French SMEs are reluctant to spend as long as the
economic outlook remains uncertain.
Claire Hack reports from Paris on the state of French
leasing.

 

The running joke within French
leasing is that lessors have been saying they are cautiously
optimistic for so long that the phrase no longer has any meaning.
But cautiously optimistic is how they remain.

France may not have taken the same
recessionary beating as some other continental countries, but it
undoubtedly saw significant market contraction, and is only now
showing small signs of improvement.

In 2009, the French asset finance
market overall, including leasing and rentals, shrank almost 24%,
while transportation and industrial equipment finance took the
heaviest blows, shrinking by about 30% each.

Some French lessors claim that the
recent economic crisis was worse for France than the previous
recession in 1993, and that business volumes fell back to levels
last seen in 1999. Others reported a flat economy, with a dearth of
new orders.

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Patrice Coulon, deputy general
manager at GE Capital France, says: “There are not enough new
orders and companies do not know how they can develop their
turnover.

“They have lost many customers and
they have more and more difficulty winning new ones. Everyone is
afraid of the future and for the moment, they’re more in a position
to wait rather than to invest.”

 

Small lessors fall
back

Despite this outlook, caution is
gradually turning to confidence as companies look to expand and
grow in the near future. The market is made up mainly of large bank
subsidiaries and captives, which should be in a position to rely on
the strength of their parent companies if the global economy
suffers a double dip recession.

Société Générale Equipment
Finance’s (SGEF) strength in the hi-tech segment has helped to
protect it during the hard times, deputy CEO Cécile André says.

She says: “When we look at SGEF in
particular, we were positioned to suffer much less than our
competitors because of our expertise in hi-tech among other assets.
All in all, SGEF definitely increased its penetration rate. We
captured new global vendors that had lost their financing partners
in the crisis, and we also took advantage of the fact a number of
local players were in difficult situations, so we were able to
increase our market share globally.”

SGEF is also developing its
presence in financing green assets.

“We have a number of developments
in renewable energy and with lighting solutions for large
corporations, in partnership with a major electronics producer,”
André says.

“The full solution is LED-based,
but it’s also about managing lights and making sure they’re
switched off.” The lessor is also financing solar panels and hopes
to expand into other forms of renewable energy.

André adds: “We are trying not only
to go into the most fashionable solutions but also to go into less
well-known but important alternatives.

“With solar panels, we have been
developing in 2009 and 2010 and that is showing interesting
prospects, particularly in France south of the Lyon-Bordeaux line.
There is a rationale for the end-client to invest in these
solutions because it’s cost efficient.”

Financing green assets is on the
rise in France with other funders, including Crédit Agricole
Leasing and Factoring (CAL&F), and government-backed OSEO
involved.

This is supported by France’s
feed-in tariff scheme, similar to those available in Germany and
the UK, which offers incentives for renewable energy projects with
a view to achieving grid parity for green power.

CAL&F deputy CEO Bertrand
Chevallier, says: “We have a very good team to evaluate the quality
of each investment. The main risk is if the panels don’t produce
the amount of energy expected but this is something studied by a
dedicated team.

“The situation in France is very
comfortable and this kind of finance has increased very strongly
this year.”

At the peak of the crisis, a lack
of investment by SMEs was among the main reasons for lessors’
difficulties.

Coulon says: “French companies had
little access to working capital and so there was hesitation when
it came to investing in new equipment.

“It was true for manufacturing,
office equipment, IT and transportation. It is better now, but not
good enough compared to three years ago.”

GE has taken a pragmatic approach
to its business throughout the difficulties, adapting its strategy
to fit the new climate.

Coulon says: “We have adapted our
team, our policy, our strategy – this is at the European level and
also at a country level. We have renewed our way of doing
business.”

GE has seen 20% growth in its
French business in H110 compared with H109 including a number of
new vendor programmes. The growth was achieved despite the loss
last year of one vendor programme with a major office equipment
manufacturer.

Coulon says: “We have expertise in
office equipment and we’re very confident about the performance we
can achieve for this year.

“In IT, however, the end of the
year will probably be more difficult in France because the segment
does not have the same penetration in leasing as office
equipment.

“For us, it is a work in progress
and we have to develop more added value for specific manufacturers,
even the ones we already work through.”

While CAL&F experienced the
decline in investment by SMEs, it also gained as some of its
competitors faltered.

Chevallier says: “We had the
liquidity we needed and so we took the position that some of our
competitors held last year. Following the crisis, investment from
corporates has decreased.”

While few lessors are forecasting a
strong upturn during the remainder of 2010, nonetheless French
spirits are beginning to lift.

André says: “We have seen the
market pick up in May and June and this has been reflected in our
activity.

“We see this in particular for small corporates, whose
investment cycles are a bit delayed, so while the finance industry
in France was picking up in early 2010, it started for small
corporates about six months later.”

See also:

Top French lessors

Market trends: Sale
and leaseback

Market trends:
Regulatory constraint

Comment: Euro
Auctions

Viewpoint: Norton
Rose, Paris

Viewpoint:
ASF

State bank OSEO confident of €3bn in
co-financing

 

Photo of the Eiffel Tower, Paris