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Fitch: Fleet and Truck Lessors Resilient Amid Challenges

January 05, 2018, 07:08 AM
Filed Under: Trucking

The commercial fleet and truck leasing sectors are in solid shape and will remain so in 2018 in spite of some broader sector obstacles, according to Fitch Ratings in a new report.
As its most recent review of fleet lessors back in October concluded, Fitch's five rated lessors (all ratings of which were affirmed) were demonstrating positive attributes like solid franchises and strong asset quality performance against low losses. However, falling used vehicle values are and will continue to pressure earnings over the next several months. "Still, any potential impact on earnings will be partially mitigated as lessors continue to generate end-of-contract disposal gains due to well-managed exposure to residual value risk," said Director Johann Juan.
Pressures are evident in Class 8 trucks of which there is a substantital glut. Negative supply and demand freight market dynamics have contributed to a Class 8 truck overcapacity of roughly 125% above demand in North America last year, according to ACT Research. Truck lessors have seen demand for commercial trucks and tractor rentals weaken due to transportation companies moving less freight tonnage over the last two years. In response, 'truck lessors are trimming rental tractor capacity and disposing of units at lower prices in the wholesale channel in an effort to reduce the carrying costs of excess fleet,' said Juan.
What will help matters for truck lessors is the sector's less cyclical nature compared to its large equipment lessor counterparts since they focus more on essential services and benefit from a shorter order-to-delivery cycle. Fleet lessors in the U.S. are also less exposed to fluctuations in used vehicle values as leases are traditionally open-end, where residulal value risk is borne by the lessess. Conversely, car rental companies are highly cyclical with revenues and rental rates dependent on travel demand for both business and leisure travelers. Additionally, used vehicle values are more heavily influenced by sales trends in the auto market and off-lease volumes.
Longer term, a development worth close watch is the potential risks disruptive technology may present. Developments like video conferencing, shared ride services and driverless cars have long been cited as potential threats to fleet leasing and rental car businesses. And while there has been no discernible effect thus far, fleet and truck lessors along with rental firms are being proactive in investing in new products and technologies to stay ahead of the technoglical curve. This is because as technology advances and business models evolve, demand for fleet leasing and rental firms could be impacted over the longer term.
Fitch's 'Commercial Fleet Leasing and Auto Rental Industry Overview' is available at

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