Strong competition between domestic lease companies, which are among the largest and most dynamic in Europe, continues to fuel growth in the French lease market. Paul Golden reports.
Data from France’s association of specialised finance companies (Association des Sociétés Financières – ASF) shows that with €27.6bn (£23.6bn) in new lease contracts, institutions specialising in equipment leasing for companies and professionals – leasing transactions with or without a purchase option – recorded a significant increase in their production in 2017, up by 7.5% compared to the previous year.
Leasing transactions with a purchase option represented 24.4% of companies’ total investments in manufactured goods in 2017. These transactions grew by 9% in 2017 compared to 2016 and reached €15.7bn, while new investments made through leasing transactions without a purchase option reached €11.9bn in 2017, a 5.7% increase compared to 2016.
IT and office automation recorded the slowest growth in 2017, up 0.7% to €3.2bn, but all other sectors grew significantly – by 11% to €9.9bn for utility and industrial vehicles, 9.3% to €6.2bn for passenger cars, and 5.2% to €8.3bn for other equipment.
With €4bn in new contracts signed in 2017, real estate leasing transactions decreased for the second consecutive year, down 7.5% compared to 2016. Commercial premises, which represented the largest share of new transactions in 2017, increased by 10.8% to €1.4bn and investments in industrial premises were up by 2.3% to €1.4bn. However, the office space sector and the sector covering various premises – clinics, hospitals, cinemas – decreased by 32.5% and 23.9% respectively.
ASF director general Françoise Palle-Guillabert observes that car leasing with a purchase option remains very popular. The share of car leasing transactions with purchase options in the overall financing of new cars, excluding personal loans, increased from 42% in 2013 to 73% in 2017, and by 25.7% in 2017 compared to 2016 to reach a total of €6.2bn.
“For equipment leasing for companies and professionals, growth continued during the first nine months of 2018 with new lease contracts reaching €21.6bn, a 7.4% increase compared to the same period in 2017,” she says.
For real estate leasing, business decreased again during the first half of 2018 by 4.1% compared to the same period last year.
During the first nine months of 2018, leasing transactions with purchase options for new cars increased by 15.3%.
“Another long-term trend for individuals is the development of leasing transactions with purchase options to finance second-hand cars,” explains Palle-Guillabert. “Though still a small market in 2017, it increased by 43.7% during the first nine months of last year.”
Asked whether the French government has taken any direct or indirect action to support the lease finance industry, she notes that since leasing is directly linked to companies’ investments, it benefits from all measures aimed at promoting investment, such as the 40% additional depreciation scheme, which has been widely used since its introduction in 2015.
Computers The computer market is growing with software-as-a-service, says Alain Escoffier, CEO of BNP Paribas Leasing Solutions in France. “On the other hand, we observe a declining office market.
“In the construction or material handling sector, leasing is generally on the rise, while the share of leasing in the agricultural market has tended to increase lately, despite the recent tax cuts granted by Emmanuel Macron in favour of loans.”
While the dynamism of the French leasing market generates significant development opportunities for BNP Paribas Leasing Solutions, it must nevertheless – like all market players – face pressure on margins as a result of competitive tension, he adds.
“We are generally satisfied, despite a market that is weakening in certain well-defined sectors, for example office automation and agricultural equipment, which was rather disappointing in 2018 with a fall of 10% in the tractor market,” notes Escoffier.
According to Thibault Paland, general manager of DIAC, the French subsidiary of RCI Bank and Services, the French leasing market has never been in better shape. Leasing products represented two-thirds of France’s vehicle financing market in 2017, and the retail customer leasing market has grown strongly over the last five years, driven by packaged formulas with maintenance.
“Leasing products represent 70% of our global offer for retail new vehicles,” he explains. “Retail customers are seeking greater flexibility in car financing in terms of monthly payments, financing periods and services. At the end of their contract, they also appreciate having the choice of returning, buying or replacing their vehicle.” In 2018, four in five DIAC customers returned their vehicle.
For fleet customers, leasing products represent 90% of the company’s registrations, a figure that has risen constantly since 2015.
“Regarding the used car segment for retail customers, leasing products grew sharply in 2018 thanks to packaged offers with services – up 43% for the Renault brand, 46% for Dacia and 81% for Nissan,” observes Paland. “However, credit still represented more than 90% of the financing contracts sold for used cars in 2018.”
DIAC’s general manager says it is constantly working on offering more personalised solutions. In 2018, the company launched Easy Loc Pro for small fleet customers, a service designed to meet the full-service leasing needs of self-employed, professional people and very small SMEs.
“Even though leasing products are constantly progressing, we still have an important market for credit customers,” adds Paland. “We constantly adapt our products to our clients’ needs by offering tailor-made solutions and we expect the global trend of increasing leasing market activity to continue in 2019.”
Usage economy The French rental market is well oriented, with greater numbers of rental offers being made available by resellers, not only in information technologies but also in the automotive sector. That is the view of Laurent Wittmann, managing director of Grenke France and vice-president sales leasing.
“The usage economy has taken over from the property economy,” he adds. “For example, for a very long time the players who sell printing solutions have been most comfortable carrying out this business via rental solutions. The share of the business they do in rental is about 80% now.”
As for the most significant developments in this market over the last 12-18 months, Wittmann says it is clear that the digital signature of the rental contract via an e-signature process is making life easier not only for suppliers but also for lessees.
“We think our market will continue to move forward this year – perhaps not at the same pace as in previous years, although it is difficult to estimate given the geopolitical uncertainties we are facing,” he adds.
Wittmann says his company has continued to implement solutions to make it easier for partners and customers to do business through digital solutions such as e-signatures, a new portal for its partners, and participation in an increasing number of trade fairs to make the rental offer better known to players who are not used to promoting it. “We will also continue to develop our network of branches,” he says.
Dynamism, Competition Deutsche Leasing France managing director Eric Alessandrin agrees that the dynamism of the French lease market in recent years has been boosted by strong competition on pricing between the main players, namely the leasing subsidiaries of the five main French banks.
“The growth of the leasing market is particularly driven by the financing of car fleet and construction equipment along with some major public works like le Grand Paris,” he explains.
Having begun in 2007 under Nicolas Sarkozy’s presidency, the Grand Paris project aims to transform the Paris city area into a 21st century city and confirm its rank among competing international megacities. The project also aims to improve life for residents and to even out disparity between territories while building a sustainable city.
Richard Parcollet, general manager at DLL France, also notes that the construction market has picked up as a result of the Grand Paris project, and also the 2024 Olympic Games.
“The transportation and technology sectors are also quite dynamic, while mature markets such as agriculture are decreasing,” he says.
As for growth prospects for 2019, he acknowledges that although France remains a stable country, strikes and claims against the state result in a cautious outlook.
“Default cases might increase in 2019, and increasing stocks for transportation trade in or long lead times for new equipment – sometimes up to eight months – are not seen as positive signals,” says Parcollet.
However, despite this uncertain outlook, DLL France is looking for additional finance experts to further develop its business volume and offers, and has, over the last 12 months, signed agreements with a number of new partners.
“In addition, we have a number of prospects for 2019 that we expect to convert soon,” adds Parcollet.
Frederic Andersson, head of ING Lease France, notes that leasing is a popular and an increasingly widely used source of financing for companies in France. In 2017, leasing accounted for 24.4% of total corporate investment in equipment goods, 2% higher than the average figure over the last 30 years.
“Based on this positive development, we certainly expect the market to keep growing this year,” he says. “Rolling stock – which is the largest asset class, covering 56% of the French lease market – is also the fastest-growing segment, with 10% growth last year alone.”
In terms of market development, ING Lease France notes that leasing is becoming an increasing source of financing in the consumer lending sector. “The change in consumer behaviour explains this market development, as consumers prefer to pay for use, not for ownership,” says Andersson.
Digitisation Another major trend for the lease industry in France is digitisation.
“We view this as a positive development since digital innovation is in our DNA – we were the first pure digital bank to enter the French market 18 years ago, and our ambition today is to be just as innovative by bringing to our vendor partners a new solution that is fast, easy and accessible,” he adds.
“We strongly believe our solution will allow our partners to be one step ahead in business, by accelerating and boosting their sales, thus contributing to the growth in leasing activity in France.”
Looking ahead, Palle-Guillabert explains that the ASF is working to implement measures to boost the real estate leasing sector, suggesting that real estate leasing could be used to encourage building renovations that reduce energy consumption.
In return for reducing energy consumption, companies could, in the event of an acquisition – including a sale-leaseback, an extension or renovation of buildings through a real estate lease contract designed to meet environmental requirements for energy-efficiency – be helped by being exempted from the need to add back the additional depreciation when the buildings are eventually sold on.
Alternatively, in the event of a real estate sale-leaseback transaction, with a phase of property renovation and investments in specific equipment designed to reduce energy consumption, they could be allowed to spread the capital gain tax, she concludes.