Following similar heavy falls in
November, FLA new business volumes in December showed a material
decline from 2007 figures. Business finance, big ticket, motor
finance and consumer all fell heavily on a year-on-year basis.

While this translated into a
worsening YTD picture, with 2008 business finance (excluding big
ticket) ending nearly 7 percent down on the previous year, a very
weak Q4 suggests 2009 will not start well. Big ticket volumes were
36 percent up on the year, though this increase gradually reduced
as the year progressed.

If ever we needed a clear example
of the impact of an end-of-quarter (and for many companies an end
of year), then December was it. Almost universally, annual figures
were steeply negative, but monthly ones were steeply positive.
Presumably January’s figures will be grim, without this quarter-end

One glimmer of hope came in IT
financing, where a monthly total of £256 million (€287.6 million)
was 54 percent up on 2007 and the second-highest monthly total in
the last two years (beaten only by June, another quarter-end month,
which recorded £258 million). As a result, IT finance ended the
year 1.4 percent above 2007 levels, and the quarter 4.2 percent up
on Q42007.

Other year-on-year movements in
quarterly volumes painted a different picture. Cars were down 23
percent, commercial vehicles down 20 percent, plant & machinery
down 11 percent, business equipment down 34 percent. Even aircraft,
ships and rolling stock, for so long driving the growth in big
ticket financing, was down 7 percent on the quarter.

On the same basis, full payout
leasing was up 3 percent and residual risk leasing down 5 percent.
With heavy usage in vehicle finance, lease/hire purchase appears to
have taken the brunt of the reduction in funding volumes, down 27
percent (and 38 percent in terms of its use in new car

In the wider economy, not
surprisingly car registrations fell, and while a drop of 21 percent
was less than the SMMT had expected, it was largely in line with
FLA volume reductions. Vans were down 26 percent in December while
on a more positive note, truck registrations grew 6 percent and the
SMMT appears cautiously optimistic for bus registrations after
strong growth in 2008.

Q4 compulsory liquidations and
creditors’ voluntary liquidations in England and Wales were
reported to be up 12 percent on the previous quarter and 52 percent
on the previous year. More recently, the CBI reported in February
that manufacturer order books are the weakest for 17 years. The
Bank of England’s latest Agents’ Report highlighted weakened
investment intentions, prolonged asset life and deferred capex
decisions. Capital investment intentions appear stronger where
payback periods were short.

In terms of future FLA volumes,
the impact of weakened investment intentions is likely to be
compounded by availability of finance for businesses. The CBI also
reported in February that 63 percent of firms which sought new
finance said its availability had worsened in the last three
months, with a similar proportion (59 percent) saying it will
deteriorate even further over the next three months.


The wide range of indicators
paint a consistently gloomy picture. Early intervention on
restructuring leases, in particular extending term, seems an
obvious requirement to manage potential bad debts and reflects
changing customer behaviours. Linked to a restructuring
administration fee, possibly the opportunity to renegotiate margin
and slower amortisation of outstanding balances, it may also be a
good profit driver.

The author is a partner
in the consulting and services firm Invigors LLP, and can be
contacted at


FLA new business –
December 2008



Month-on-month (%)

Change on same month last

YTD £m

YTD change (%)

Rolling 12 months

Rolling 12 months
y-o-y change (%)

Business finance excluding big ticket








Big ticket








Consumer finance








Motor finance (extracted from totals








Source: Leasing

UK business finance - December 2008

% change on a year ago