MEDIA:          Online TV

STATION:    Forbes.com Video Network

DATE:            12/7/06

PROGRAM:  Changing Business

SUBJECT:     Interview with Mark Sunshine, COO/CFO of First Capital

 

Michele Steele, Forbes.com anchor:

 

Two-thirds of all economic activity in the United States and the holidays turn the market’s attention to that consumer. Here with an end of the year look at what’s in store for retailers and manufacturers is Mark Sunshine. He’s chief operating officer and chief financial officer of First Capital – a firm that lends to and services middle market companies and institutions. Hi Mark.

 

Mark Sunshine:

 

Hi, how are you?

 

Steele:

 

Pretty good. First of all let’s talk about the business here. You know almost all of First Capital’s borrowers are projecting increased sales for the first half of 2007. In addition to strong margins, maintaining strong margins in the short term. What’s driving those gains?

 

Sunshine:

 

We think that the gains, at least that we’re seeing in our portfolio, are related to weak inventory purchases on the part of retailers for the Christmas season. So we think that retailers are going to be selling through their existing inventory and have a need to rebuild inventory positions in the first half of 2007.

 

Steele:

 

That’s interesting. They were pretty conservative in the summertime when gas prices were high. Now let’s take a look at the bigger picture here. I know that one of the concerns, at least for First Capital, in the long term is overseas competition. Especially for companies that do compete with Chinese and Indian manufacturers, where the costs are much less than they are in the United States. What’s going to change the debate there? Or is First Capital simply following the business overseas?

 

Sunshine:

 

Well we’re not sure what’s going to change the debate but we are following the business overseas. We finance American manufacturers and American manufacturers that outsource their manufacturing to China, and India, and Indonesia, and other Asian countries.

 

Steele:

 

So, as far as First Capital is concerned, this is not a trend that you see stopping anytime soon.

 

Sunshine:

 

No. Absolutely not. In fact, we just opened a Hong Kong office to be able to finance exports from Asia into the United States and the EU.

 

Steele:

 

And so what’s the concern, as far as a U.S. manufacturer is concerned? They are actually turning into different kinds of companies? Their business model is changing, right?

 

Sunshine:

 

We think the business model for a lot of U.S. manufacturers is, in fact, changing and perhaps without them realizing it, not in a very positive way. Many U.S. companies that are manufacturers have given up the design and, in some cases, the marketing function to their Asian subcontractors and the subcontractors are beginning to side step the U.S. companies that were formally manufacturers and now look a lot like trading companies.

 

Steele:

 

Right, and especially I want to talk about the auto parts and the auto manufacturing space. No less than five of those companies were under some sort of bankruptcy protection this year. Do you think that they’ll actually see some companies liquidate?

 

Sunshine:

 

We think that there is considerable over-capacity among auto parts manufacturers, and there is going to be considerable consolidation among auto parts manufacturers that are manufacturing in the United States. We don’t necessarily think that is a uniform trend throughout the industry, meaning that there are some auto parts manufacturers that are shipping to Toyota, and Honda, and other Asian manufacturers operating the U.S. but many of the auto parts manufacturers, we think, are going to consolidate.

 

Steele:

 

Okay and I want to talk about the climate for borrowing as well, the cost of cash. December 12^th, the FOMC meets again, any inclinations as to what they are going to do then?

 

Sunshine:

 

We actually do not have an interest rate projection for what the FOMC is going to do. But, generally, we think that for the time being, rate increases are either done or have largely evaded. We think there is going to be relatively stable interest rates for the foreseeable future.

 

Steele:

 

Okay, and that’s good news for real estate, certainly.

 

Sunshine:

 

Yes, absolutely.

 

Steele:

 

Okay, thanks so much.

 

Sunshine:

 

Thanks a lot.

 

Steele:

 

Again, that was Mark Sunshine, the Chief Operating Officer and Chief Financial Officer of First Capital. That’s a firm that lends to middle market companies and institutions. I’m Michele Steele and thanks for watching the Forbes.com video network.