Contract delays caused by supply chain issues affected the Netherlands leasing market in 2022, but steady growth is expected for cars and equipment in 2023, underpinned by the energy transition, Jeremy Weltman writes.
The leasing market outlook for the Netherlands remains favourable, according to Peter-Jan Bentein, secretary-general of Netherlands Leasing (NVL, the association of leasing companies). Echoing the views of others in the industry, he expects the global response to climate change to push investments in new, higher-priced, environmentally friendly assets.
Gerlach Latour, managing director of GRENKE Netherlands, concurs, adding that more and more Dutch companies are investing in green technologies, with a sharp increase in vehicle and e-bike leasing evident.
“There is an ever-growing number of companies in the ‘movables sector’ that are relying on green solutions,“ he says. “This is increasingly financed via leasing (or renting) and it means customers can acquire and use these products easily and conveniently without having to buy them first.”
Leasing can also be the catalyst for a sustainable business, Latour adds, particularly when it comes to small and medium-sized enterprises. The reason is that this form of financing, in contrast to others, provides a stronger incentive to use the latest – and thereby most energy-efficient – generation of equipment and machinery.
This all paints an evolving and brighter picture for the years ahead after the leasing market took a heavy blow from the pandemic in 2020, with an overall decline in new business volume of 15% year on year. Government mobility restrictions to contain the spread of Covid-19 led to businesses announcing sudden, albeit temporary postponements to their investments, and the Netherlands’ GDP declined for the first time since 2013, by 3.9% in real terms.
The uncertainty caused by the pandemic did not last long, however, and in the second half of 2020, the leasing market was back on track. New business volume rebounded by 4% in 2021 to almost €6.9bn, Bentein notes, although this was below the GDP growth rate of 4.9% and at an insufficient pace to bring the volume of business back up to the pre-pandemic level of €7.7bn recorded for 2019.
Russia’s war in Ukraine and the industrial sector shutdowns in China caused considerable global supply chain issues. There were delays to the delivery of equipment, with nearly all asset categories unduly affected, especially trucks, machinery and ICT.
These supply constraints, notably those involving machinery and transport equipment, were still the main issue affecting the market in 2022, which stagnated. Figures just released by the NVL show a remarkably similar total business volume of €6.9bn for last year that was broadly unchanged from 2021.
In 2022, 65,000 lease contracts were concluded, a decrease of 10% compared to 2021, with increased delivery times a significant factor, notably of new trucks. With transport representing one-third of the business volume, this has had a significant impact. Price inflation was noticeable too in terms of the average contract value, which rose by 10%.
GDP growth remained favourable in 2022, averaging 4.5% in real terms, with Brexit having little impact overall despite the granular impact on businesses trading with the UK. Dutch economic growth was higher than the EU-27 average of 3.6%, although activity slowed down in the second half of the year, when GDP growth averaged 3.25% year on year relative to the first half outturn of 5.85%, as inflation and borrowing rates rose.
The second half of the year was more troublesome for leasing, with company resources becoming more expensive and supply chain problems affecting the industry, partly as a result of the war in Ukraine. New lease production totalled €1.7bn in the final quarter of 2022, a rise of 1.2% relative to the third quarter of 2022, but still down by 4.3% compared to the fourth quarter of 2021.
“The demand for leasing is a derived demand, which means that our customers first expect delivery, and that the lease contract is only activated upon delivery. If the delivery is later, the lease contract will also be started later,” says Bentein.
“The delivery of new trucks is most affected by this. The demand is there, but the delivery time is increasing. Precisely because the means of transport represent more than one-third of the volume of new business, we feel this immediately. The supply chain is not yet running as smoothly as we would like.”
Other recent trends gleaned from the 2022 statistics include an increase in the market share of medium-sized companies as well as the growth of medium- and large-sized contracts. ICT leasing also shot up by 11% in 2022 relative to 2021.
What is more, the lessors are increasingly deploying their own sales force (including intermediaries in the leasing market), with leasing companies’ own sales teams accounting for a large part of the production. There is also a noticeable rise in digital contract processing which will only continue in future.
Vehicle leasing growth
In terms of vehicle leasing, according to the association of Dutch vehicle leasing companies (VNA), the number of car and van leasing contracts increased by 4.2% in 2022 to 1,256,000, with the growth rate relatively evenly spread across commercial and private passenger cars and vans. The market was characterised last year by both rising demand and the scarce availability of vehicles, which made it very challenging, to say the least. To meet the high levels of demand, leasing companies were forced into using newer used vehicles, a trend that is expected to continue in 2023.
The number of leased company cars rose by 4.4% in 2022, to 784,500, as the demand for business mobility increased in line with more attractive employment conditions. However, the share of new fully electric business lease cars declined from 27% of the total in 2021 to 25% in 2022, according to the vehicle data solutions company RDC, which is part of the Bovemij group.
This trend is concerning given the need to replace more polluting vehicles with cleaner models, but it does not appear to be mirrored by a similar trend for the leased van fleet. This increased in 2022 by 4.4%, to 232,400, thus leading to growth in the share of electric vans in the overall fleet from just under 4% in 2021 to almost 9% in 2022, as companies relied on leasing to finance the high cost of electric vans.
Regulation is also an influence on leasing trends, with two measures impacting the market, according to NVL’s Bentein. First, the government is to re-open a budget for subsidies in the transport market for zero-emissions trucks and earthmoving equipment on low, or zero-emissions building sites. Despite this, however, the amounts available are relatively low, he says, and in 2022 the entire subsidies budget of around €50m was assigned in a single day.
A second issue relates to Know-Your-Customer (KYC) procedures. In November of last year, the Court of Justice of the European Union decided that the Ultimate Business Owners (UBO) register was conflicting with privacy legislation. This led to the Netherlands’ ministry of finance closing all access to the UBO register with immediate effect. The effect of this is that leasing companies and banks etc. now have no possible means to check the UBO status in the official register.
“This is a problem, especially in the vendor leasing market, where relatively low value ‘flow business’ transactions are becoming more complicated,” says Bentein, while adding that “the ministry [of finance] is working on a solution, but this will take time as it needs legislative changes.”
As for vehicles, specifically, since 2020 the Dutch government has implemented a new regulation requiring companies to finance electric bikes for their employees.
“You can compare this law with the lease of a car,” says GRENKE’s Latour. “For a small amount per month, employees are offered the option to rent an e-bike with tax advantages. This law has had, and continues to have a big impact on the number of e-bikes being leased,” he says, adding that “besides this financial advantage for the employee, travelling by bike is healthier and more sustainable.”
According to the EU’s survey on access to finance of enterprises (EU SAFE), leasing is the second-most important source of external financing for European countries, with more than one in five companies using it, and the transport sector is a major buyer of leasing contracts.
Latour foresees the longer-term growth trajectory for leasing in the Netherlands continuing, with high demand in spite of an uncertain economic climate. In recent years it has become increasingly evident that leasing is the tool of choice in times of economic pressure.
Although inflation does not make it easy to acquire customers and trade partners, many companies are investing heavily in digitalisation and sustainability, and leasing is a particularly advantageous solution in these areas, he notes.
“In times of economic crises, leasing services can represent important growth levers for companies. Expenses can be smoothed out over the year, preserving a company’s debt capacity,” according to Latour.
“As-a-service” models are booming, he adds, and leasing contracts are not only simple, fast and individual, but they have also developed into all-around and carefree packages.
Leasing is seen as more than a financing solution because it enables flexible contract models and additional services, such as maintenance and integrated service packages. At the same time, flexible leasing terms also offer new options for long-term use. In combination with services to increase the service life of capital goods, this results in comprehensive concepts for conserving resources and reducing costs. This is especially attractive for small and medium-sized enterprises and self-employed professionals.
According to Bentein, the supply chain issue has caused the value of second-hand equipment to rise to the advantage of the lessees.
“Bearing in mind that the equipment leasing market is more than 75% a financial leasing market, the ownership lies with the lessee,” he says. “This means that increasing values are more beneficial to companies (lessees) than the lessors.”
It is generally accepted, he adds, that leasing is also increasing its penetration in terms of financing investments, with more and more businesses making use of leasing. This means that while there are just three banks in the Netherlands focusing on the business market there are many more leasing companies.
The industry has not really changed. The volumes distributed by banks are slowly decreasing over time and vendor leasing is increasing steadily, which allows vendors to fulfil orders and simultaneously acquire financing for equipment. This benefits the customer by not having to acquire separate financing.
Some new players have successfully entered the market and the broker channel has moved to a higher level of professionalism and specialisation, while the market is still for the most part for new assets, with few sale-and-lease-back structures, and only a small volume of leasing used assets.
Positively, there are few issues with regard to delinquencies. Dutch companies are considered relatively healthy businesses with a low volume of bankruptcies. In February, Fitch Ratings stated that the impaired loans ratio of Dutch (and Belgian) banks should stay below 3% in 2023. It is too soon to say whether the energy crisis and its attendant problems of high inflation and rising interest rates will lead to problems in that regard.
GDP growth is certainly seen slowing sharply in the Netherlands in 2023, to just 0.6%, according to a consensus of independent experts polled in the monthly survey, Euro Zone Barometer, with investment growth at a slower pace, or even declining, according to the survey’s contributors. The unemployment rate is seen rising too, but only to 4% from a 3.6% average in 2022.
Fitch believes impaired loans will remain low in the Netherlands, despite high inflation, rising interest rates and slowing economic growth. It puts this down to tighter underwriting, long or lifetime fixed rate periods, the strong labour market and government support to maintain household purchasing power. Of course, a prolonged or unexpectedly severe downturn would have a bigger impact, particularly on weaker SME borrowers.