA rated, so the company understood the importance of the rating system and was very proud of these ratings.
The company wanted to make money as soon as possible, so I knew we had to put assets on the book quickly — probably large-ticket assets that required limited collections and low amounts of back office paperwork.
The equipment finance market in the 1990s had a big focus on mainframe computers, which cost millions of dollars. Both Hitachi and IBM were big players in manufacturing mainframes, so it seemed as if this was a good place to start. I knew residual risk was not something I could explain to my Japanese colleagues, so our focus in those days was on providing the debt in leverage leases of these assets.
Have a Good Source of Capital
Given our parent company’s financial strength, raising large amounts of competitively priced financing, especially with the Japanese banks, was not difficult and became easier as we established an MTN and a CP program.
Through companies like Comdisco, we financed millions of dollars of non-recourse debt on leverage leases with investment grade rated companies as obligors. We were able to underwrite and respond very quickly to financing opportunities. In our first five years in business, we grew our portfolio to more than $500 million in assets with no delinquencies and no credit issues and developed HCA’s name in the marketplace as a reliable finance company with a conservative credit focus.
While we were building our business, the banking community in the U.S. in the early 1990s was suffering from too much exposure in a problematic commercial real estate market and was selling non-real estate assets to acquire needed liquidity, which HCA had. In the mid-90s we expanded our focus to vendor financing in the technology space. We were one of the first finance companies to lend against software license agreements with investment grade companies as our obligor. Oracle was a major vendor for HCA, and we financed more than $250 million with them over several years.
As part of our vendor focus, we started financing medium duty trucks manufactured by several Japanese companies, including Mitsubishi and Isuzu.
Today we have more than 2,600 dealers across the U.S. and Canada sourcing retail commercial business for HCA in addition to floorplan financing.
Know Your Customer
Building our business was not without its challenges. With our investment grade focus on credit, we bought some fraudulent paper from a regional Virginia-based bank where the obligor was supposed to be Philip Morris. Four other banks also purchased this paper for a total in excess of $300 million. Our portion was $25 million. Fortunately, we went into the deal with modified loan documents which provided our legal counsel with the ability to argue successfully that the originating bank had made a “hard rep” as to who the borrower was.
Because of this situation, I made many trips to Richmond between 1996 and 1999 to listen to our counsel argue before a federal judge. Even after we prevailed, the bank, which was then owned by First Union, appealed to the Federal Court of Appeals. Still, we were successful on appeal, and we recovered all of our principle plus interest and legal costs. Our parent company stood by us through this process. In my initial apology letter to the company president in Tokyo, I promised, “We will be a much stronger company as a result of this experience.” I truly believe that happened.
Have a Strong Parent
The Great Recession severely affected our company, as it did many other finance companies and banks. Our retail commercial truck customers were under severe pressure to survive, as were our construction dealers and customers. As liquidity froze in our CP and MTN programs, our parent company wrote us a check for $175 million, and we were able to honor all of our financial obligations. We repaid the loan in nine months.
As a result of the recession, we had to streamline our business. My most challenging and difficult decisions revolved around terminating staff, some of whom had been with me for many years. We also exited our construction business, which had been in place for 10 years.
Try Before You Buy
As markets stabilized, our parent company allowed us to expand our existing business. In 2012, we acquired Hennessey Capital, an asset-based lending and factoring company that we had been working with since 2010. At the urging of Isuzu and Mitsubishi, we established a subsidiary in 2012 in Canada to finance their trucks and dealers there. Unsure in advance that this venture would be successful, we found a servicing partner in Quebec, Canada, CLE, a company we acquired in 2014.
In June, we completed the acquisition of Creekridge Capital, a company we have been doing business with for almost 10 years.
The lesson here is, get to know the people and processes behind the company before you make a substantial investment. There is no better way than doing some business first.
Character, Integrity and Communication
In all the years I have been doing business, I found one of the most important ingredients for success is the character and integrity of the people you deal with — whether it is your parent company, employees or customers. The need to have honest, frequent communication is critical. If you don’t speak the same language, communicate in writing — it can always be translated. And even when we do speak the same language, the written form reinforces the spoken.
Organization Staffing Excellence and Succession Planning
Success in any organization is only achievable with well-trained, motivated people working in the best position to capitalize on their strengths and talents. At HCA we formally review each staff member twice a year with senior managers to ensure we have identified our most talented contributors and that they are positioned to maximize their strengths and allow for future succession planning. It is also important to identify those employees who need developmental help. Performance feedback should be given frequently, as needed, and not be just an annual review process.
A properly staffed organization is like a fine tuned orchestra and our goal should be no different in trying to achieve that.
My last piece of advice: Always listen. Listening to your customers, employees and parent company will provide ways to improve your business and spark new ideas.
Vice President of Financial Services,
Corcentric Capital Equipment Solutions
The first step in developing a long-term equipment financing strategy is to identify all of the fixed and variable costs associated with operating your current fleet. Patrick Gaskins of Corcentric recommends developing a spend analysis to identify current and future potential purchases.
Brokerage, like many financial and professional services, has changed over the years, with the rise of digital innovations, ease-of-use communications and new products on offer through the leasing industry. But for those just starting out, sometimes the old-fashioned way of growing a business is still best, as Bob Bell explains.