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August 1, 2009updated 12 Apr 2017 4:34pm

Peter Hunt analyses market statistics for the year to 31 May 2009

Mays FLA business finance statistics showed another month in which volumes, excluding big ticket transactions, were down over 30 percent year-on-year, as had been the case in six of the previous seven months

By Peter Hunt

Highlights

May’s FLA business finance
statistics showed another month in which volumes, excluding big
ticket transactions, were down over 30 percent year-on-year, as had
been the case in six of the previous seven months. While at first
glance May’s big ticket figures appear reasonable (when compared to
May 2008), they represent the lowest big ticket monthly volume for
27 months.

Anecdotal reports from that sector
indicate limited activity or willingness to provide credit. Recent
big ticket business volumes are in part a result of contractual
commitments made before the credit crunch really took hold. If this
is the case, as these commitments are realised, we may witness a
meaningful reduction of big ticket volumes in the foreseeable
future. Consumer and motor finance are also down, but less than
business finance.

Within the business finance
statistics, a number of trends appear to be emerging:

• All asset classes are
experiencing reduced volumes (around 30 percent below last year),
though plant & machinery is showing the largest and steepest
year-on-year decline (its three-month average now 56 percent below
the same period last year)

• In relative terms,
broker-introduced finance is doing better than other areas, running
at less than 25 percent below last year. Presumably, as bankable
credits fail to find funding through direct or sales finance
channels (where the underwriting decision is usually based on a
single funder’s credit appetite), end-users are turning to brokers
who are more able to locate suitable funders.

• Sales finance is showing
slightly greater reduction than other categories. This is
understandable with finance heavily used in severely affected asset
classes such as vehicles and construction.

• Residual risk leasing is
performing better than other products – its three-month average is
down only 13 percent on last year. Where funders continue to be
prepared to take asset risk, better cashflow and asset risk
mitigation are no doubt providing attractive features for
end-customers.

Comment

Low sales volumes and continued
overstocking in many plant and machinery dealerships is creating a
dangerous cashflow problem. It is likely that a number of dealers
(especially those which have historically operated at high gearing
levels) will fail.

To avoid massive disruption to
their distribution networks, manufacturers able to fall back on a
strong balance sheet may be prepared to support their dealers,
especially those covering large geographic areas. This provides at
least two opportunities for funders – the ability to secure
guarantees against vendor programme and floor plan commitments, and
the provision of manufacturer-supported finance in the form of
dealer development loans.

For manufacturers, aligning dealer
development finance to a clear strategic view of how they wish to
operate, can create long-term benefits as well as avoiding
route-to-market disruption. Providing financial support to the
best-placed dealers to acquire weaker peers can streamline and
strengthen their dealer channel, creating future sales,
relationship, marketing and distribution efficiencies.

Meanwhile, at an overall level,
the market is beginning to show signs of stabilising. While for the
previous six months there has been drops in new business volumes of
between 30.7 percent and 38.3 percent, in May there was a fall of
23.5 percent.

For those who have not yet taken
decisive action, the requirement to restructure surely remains
compelling.

The author is a partner at the
consulting and services firm Invigors
peter.hunt@invigors.com

FLA new business finance –
May 2009

 

£m

Month-on-month (%)

Change on same month last year
(%)

Year-to-date (£m)

Year-to-date change
(%)

Rolling 12 months
(£m)

Rolling 12 months yr-on-yr
change (%)

Business finance excluding big ticket

1,143

-22.0

-37.7

6,514

-35.6

19,065

-22.0

Big ticket

263

-0.4

-1.9

2,144

-21.6

5,557

-2.1

Consumer finance

4,354

-2.9

-17.4

21,769

-18.8

55,482

-15.0

Motor finance (extracted from totals
above)

1,239

-11.4

-22.5

6,387

-24.7

16,077

-16.9

Source: FLA

UK new business finance - May 2009

% change on a year ago

 

 

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