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Global Asset and Auto Finance Markets Growing, But Face Uncertainty

December 10, 2014, 07:00 AM
Filed Under: Industry News

Ed White, Group Chairman, White Clarke Group said in a press release that since the last Global Asset and Auto Finance Survey, the global economy looked to be entering a period of sustained growth and expansion – indicating good news for the equipment finance industry. However, White also explains it has not all been plain sailing and although it can be said the industry is on a firmer footing than for some years, there remain headwinds.

Take the world’s largest economy, and largest asset finance market − the US. After a rocky start to 2014, owing to severe weather conditions, the economy picked up and with it hopes that leasing volumes would continue to surpass previous highs. Although the stock markets are still performing well, investment intentions have been muted by the ongoing gridlock between President Obama and the now Republican controlled Congress. Leasing industry data show that, while the industry is performing well, the rate of growth has eased as the year has gone on. 

Europe meanwhile is a bag of mixed messages. The economic recovery seems to be well underway in the UK, and with it the equipment and auto finance markets are thriving. Elsewhere, research suggests that many European markets have turned the corner after the recession, only to be hit recently by further uncertainty – partly due to concern over sanctions against Russia which could rebound on EU markets, particularly Germany.

Nonetheless, the outlook in Europe for new business volumes in equipment leasing for the second half of 2014 have been mainly positive. And, despite the tremors in the developed Western European markets (the UK excluded), Eastern European countries, now emerging from many years of centralised control and with a burgeoning middle class, are proving to be one of the leasing industry’s high spots.

In many developed markets, government austerity, combined with regulatory changes and new regulatory requirements, is making life harder for bank-owned lessors which face cost and compliance challenges that put them at a competitive disadvantage relative to independent lessors.

But herein lies a bright spot: in the US, for example, data from the Equipment Leasing and Finance Association (ELFA) indicate that, after lagging for several years, independent lessors led the industry in new business volume growth rates. Captives have also performed relatively well.

Another bright spot in the US is that auto leasing is at its most popular and it is expected that market conditions will support continued leasing popularity in the short term, although the momentum could start to slow next year.  Similar positive indicators are present in the UK and other markets.

Much depends on China – how far and how hard will its economy slow – as demand from China directly affects many other national markets, not least in Asia Pacific. China’s leasing market is already big and has virtually unlimited potential – it’s hard to see its ballooning middle class relaxing demand for auto finance. And while the medium-term outlook for asset finance in India is subdued, there are healthy prospects for Asian markets such as Korea and Indonesia.

Another challenge, certainly for developed markets, is that potential lease accounting changes could have a significant effect from a reporting and process perspective for both lessors and lessees. This could cause significant expense, as well as business disruption.

On a final positive note, there are indications globally that financial institutions are working on innovative approaches to help businesses unlock capital tied up in plant and equipment for investment. Lenders are also looking at new ways to help companies whose customers increasingly want to pay for services and equipment based on their usage, rather than outright ownership.

These trends are discussed in more detail in the latest update to the Asset Finance International Global Asset and Auto Finance Survey.

Readers may download the Survey here.

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