Gregory Autin, managing director of AUTIN&Co and Pecunica LLC, assesses the damage to asset finance during the first half of 2020, after the turbulence of Covid-19.
The Covid pandemic has affected production and demand, caused supply chain and market turmoil, and severely impacted firms and financial markets. The coronavirus disease has disrupted economic activity globally.
Austria’s measures to contain the virus from spreading have weighed heavily on the economy and virtually all industries and sectors.
The Austrian leasing industry was particularly hard hit by the pandemic. The Austrian leasing association (Verband Österreichischer Leasing Gesellschaften) reports significant losses in the first half of 2020 as a result of the coronavirus.
In line with its devastating effect on the Austrian economy, the Covid-19 virus has severely impacted the domestic leasing market. However, while inflicting serious suffering on the automotive and equipment leasing business, real estate leasing reported a noteworthy increase during the first six months of 2020.
Austrian leasing companies recorded €3.7bn in total new business in the first half of 2020 – 67.7% automotive, 19.4% equipment and 12.9% real estate. This reflects a decline of 10.9% in new leasing business compared to the end of June 2019.
Automotive leasing suffered a dramatic loss since the beginning of 2020. A drop of 19.7% in new business with a volume of around €2.5bn was recorded. The average contract size of €27,106 in the first half of 2020 represents a decrease of 0.4%.
Although less severe, the number of new contracts in equipment leasing (excluding automotive) fell by 9.8%, to 10,953, in the first half of 2020. Compared to the first half of 2019, the average contract size decreased by 5%, to €65,366, and total new business fell by 14.4%, to around €716m.
Business in office equipment leasing dropped by 30.8% year-over-year (YoY). Aircraft leasing was little used, resulting in a 64% decline compared to 2019.
In contrast to automotive and equipment leasing, domestic real estate leasing experienced an increase of 160.3% in new business, for a total of around €477m. The 64 contracts closed by the end of June 2020 represent growth of 68.4% over 2019, with the average contract size rising by 54.5%, to €7.5m, VÖL reports.
Automotive leasing is traditionally the fastest growing sector of the Austrian leasing industry. New registration of vehicles in Austria also lies above the EU average.
Automotive leasing accounts for approximately 70% of the consumer automotive financing market in Austria. More than seven out of ten company cars are financed by leasing.
New vehicle registrations in all countries fell by double digits during the Covid-19 lockdown. Accordingly, the loss in new business in automotive leasing in Austria in the first six months of 2020 was quite dramatic.
The decline of 19.7% for a total of €2.5bn in domestic new automotive leasing in the first half of 2020 is attributed to a 35% reduction in new vehicle registrations. Nearly 40% of all new vehicles registered in Austria in 2017 were made via leasing.
At €339.5m in new business, fleet management recorded a drop of 22.8% in the first half of 2020, with the number of contracts falling by 20.4% YoY. In 2017, business in fleet management was €868m with nearly 35,000 contracts, VÖL reports.
The coronavirus crisis has driven socio-economic change at an unprecedented pace, as communities and companies are being forced to adapt. Where moderate economic recovery is foreseen in the short term, strong mid- and long-term economic performance is expected.
After collapsing in the first half of 2020, economic output began to recover following the easing of measures to contain the Covid-19 pandemic and the initial re-opening of businesses. The Austrian Institute of Economic Research (WIFO) reports a -10% change compared with 1Q20 and a YoY fall of 12.9% in GDP in 2Q20.
A drop of approximately 6.8% in GDP is predicted for 2020, following GDP growth of 1.6% in 2019. Economic growth of around 0.6% p.a. is expected for the period 2020 to 2024.
A 1.9% decrease in employment is forecast for 2020. For the years 2020 and 2021, an inflation rate of 1.3% and 1.5%, respectively, is anticipated. An average annual price increase of 1.6% is projected for the period 2020 to 2024.
Employment and inflation trends have a direct impact on the development of nominal gross wages and salaries. A decline of 1% and an increase of 3.2% are expected for 2020 and 2021, respectively, the WIFO reports.
Austria has enacted several employment-related and economic-stimulus measures that provide relief in response to Covid-19. However, investments financed via leasing are excluded from the new investment promotion programme for companies.
According to the president of the Austrian leasing association, Ömer Köksal, the domestic leasing industry is gradually overcoming the impact of the coronavirus pandemic. Moreover, the automotive and equipment leasing markets are already well on the way to recovery.
Gregory Autin is the finance industry subject matter expert behind the Pecunica™ knowledge base (www.pecunica.com) and online learning platform. Pecunica provides in-depth knowledge on various areas of finance and commercial real estate, including leasing and lease financing.