US equipment finance will grow steadily thanks to replacement
needs but below 2011 levels according to leasing body the Equipment
Leasing and Finance Association (ELFA).
The leasing industry’s trade body has compiled a list of its top
10 Equipment Acquisition Trends for 2012 based on recent research,
including the 2012 Equipment Leasing & Finance US Economic
Outlook Report by ELFA’s partner body the Equipment Leasing and
Finance Foundation.
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The ELFF report predicted a 9% annual growth in
the US equipment finance sector this year compared to 10.5% in
2011.
Central to the ELFA predictions is a belief replacement needs
will drive acquisitions in equipment and software.
William G Sutton, ELFA president and chief executive, said:
“Equipment acquisition has played a critical role in driving the
supply chains across all US manufacturing and service sectors.”
Highlighting the fact annual investment in capital goods or
fixed business investment including software is $1.2tn, half of
which will be financed, ELFA said trends in the $628bn equipment
finance sector will impact a significant portion of the US
economy.
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By GlobalDataELFA Top 10 Equipment Acquisition Trends for
2012:
1. New equipment acquisition will gradually, but
steadily improve. The equipment finance industry is
forecasting nine percent growth in investment in equipment and
software for 2012, indicating that equipment acquisition by
businesses in many industry sectors will increase this
year.
2. Replacement needs will continue to drive new
equipment acquisitions. Aging of equipment and replacement
needs will be the main drivers of new equipment acquisition, as
businesses await stronger signs of economic improvement before
expanding their equipment investment.
3. Uncertainty over proposed changes to lease
accounting will have businesses playing a waiting
game. The resolution of proposed changes to lease
accounting standards by the Financial Accounting Standards Board
(FASB) and the International Accounting Standards Board (IASB)
later this year will have businesses waiting to find out how their
balance sheets, earnings and other financials will be affected.
Meanwhile, industry advocacy will continue to mitigate the negative
impacts of lease accounting changes on US businesses and the
economy. The good news is that the primary reasons to lease
equipment will remain intact, from maintaining cash flow, to
preserving capital, to obtaining flexible financial solutions, to
avoiding obsolescence.
4. Used equipment prices will rebound in many, but
not all, market segments. The collateral value of
many categories of equipment that ‘bottomed out’ over the last few
years will rebound in 2012. Car and truck values will be
particularly strong, and construction equipment also will hold its
value. Certain segments, such as corporate aircraft, will
remain at relatively lower values.
5. Equipment finance companies will enhance
customer relationship and support capabilities to build competitive
advantages. End users of equipment will benefit
greatly from the efforts of banks and captive and independent
finance companies to grow. They’ll be providing specialized
areas of expertise and value-added customer services that will be a
win-win for both lessors and lessees.
6. Credit availability will enable equipment
acquisition for eligible businesses. Last year
credit approvals for the equipment finance industry remained above
75 percent. In 2012, businesses seeking financing for
equipment acquisitions will often find credit approvals higher in
the equipment finance industry than from bank loans.
7. Organizations seeking ways to cut costs and
increase operational efficiencies will look to technology
innovations. The flexibility, scalability and
relative costs associated with cloud computing and shared services
will begin to compete with new IT equipment purchases for many
businesses.
8. The continuation of a limited bonus depreciation
will allow businesses to plan for equipment upgrades or
expansions. The continuation of the depreciation
bonus will allow businesses to write off 50 percent of the cost on
new equipment purchases in 2012. It remains to be seen
whether the 100 percent bonus depreciation rate that expired at the
end of 2011 will be restored.
9. Global financial pressures will continue to add
uncertainty to U.S. investment in equipment. The
fallout from the euro-zone crisis and other international financial
instability will be a wild card in how much U.S. capital investment
picks up this year.
10. Individual equipment markets will see steady
growth slightly below 2011 rates. Investment in
agriculture, computer and software, industrial, medical and
transportation equipment will be positive, but may not match 2011
growth rates. Construction equipment investment is likely to slow
in the immediate near term, but could be buoyed by the energy and
housing sectors later in 2012.
grant.collinson@vrlfinancialnews.com
