After fairly strong June quarter-end figures, July saw a
predictable drop in FLA business finance volumes, both on a
month-on-month and, less positively, compared to the same month
last year.
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Big ticket figures held up well and continue to show a strong
YTD performance, up 47 percent on 2007. July’s business car
finance, though down 0.5 percent on last year, looks better when
viewed against a decline in car registrations of 13 percent during
the same period, including a 7 percent drop in fleet registrations.
New business volumes of other assets were down 7.5 percent on
2007.
The SMMT predicted a continued decline in car registrations for
the remainder of 2008, equating to a drop of 3.9 percent for the
full year, followed by a 3.5 percent drop in 2009. The relative
success of business car financing may be a sign that companies are
seeking to retain their own liquidity. This may also be a driver
behind the growth in residual risk leasing (up 19 percent YTD on
cars, and up also across other asset classes), as well as a
transfer of disposition risk from customer to finance providers in
the context of heavy reductions in used car values and current
economic uncertainties.
Commercial vehicle finance was down 0.3 percent on July last
year, compared to a decline in van registrations of 17 percent,
with some of the trading dynamics likely to be similar to the car
market.
While finance volumes in both asset classes have held up fairly
well, there may also be secondary rental opportunities where lower
registrations represent an extended replacement cycle, hopefully
taking some pressure off the realisation of residual values.
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While most other asset classes appear to be under pressure, July
showed a peak in receivables financing for the 19 months since the
data series began in January 2007 (June was the third largest). In
current market conditions this may represent some form of
restructuring activity, or the growth of a business opportunity for
lessors.
In the broader economy, despite ongoing uncertainties, the UK
Treasury department continues to remain positive about growth next
year, with predictions of GDP growth of 1.75 to 2.25 percent for
2008 rising to 2.25 to 2.75 percent for 2009, and fixed investment
rising from 1.75 to 2.25 percent to 2.75 to 3.25 percent.
Manufacturing output is expected to grow from 0.75 to 1.25
percent to 1.75 to 2.25 percent. Notably, total exports are
predicted to grow 5 to 5.5 percent next year, suggesting the
potential requirement for continued capital investment in certain
sectors or internationally trading firms.
Comment
While finance providers may be under pressure, the pressures
faced by customers could create new profit opportunities. Assuming
the growth in residual risk leasing is driven by the combined
requirements to retain liquidity and transfer increased disposition
risks, finance providers may find opportunities to increase pricing
to reflect these new pressures on customers.
The author is a partner at the consulting and services firm
Invigors LLP, peter.hunt@invigors.com
