Industry leaders expect tough times ahead in the French leasing market, with the notable exception of factoring, observes Paul Golden
Having weathered the initial aftermath of the global financial crisis pretty well, the French leasing market is set to shrink considerably this year. And lessors are pinning their hopes for recovery on improved investment sentiment.
Go deeper with GlobalData
The latest figures from the Association Française des Sociétés Financières (ASF) – covering the first six months of 2013 – illustrate just how far commercial leasing activity fell during this period, and between January and March in particular.
After a sharp rebound in activity in 2011 followed by a period of relative stability through 2012, new business was down by 6% to 10.4bn compared to the first six months of last year – the worst performance since the second half of 2009.
The decline in activity was most pronounced in the first quarter, where business volumes were 7.9% lower than during the first three months of 2012. Combined with a reduction of 4.2% between April and June, leasing volumes as of the start of July were down 15% from their peak in 2008.
ASF’s 2012 annual report showed a decline of 0.3% in new leasing business compared to 2011, down to 24.8bn, with the downturn most noticeable in the final quarter where volumes fell by 2.4% year-on-year. One of the few growth sectors was factoring, which saw volumes rise by 7.6%.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataCommercial and industrial vehicle leasing was down by 11.5% last year to 4.1bn, while IT and office equipment experienced a 9.7% decline to 600m.
However, non-computer equipment (machine tools, agricultural equipment, etc.) recorded a 5.7% increase compared to 2011, with 5.6bn of business done across 88,000 deals.
Factoring
The ASF reports that factoring companies supported around 186.5bn of business in 2012 and this growth has been sustained during the first half of this year, with volumes increasing by 2.7% during the first three months of 2013 and by 6.3% in the second quarter to total 95bn over the first half of the year.
In line with recent trends, international transaction volumes grew more rapidly than transactions conducted within France (an increase of 9.3% compared to the first half of 2012 to 17.8bn versus a 3.5% increase to 77.2bn). International business now represents almost one-fifth of total factoring activity in France.
Leaseurope’s 2012 annual survey values new leasing and hire purchase volumes for equipment (including vehicles) in France slightly higher than the ASF at 25.1bn, although it also refers to a 0.3% fall compared to 2011. Its preliminary data broke down that total as 11.1bn for equipment and 14bn for vehicles, with the former’s 3.8% increase more than cancelled out by a 3.3% decline in vehicle lease value. The number of contracts fell slightly to 989,395 from 990,963 in 2011.
Outstandings data showed a total of 47.1bn for equipment (including vehicles), an increase of 1.3% on the previous 12 months.
Equipment accounted for 20.2bn, up 0.5% compared to 2011, and vehicles accounted for 26.9bn, an increase of 2.2% from 2011.
In the short-term car rental market, the Fédération Nationale des Loueurs de Véhicules reports an increase of 5,000 in fleet size to 160,000 in 2012, with the number of rentals falling to 3,660,000 from 3,900,000. An additional 35,000 vehicles under 3.5 tonnes were rented last year.
France accounts for approximately 12% of the total European lease market according to Leaseurope, with White Clark Group’s 2012 Global Leasing Report confirming that it remains the fifth-largest market globally. Market penetration was 11.1% and annual leasing volume as a percentage of gross domestic product was 1.29%, which placed France 30th worldwide.
Largest companies
France is also home to the two largest European leasing companies in terms of consolidated figures for parent or stand-alone companies within Europe, with Société Générale Equipment Finance (including ALD Automotive) achieving 12.7bn of new business across the continent last year with more than 350,000 new contracts, closely followed by BNP Paribas Leasing Solutions (including Arval) with 12.3bn of business across 458,000 new contracts.
However, Ralph Crockett, market sales director for GE Capital France accepts that both the wider French leasing market and his own company’s approach have room for improvement.
"The market has shown a decrease in the first half of 2013 – down 8.5% compared to the same period last year – although we can now observe encouraging signals that indicate positive future growth prospects," says Crockett.
"In the absence of a growth market we are still seeing opportunities to gain market share and we also see this as an opportunity to reinvent our products, solutions and our go-to-market strategy."
According to Crockett, the French leasing market has been affected by uncertainty in the eurozone and the impact of this uncertainty on companies’ appetite to invest.
The International Monetary Fund’s latest annual check-up of the French economy referred to the need for a stronger and
sustained boost to investment and predicted the economy would contract by 0.2% this year before growing by 0.8% in 2014.
Crockett says performance in ‘small equipment’ markets such as IT and printing equipment continues to be subject to less volatility than other sectors.
"The different asset types that are financed are approached in a variety of ways," Crockett says. "For example, partnership agreements vary from one sector to another. In ‘small equipment’ markets partnerships are mainly multi-funder, while in the transportation sector, manufacturers typically have joint ventures or sole funder relationships with banks.
"We are not under the impression that the balance has fundamentally changed over the past 24 months even if individual banks have focused their efforts on a smaller range of asset types."
GE Capital breaks down French leasing market activity as follows:
- Industrial equipment (41%)
- Transportation equipment (33%)
- Small equipment (26%)
When asked whether the French government had taken any direct or indirect action to support the lease finance industry, Crockett refers to the impact of the 20bn of tax credit provided to support companies’ competitiveness.
He says: "This is aimed at sustaining companies’ investments – leasing loans, for example. France has also reinforced government support through the creation of BPI Bank (merging various financial public institutions) that grants loans and guarantees."
The IMF’s August report says the French government has given structural reforms an important forward momentum with measures to reduce payroll taxes, give enterprises greater flexibility to adjust wages and working hours while reinforcing job security, and improve job training and simplify government regulations.
But it also warns that since the government will have completed two-thirds of the effort that began in 2011 to bring deficits to a stable position by the end of this year, and in light of the still hesitant recovery, the pace of adjustment should be eased.
According to the IMF, the French government needs to rebalance efforts and reduce spending rather than increase taxes, which are among the highest by international standards and adversely affect investment.
Measures are under way to foster greater securitisation of SME credit, with a first issuance planned for October 2013. GE Capital recently signed a partnership with the European Investment Fund, which Crockett says provides it with a guarantee that enables the company to grant leasing contracts to some small or medium customers.
"We also support our partners," he says "In this market, they are looking for productivity gains and sales opportunities. We have developed a solution to complement their customer relationship management software with our systems to optimise their sales
process.
"We also support several key partners in optimising their portfolio through promotional events or the development of new offerings for their end-customers, such as indirect billing."
Looking ahead to the remainder of 2013 and beyond, Crockett reckons the decline in leasing activity will level out between now and mid-2014. "After a difficult start, we expect the market to be flat by the end of this year and at the beginning of next year, and then to grow positively by the second half of next year."
The low level of investment by French corporations since mid-2012 has directly impacted domestic leasing revenues with all sectors of the market feeling the effects, explains Laurent Saucie, managing director of Société Générale Equipment Finance (SGEF) France.
"The trend has been negative since the end of the first quarter of last year and investment levels have not improved during this year. We expect this to remain the case for the remainder of 2013 across the leasing market, with sectors such as heavy vehicles and industrial equipment showing decline this year."
Saucie estimates that the leasing market will experience a fall of 5-10% this year, although he says that the main driver of the market is not the banks’ credit underwriting policy but rather the level of corporate investment and adds that all the main players would prefer to see the market growing.
Alternative roles
The market share of bank-owned lessors has probably increased over the past five years, says Saucie, adding that his expectation for the first half of the year is that the market declined by between 8-9%. He expects the decline in the second half of the year to be around half that level and is optimistic about a return to growth next year.
According to Saucie, the high-tech sector has been less affected than others by declining investment levels and is expected to recover more quickly next year.
SGEF France’s efforts to stimulate demand for leasing have focused on building closer relationships with customers. "We are working with them to develop marketing strategies and collaborate with IT partners to find new ways to finance products," Saucie says.
He describes the French leasing market as already well consolidated, but Eric Lucas, France sales director for IT and telecoms lessor Econocom, says there has been some consolidation within the IT leasing sector.
In mid-September, Econocom announced it had finalised the acquisition of a majority stake in the share capital of Osiatis, a provider of infrastructure services and specialists in related applications. The alliance of these two companies will eventually create a 2bn company with 8,300 employees.
"The market is growing slowly because larger customers are spending less money on traditional IT assets, such as desktop PCs and laptops’ in favour of ‘smart’ machines and devices that address employee mobility and customer relationship management issues," says Lucas.
"It is also obvious that funders are looking for improved counterparty risk and are cautious about all the services that are integrated into a leasing contract. This makes the business a little more difficult, although we have pre-empted some of these issues by focusing on customers who are in good financial health."
The ASF report refers to a ‘troubled’ automotive market, where car financing recorded a decline of 10.5% – the sharpest fall in a decade – with a slight increase in summer sales more than offset by reduced activity in the final quarter of the year.
This view is reinforced by data from the Syndicat National des Loueurs de Voitures en Longue Durée (SNLVLD), whose
members account for approximately 97% of long-term commercial vehicle rental activity in France. It observes that the long-term rental market fell 2.4% in 2012.
Returns increased by 1.7% in 2012, down from the increase of 10.6% recorded in 2011 on the back of the termination of large numbers of extended contracts, while the total stock of long-term rental vehicles grew by 1% compared to 2011.
While accepting that new registrations are likely to fall further this year, the SNLVLD expects returns to remain stable.
Bank subsidiaries gained some ground last year, increasing their market share from 37% to 39%. The market share of manufacturers’ captive finance companies remained largely unchanged at 45%, with independents seeing their share fall by 1% in a continuation of a trend that started in 2009. The average amount financed went up by 3.1% to 19,289 last year.
Electric and hybrid
Movement to reduce total cost of ownership, and increased consideration of electric and hybrid vehicles by fleet managers and drivers, are among the most significant developments in the French vehicle leasing market over the past 12 months according to LeasePlan France, which describes its market share during 2012 as stable.
A LeasePlan spokesman says the company does not expect to see any growth in the French vehicle leasing market in 2013.
"We are looking to increase our market share in small fleet where leasing is not so well developed and we are developing specific products to attract large companies that still finance their fleet from their own resources," he concludes.
