With the French economy off the pace in comparison to the UK and Germany, times are tough for the country’s leasing industry. However there are some bright spots, reports Jonathan Minter

Compared to the performance of the other large European economies, French economic performance could be described as relatively middling. It has generally performed better than those of Spain and Italy, but in recent years struggled in comparison to the UK and Europe’s economic powerhouse, Germany.

Exactly why the French are struggling is a matter of debate, with some blaming the effects of restrictive government policies on business, others on the fiscal drain of numerous bailouts, and others on the poor performance of the Eurozone, France’s primary trading area.

And according to Jean-François Gervais, directeur général adjoint at BNP Paribas, the French asset finance industry is only going to start recovering when the French economy as a whole begins to recover.

In this context, it’s little surprise the French leasing industry has struggled with growth. According to Leaseurope’s Annual Survey 2013, the Association Francaise des Sociétés Financieres (ASF) recorded a 5.45% drop in new production between 2013 and 2012, to €28,766m. In the same period, the Fédération Nationale des Loueurs de Véhicules recorded a small growth, up 2.18% to €8,773m worth of new production.

Gervais says: "Everyone is speaking of deflation at the moment, and is scared of that. In comparison to the UK, we have no inflation at all, and the last retail price index showed a decrease, so everyone is upset about that. So if we get on a deflation curve what happens to anticipation, and what about investment. So no one is expecting a sharp recovery in the French economy. The climate is really rather bad."

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Echoing the Leaseurope survey, he says new business volumes have been struggling due to low investment. As a result, he predicts a flat year as far as new business goes.

One bright point is that margins and risks have improved, and therefore the level of profitability will be "quite acceptable" in 2014, he says.

While agreeing the French leasing industry struggled in 2013, Nicolas Ullmo, Cassiopae’s product marketing director, says that over the past nine months, things have begun to turn around. "We saw the first signs of a slow growth nine months ago, and since then it’s started to improve." Ullmo has observed most of this growth coming from small companies, as opposed to the larger leasing companies.

Laurent Saucié, managing director for Société Générale Equipment Finance (SGEF) France, says the performance at the start of the year is notable due to the good results from the sales of leasing offers in banking networks.

Similarly, Eric Lucas, deputy managing director at Econocom Managed Services, says: "The first quarter was stable, the second quarter was progress and we believe we have been at the very bottom of the curve. We believe we’re going to have a small growth, quarter-to-quarter, for 2014’s fiscal year of 2% to 3%.

Part of the reason Econocom may be slightly more positive than the market in general is that the company is primarily a technology management and financing company, and both Ullmo and Gervais say agriculture is one of the areas that has really struggled.

Gervais, for example, says: "The farmers and the contractors have invested a lot in the past, so it’s normal that the speed of the investment is slowing down quickly. At the same time the prices of any kind of crop are decreasing, so it creates a kind of uncertainty. You especially see that with the Russian embargoes. All in all it’s the cycle of investment; it was very strong over the last two years, so it’s normal for it to be readjusted."

However BNP will continue to invest in the industry, Gervais says, as it sees opportunity due to the industry moving very rapidly to a high-tech environment.

Saucié says there have been ‘mixed’ results for the transport sector, which he says saw a sharp increase in the final quarter of 2013, with registrations rising 14% in November and 55% in December, due to the anticipated implementation of the EURO 6 standard.

Since then the sector has faltered. There were a total of 43,264 units sold in 2013. However the forecasts for 2014 suggest 41,000 units will be sold for the year. Saucié says: "France is currently bucking the general trend for Europe. For example, sales of +3.5 ton utility vehicles rose by an average of 3% in Europe over the first five months of 2014, whereas they fell by 7% in France. The difference is even more visible for +16 ton industrial vehicles, with sales up 7% in the EU but down by 5% in France.

There’s consensus that large corporations are looking to cut costs, causing office equipment finance to struggle, as companies look to extend the lifespan of items used.

One area large corporations have continued to invest in is mobile devises such as smartphones and tablets. According to Lucas: "All these industries are investing heavily in tablets and phones, and they invest in short-term contracts of 12 to 24 months."

Ullmo says the French leasing industry is also starting to penetrate into the retail mobile market. Whereas in the UK contracts are with the operator, and encompass both the handset and the connection, in France there are independent contracts for the handset and for the connection, with leasing operators increasingly looking to break into the former.

Aside from telecoms, Lucas says there are some big, transformative IT projects occurring in schools and hospitals. In schools, for example: "You won’t educate your students in the same way as you did in the past. And you will need more digital devices and let them be connected inside the school space in a different way, and there will be a massive impact on the ways a teacher will train the students, the way they deliver their lessons and the way they share their knowledge. And thanks to that, the whole education system will be changed in the next 5-10 years."

The opportunities in hospitals occur, almost paradoxically, due to budgets being cut. According to Lucas, both private and public hospitals, looking to cut costs, are attempting to reduce the time patients spend in hospital. In order to achieve this, hospitals are having to make a massive IT investment to make sure they can properly trace a patient’s development after they have been discharged.

Gervais also sees digital as an opportunity for the asset finance industry. He says: "We feel more and more that the connection with web access and electronic signatures, big data and that stuff, all that creates a new age, and will be it will be very interesting to see digital in the leasing market.

Similarly, Saucié says SGEF’s high-tech results have improved since the start of 2014, and adds: "The growing use of cloud computing by companies for archiving is a real opportunity for us to seize by creating new financing offers to match this new demand."

According to Ullmo, the majority of any recovery is coming from small-ticket business, and he says that while leasing is linked with the general performance of the French economy he would hope to see new projects on medium and big-tickets.

However looking ahead, the biggest trend Ullmo sees is further integration for leasing companies. In Cassiopea’s case, this takes the form of greater integration with vendors. For example, he says vendors are now able to use tablets in order to do leasing business away from their computer.

More broadly, he sees a trend towards integration between various companies and their subsidiaries. He says: "Due to the fact that the large financial institutions or leasing institutions very often have different software for each of their subsidiaries because of their history, it’s difficult to get an overview of what’s going on in every country or subsidiary."

As an example, he says: "At present it’s very difficult if you are a German car manufacturer and you have a different platform in France, Spain and Italy, but your customers are present in all these countries. You cannot maintain a global view about what’s going on with these customers and at the same time focus on specifics, like truck driver who’s leased a car in France, but moved to Italy. That’s a nightmare."

Because of problems like this, Ullmo says he’s observed a general trend towards greater consistency among large groups emerge over the previous five years, driven by both end-customers and the leasing industry.

However, this push has become more prevalent in recent years due to ongoing economic struggles and the problems this is causing leasing companies. In addition, continued investments in technology have made development in this field increasingly possible.

For Gervais, aside from digital progress, he sees the industry’s development into becoming more of a service continue. "The ability to provide very flexible financing solutions will also be a big trend in the market, enabling end-users to adapt the capacity, the duration, and the fleet size of the agreement to their own needs. So we feel a strong development of flexible options on financing," he says.

Saucié says the main challenge facing vendor finance in the office equipment and IT markets is the transfer from hardware financing to software financing and the provision of related services.

He says: "The emergence in the market of increasingly integrated IT solutions and the dramatic decrease in hardware prices means that if we wish to continue our development in this key sector we need to rethink our business model."

Staff levels

Despite a relatively high level of unemployment, French staff turnover remains extremely low, with Gervais suggesting a number around 2%, and he says very few people resign in France.

"Due to the financial crisis, people are much less willing to change because they don’t find better jobs or salaries," says Ullmo. "So if you have a company such Cassiopae with significant growth, then you’re in the right place to stay. I’m not sure we’re the reference worldwide, but retention is not an issue."

Gervais also says the French industry suffers from a lack of new blood in the market, much as in the UK, and he says this causes issues in keeping staff up to date with compliance developments.

Lucas says Econocom has spent the previous years developing itself as a brand in order to attract new, young staff. He says: "We want to hire lots of young blood from 25 to 35, and we believe our group image has a great impact on the new generation. So Econocom has changed its position and image in terms of its relationship with young people in the market."

One example of this he gives is moving to new, fully modernised premises. He describes the new offices as colourful, with places for leisure and rest. In addition the company has moved to a more US style of work, without fixed desks and with opportunities to work from home.

When it comes to training staff, there appears to be disagreement over how best to train the next generation of industry leaders.
Econocom has implemented an academy where staff are trained in leasing, the sales methodology of the company, understanding client needs, and how best to serve that.

Similarly Gervais says BNP has invested in a vendor academy.

Ullmo however says that Cassiopae has a coaching culture. "New staff are always coached by senior staff from the company who give them both the technical knowledge of the platform and the business knowledge on the leasing and loan business."

The company has some formal training as well, but Ullmo says he prefers coaching.

There’s also some disagreement over the future effects of the leasing accounting changes currently being debated by the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB).

Gervais says France doesn’t apply these international standards for the bulk of companies, which instead apply French GAAP. Therefore, he says: "It will have very little impact."

Lucas, however, says that companies looking to list on the French stock exchange tend to bear in mind US GAAP. Plus, he says: "What occurs in Anglo Saxon countries might come to Europe."

According to Saucié, tightened regulations covering intermediaries in banking operations and payment services at the start of 2013 made the process of using hire purchase at points of sale more cumbersome for vendors.

As a result he says: "In the office equipment, IT and medical markets, these stricter rules have already convinced some leading players to switch from hire purchase to financial leasing, which is not covered by this regulation.

The future of the French asset finance industry remains cloudy. As is the case in other mature markets, those who speak to Leasing Life all agree the industry is increasingly developing an integral service side to go with the pure finance they provide.

There is also a general agreement that software looks set to continue its upward trajectory in general, especially compared to IT hardware, which has been declining.

On the whole it would appear that the leasing industry is not overly optimistic. While Gervais is worried about possible deflation and the economic problems this would cause the country, others are of the belief that at last the French economy is bottoming out, and even beginning to improve. However even Lucas, who is relatively optimistic, only predicted "small growth, quarter after quarter."