negative GDP growth for Q3 2008, September saw a bounce in FLA new
business volumes following a disappointing August, with business
finance (excluding big ticket) up 31 percent on August and 7
percent on September last year.
At the end of Q3, business
finance excluding big ticket was only 1 percent down YTD compared
with last year’s bumper volumes. Big ticket continues to steam
ahead, up 46 percent YTD.
The FLA’s new business data makes
fairly agreeable reading against a backdrop of fairly bleak
statistics for the various asset markets. In September – usually
the second biggest month of the year after March – car
registrations were down 21 percent on last year (though
importantly, fleet volumes were only down 3.3 percent). Vans were
also down 22 percent, though trucks were 3.6 percent up.
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The Construction Federation
reports that the slowdown in private housing construction has now
spread, with the commercial sector set to suffer in 2009 and 2010.
At least the Olympics and the PBR should offer some small glimmers
of hope.
More positively, the MTA report
that European machine tool production will be up 9 percent in 2008,
with long order books taking sales volumes safely into 2009.
FLA volumes for September suggest
that businesses are switching into asset finance at the expense of
other funding mechanisms. Car finance new business volumes were up
1.8 percent on last year, commercial vehicles up 2.6 percent, and
plant and machinery up 1.7 percent. This may be as the core
benefits of asset finance are being realised by customers (a
victory for good selling practices and effective marketing) with
bank funders feeling more able to lend against tangible
collateral.
A CBI survey released in late
November highlighted worsening in working capital conditions for
businesses, with an expectation of further deterioration. This has
taken the form of tighter lending conditions and withdrawal of some
credit lines, and may create continued opportunities for
collateral-backed lenders.
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By GlobalDataEqually, the rise in asset finance
volumes may be driven by relatively small margin increases compared
with other sectors, possibly making asset finance look like a cheap
source of funds, and potentially under-priced.
Direct finance seems to have fared
well during these troubled times, with an increase of 7.6 percent
YTD. Conversely, sales finance has shown a drop of nearly 18
percent so far this year. Despite complaints from a number of
funders of high and worsening bad debts in their broker portfolio
and reduced activity from some funders in that sector,
broker-introduced volumes have held up fairly well, down 3.6
percent YTD but up on last year in September.
Comment
With fairly robust business
volumes, increased margins (though perhaps not as high as they
could be), and supply turbulence created by a combination of the
changes in funding availability and shareholder priorities, there
is likely to be no shortage of opportunity for active lenders over
the next few months.
However, with latest government
statistics showing a 26 percent rise in business insolvencies
compared with last year, perhaps the greatest challenge will be to
ensure that collections skills, processes, priorities and
management information are able to protect funders from the
inevitable rise in bad debts.
The author is a partner
in the consulting and services firm Invigors LLP, and can be
contacted at peter.hunt@invigors.com
