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White Clarke: Worldwide Asset, Auto Finance Market Looks Positive

May 13, 2015, 07:00 AM
Filed Under: Industry News

The leasing industry started 2015 with positive expectations. In the US, lenders reported confidence levels not seen for four years, with demand for leasing in the transportation and construction industries on the increase as the economy rebuilds. Growth is also strong growth in the healthcare market, now that the radical reforms of the Affordable Care Act have bedded in.

While new business volumes this year are predicted unlikely to match the high of 16% reported in both 2011 and 2012, double digit growth does seem achievable.
The US auto loan market is driving ahead, with three quarters of the leasing activity in this sector concentrated on the prime or super-prime segment. While the trend towards longer lease terms and a lowering of credit requirements has prompted fears that the sub-prime sector of the market may be heading for trouble, so far delinquency and repossession rates have remained at historic lows.

In the UK, Finance & Leasing Association (FLA) data shows the asset finance market has made a good start to 2015, with growth continuing across key asset sectors. The percentage of UK investment in machinery, equipment and purchased software financed by FLA members increased from 26.2% in 2013 to 27.2% in 2014, reaching its highest level since 2011.

Across Europe, new leasing business expanded by 8.4% in 2014, reaching its highest annual rate of growth in volume since 2007. Auto lending performed particularly well, with new leasing volumes up by 12.4% on 2013. Improvements were driven by Europe’s four largest economies in northern Europe, while some of the leasing markets in southern Europe saw double digit growth, albeit from a low base.  

In the Asia Pacific region, the Australian leasing market, bruised by the drop in activity in industries such as mining and construction, has showed signs of improvement in the last few months. New leasing markets have begun to open up in countries such as Vietnam, Cambodia and Thailand, particularly for car and motor cycle leasing.

While the Chinese economy has slowed, aviation leasing has taken off with China forecast to surpass the US as the busiest domestic air travel market within 10 years.

In South America, despite the 40% decline in the leasing market in Brazil, activity in other countries in the region increased by 16% spearheaded by Mexico, Colombia and Chile.

So, on the face of it, there are some enticing prospects for asset and auto finance providers across the globe. However, I detect a continuing reluctance on the part of organizations around the world to make the sort of really significant investment decisions which would drive the industry to new highs.

There are a number of reasons for this, including:

  • Significant political uncertainty in key markets about possible legislative and regulatory change.  Until recently this would have included the UK, pending the outcome of the general election.
  • Longer term challenges remain, including a potential Greek exit from the Eurozone; a possible rise in US interest rates; and the continuing destabilising impact of militant terrorist groups in the Middle East and Russia.
  • Multinationals in many countries are anxiously awaiting the outcome of the long running attempt to create a new global leasing standard, which is scheduled to be published by mid-2015. This will bring most leases onto the balance sheet and change the way companies account for this form of financing.      
  • The UK, the US and the EU countries are all absorbing the impact of regulatory change, whether that is the new remit for the Financial Conduct Authority in the UK, the potential widening of powers for the Consumer Financial Protection Bureau in the US, or the ramifications of the Basel framework in Europe.

In one sense, there is nothing that lenders individually can do to tackle any of my list of risks, all of which require concerted, combined action by global leaders.  But that is not to say that finance providers are just sitting back – in the opinion of many industry experts, the economic climate is undoubtedly improving, so for lenders who are innovative, know their markets well and can control their costs, the outlook is positive.

Their collective insight is available, along with much more data and analysis, in the latest White Clarke Group Global Asset & Auto Finance Survey 2015, which is free to download here.

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