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White Clarke: No Time to Bet Against US, as Auto Finance Plateaus

November 07, 2016, 05:00 PM
Filed Under: Automotive

When the U.S. Federal Reserve took a deep breath and raised its key interest rate, which had been sitting for so long at near-zero, it was hailed as a sign that the economy had finally shaken off the shackles of the Great Recession, and the confident forecast was for a further four rate hikes in the year to come.

That was last December. Since then, fluctuating data on GDP and employment, amid concerns over global growth, have led to the number of anticipated rate hikes being steadily reduced to the extent that (although there are many who are hopeful of an increase this December) the year may pass without any at all.

“Our decision does not reflect a lack of confidence in the economy,” said Federal Reserve Chair Janet Yellen, after the September decision to keep the rate unchanged yet again and after the Fed downgraded its economic forecast for the third time this year.

But it does highlight that US economic growth has been disappointing in 2016 and this has undoubtedly depressed business confidence, a trend which has in turn fed into less inclination to invest in business generally. This has led to a downturn in equipment finance, with even the previously immune auto sector affected. 

These are some of the range of topics covered in the new White Clarke Group US Auto and Asset Finance Country Survey 2016, which also includes exclusive comments and opinions from industry leaders.

This comprehensive survey reports that, against expectations, new business volumes (NBV) in equipment finance and leasing have fallen in 2016 compared to 2015. Confidence levels in the industry have been on a downward trend for the past 18 months and projections are that investment in equipment will remain sluggish in the near term. And in the auto sector new vehicle sales are down year-on-year, after five straight years of growth.

However, there are some bright spots: fleet sales are on the up, and although new vehicle sales are down, the proportion of sales financed by leasing continues to rise, and now accounts for around a third of the market.

Plus, in equipment finance, there was another welcome uptick in the latest MLFI-25 Index produced by the Equipment Leasing and Finance Association. There have now been increases in NBV in July and August this year compared with a year earlier. This may at least be an indicator that the fundamentals are still strong, although as ELFA president and CEO Ralph Petta commented on the recent MLFI-25 data: “Taking together the Fed’s September decision to stay put on interest rates and the approaching presidential election, the sector continues to give no clear indication about where it’s headed.”

In the just published Global Competitiveness Index for 2016-2017 the World Economic Forum (WEF) states that since 2007 (while the US has been falling behind other leading economies, both in absolute and relative terms, in infrastructure, macroeconomic environment and goods market efficiency) it has improved most noticeably in what the WEF terms “technological readiness, one of the most essential pillars for taking advantage of new technologies.”

However, the WEF also notes: “In the US, innovation and business sophistication have improved (but the US is behind relative to other leading countries in the GCI on technological adoption).”

This is a crucial point, and an area analysed in the new US Auto and Asset Finance Country Survey 2016. US companies are realizing they need to embrace the opportunities and challenges that come with the Fourth Industrial Revolution (or Industry 4.0) in order to remain competitive – especially in the current volatile economic environment – but they need to act.

With this growing need for investment in new technology and equipment, the report stresses how important it is for businesses not only to adopt innovation, but to adopt the right innovation in the “dash for digital”.

Meanwhile, there is the matter of the presidential election. The level of uncertainty is always raised during election season, providing businesses with another reason for keeping investment on hold, and this year’s campaigning has been exceptional in producing a succession of populist fearmongering. It can only be hoped that, whoever is the victor, the air will clear after the election and something relating to normal conditions will resume in 2017.

Nonetheless, amid all the lamentations about the US not being “great” any more, it is worth paying attention to a longstanding investor of considerable stature and success. Earlier this year, Warren Buffett wrote in his annual letter to shareholders of Berkshire Hathaway: “For 240 years it’s been a terrible mistake to bet against America, and now is no time to start,” adding: “America’s golden goose of commerce and innovation will continue to lay more and larger eggs.”

For a full assessment of the latest developments in the equipment and auto finance and leasing market in the US, the White Clarke Group US Auto and Asset Finance Survey 2016 is free to download here.

White Clarke Group is the global first-class prwith offices in the UK, USA, Canada, Australia, Austria, Germany, India and China. The company’s award-winning CALMS end-to-end platform provides a flexible workflow approach that automates the entire business process from origination through contract to portfolio management ? trusted by more than 100 customers in 30 countries around the globe. 

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