for the year to May 31 2008
Highlights
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After a period of resilient growth, the FLA business finance
market looked rather precarious in May, potentially at a tipping
point. Such are the vagaries of monthly reporting that time may
tell a different story, but with monthly volumes (excluding big
ticket) 19 per cent down on the month and 13 per cent year-onyear,
for the first time this year YTD figures showed a drop from last
year. Big ticket volumes were down 67 per cent on the month, though
still marginally up on last year and well up YTD.
Direct, broker and sales finance all showed monthly and
year-on-year declines. Sales finance, down 19 per cent YTD, appears
most impacted, having shown year-on-year monthly declines
throughout 2008. All finance product categories were also lower
than last month and May last year.
Looking at specific asset categories, not surprisingly air,
rail, shipping and international assets were all down on last
month. Other asset classes showed unspectacular volume reductions,
with business equipment perhaps showing the greatest potential
weakness.
The FLA results fit with the latest Bank of England Credit
Conditions Survey released in early July, which suggests weakening
short-term volume prospects, with bank lenders expecting a
reduction in both supply and demand for corporate credit, a further
widening of spreads, increased probability of default and loss
given default. The one positive crumb from the report may be for
those finance providers able to take advantage of the supply
weaknesses of some of the major funders.
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By GlobalDataYTD car registrations also dipped below 2007 figures in May (0.6
per cent down). Not surprisingly, hardest hit were consumer
registrations (3.5 per cent down) though the good news for business
finance providers was that fleet registrations remained 2.3 per
cent above 2007 figures. It will be interesting to see how these
hold up in the coming months. Light commercials dropped four per
cent on the month, though were still slightly ahead of 2007, while
truck registrations look set to remain strong for the rest of the
year.
Elsewhere in the economy, there is no change from HMRC’s March
forecasts of 2008 GPD and fixed investment forecasts in the
1.75-2.25 per cent range, and the 2009 figures of 2.25- 2.75 per
cent and 2.75-3.25 per cent respectively. By comparison, the latest
CBI predictions are GDP falling from 1.7 per cent this year to 1.3
per cent in 2009 and investment at 0.3 per cent for both years,
suggesting a significantly harder ride for finance providers.
Latest figures show Q2 year-on-year GDP growth at 1.6 per cent,
down from 2.3 per cent in Q1.
Comment
At a macro level, the Bank of England report paints a gloomy
backdrop for the asset finance sector over the coming months, but
in adversity there is opportunity. Takeovers, capital shortages,
controlled aggression and targeted niche strategies look set to
change the competitive picture, with clever operators able to take
a medium-term view likely to come out the winners.
The author is a partner in the consulting and services firm
Invigors LLP, peter.hunt@invigors.com
