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June 9, 2009updated 25 Jan 2022 11:53am

Fortune favours the fleet of foot

Refinancings and public sector demand maintain business in the £10,000 to £100,000 bracket Some lessors, particularly larger ones, that specialise in the £10,000 (11,395) to £100,000 sector are feeling the pinch

By Ludwig Fischer

Refinancings and public sector demand maintain business in the £10,000 to £100,000 bracket

 

Some lessors, particularly larger ones, that specialise in the £10,000 (€11,395) to £100,000 sector are feeling the pinch. International players, for instance, have experienced a significant drop in order intake due to a slowdown in customer procurement activities.

Their customers are also increasingly postponing the time they take to make investment decisions. Overall, however, business in this sector is flattening out now after it nose-dived during the first quarter of this year.

However, a number of fleeter-footed, smaller leasing companies and niche players reported moderate new business growth in the £10,000 to £100,000 ticket sector.

Ordinarily, given market conditions, business for these leasing companies would be down. They would also be affected by the general downturn in refinancing opportunities. In fact, however, refinancing opportunities continue to be available.

In Germany, for example, refinancing is still available to smaller local leasing companies via local savings banks. Nonetheless, there are fears this funding will dry up in the near future, making life much harder for lessors funding deals in the £10,000 to £100,000 bracket.

Lessors across the board are being more cautious about funding these types of deals due to a combination of risk-based pricing and a reduced appetite for risk.

Margins in the £10,000 to £100,000 sector are rising and pricing has been adjusted significantly upwards, though more in some asset classes and customer segments than in others.

Niche players that have been exposed to a lot of competitive pricing pressure in the past are finding more opportunities to charge their target margins. They are also able to do so with less argument from customers than before.

However, large corporate lessees and public sector bodies continue to use their buying power to keep up pressure on margins. This was a strategy they maintained even before the recession.

Nonetheless, according to our interviews, the trend today is that leasing companies are happier to lend to public sector – as opposed to corporate – bodies because they are seen to have far better credit risk. This applies to the lower end of the small-ticket leasing sector as well as on the larger deals.

Captives appear to be using current market conditions as an opportunity to position themselves as the reliable and stable leasing partner for lessees of the £10,000 to £100,000 deals.

Meanwhile, bad debt levels in the £10,000 to £100,000 bracket continue to rise although niche players with a direct sales channel are experiencing lower bad debt levels than their larger competitors.

A number of companies reported feeling uncertain about their future forecasts.

Overall, despite the £10,000 to £100,000 still being a reasonably good source of business for leasing companies, some players have pulled out of the market. There is some evidence that shows some survivors have moved into this space. Doing so may have been driven by the fact that, in general, geographic expansion plans are limited.

Historically, lessors in the £10,000 to £100,000 bracket have invested heavily in trying to identify expansion opportunities in geographies where new business potential has not been fully tapped. Nonetheless, overall there is a general feeling among those in the £10,000 to £100,000 deal ticket arena that adopting a growth strategy is a bad idea at present due to the unstable markets.

Instead, many are looking to put into place operational efficiency initiatives as a way of achieving future growth without requiring additional resources. This includes refining workflows and maximising scales of economy – although in Germany this is also a side-effect of the increase in regulatory supervision as a result of the introduction of Basel II.

Specific projects being undertaken by lessors include workflow reorganisation, process quality initiatives, sales efficiency and coverage, technology improvements and online auto-decisioning.

In summary, despite difficult trading conditions, a number of lessors in the £10,000 to £100,000 space continue to do well. A profound market knowledge and product know-how is indispensable for survival in this sector.

Other keys for success and survival in the long run are continued access to refinancing and an efficient, controlled organisation that is prepared for the next growth cycle.

Ludwig Fischer is managing director of Invigors Germany and Mike Roberts is a partner at Invigors LLP

 

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