November saw FLA volumes take a material turn for the worse.
Business finance (excluding big ticket), motor finance and consumer
all fell heavily on both a month-on-month and year-on-year
basis.
YTD had been holding up fairly well against 2007 but the result
of a 27 percent November reduction was to place 2008 YTD volumes
nearly 6 percent below the previous year.
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Month-on-month volume reductions occurred across the board, with
only big ticket and (most likely connected) full payout leasing
showing any signs of resilience.
Naturally there are variations in the rate of decline across
different asset categories.
Using three-month rolling averages to smooth some of the
vagaries of monthly reporting and the impact of quarter ends, it is
notable that plant and machinery has held up better than other
asset categories.
Reasons for this may be less clear, but might include the
continued growth in manufacturing investment (up 2 percent in
quarter three), fulfilment of advance orders or backlogs on capital
assets, low interest rates and a drive towards increased
productivity.
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By GlobalDataIT finance is showing a downward trend, but business equipment
and wheeled assets display the steepest declines in funding
volumes.
Commercial vehicle financing, which accounts for around 20
percent of business finance market (excluding big ticket), also
tracked downwards, 33 percent on a year-on-year basis and 23
percent on a monthly basis.
The decline in FLA business car finance predicted in last
month’s article was realised, mirroring the reduction in relevant
car registration volumes fairly closely.
That led to a decline of 27 percent on the previous year. With
December registrations down to a lesser degree (still a 20 percent
reduction), there may be some slight respite in the next month’s
figures.
Across business and consumer, the SMMT is predicting a 16
percent drop in registrations for 2009.
Business equipment’s fall is mirrored in sales finance volumes,
with the three-month average down 27 percent on the previous year.
Intriguingly, broker-introduced volumes held up comparatively well
(although still showing a 9 percent drop) to represent a 16 percent
penetration of the market, the highest level in 2008. With funding
support reduced in this sector in subsequent months, it will be
interesting to watch how this area performs.
Arrears (31 days or more) reported by FLA members were not as
conclusive as might have been expected. While lease/hire purchase
has shown a modest but clear upward trend since late 2007, 2008
quarter-four figures for leasing full payout and residual risk
leasing were lower than at the half-year point.
This will in part be the result of tighter collections
management, though conditions seem set to worsen over the coming
year.
Comment
January’s Bank of England Agents’ Report highlights a material
weakening of business investment intentions. The latest CBI/PWC
Financial Services Survey identifies a “new phase of decisive cost
cutting”. With high levels of bad debt set to follow November’s
data and with underlying asset collateral values likely to fall,
the drive for acceptable shareholder returns and efficient capital
allocation may drive finance companies to fundamentally review
their business models, risk positions, processes and commercial
policies.
The author is a partner in the consulting and services firm
Invigors LLP, and can be contacted at peter.hunt@invigors.com
