October was not a good month
for FLA members, with all but big ticket transactions showing
significant yearly and month-on-month declines. A 17 percent
year-on-year drop in the monthly total for business finance
(excluding big ticket transactions) was recorded. Cars were down 22
percent, commercial vehicles 18 percent and IT equipment 20
percent. Interestingly, plant and machinery remained firm, up 13
percent (5 percent up YTD).
Business car finance
showed a disturbingly new development. As business car
registrations have declined in recent months, new car business
finance has held up rather better, reinforcing beliefs that the
combination of collateralised lending and related customer cashflow
benefits had resulted in substitution of other funding options.
October’s data puts those conclusions in jeopardy, perhaps as the
funding availability for car finance companies becomes harder and
multi-line funders move away from downward spiralling RV
positions.
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Worryingly, business car
registrations were down more than 30 percent in November,
suggesting a continued and worsening decline in year-on-year FLA
volumes. However, volumes in H2 are heavily skewed towards
September, so any full-year FLA number should now be relatively
assured.
Commercial vehicle financing,
another mainstay of the asset finance industry, was also materially
down, 18 percent on previous year and 14 percent on a monthly
basis. This was against a backdrop of van registrations down 35
percent on the previous year, and trucks down 9 percent.
The SMMT predicts that van
registrations will drop sharply before steadying at the end of 2009
and rising again in 2010. After strong 2008 registrations, truck
demand is expected to drop sharply in 2009. Against lower vehicle
financing levels, October’s residual risk leasing was down almost
20 percent both on an annual and monthly basis.
Financing performance in other
asset classes was mixed. While big ticket assets continue to do
well, plant and machinery volumes have remained solid, with October
13 percent up on the previous year and YTD 5 percent ahead. Though
materially down in October, IT YTD finance volumes are largely
unchanged from 2007. Business equipment is down 7 percent
YT
D.
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By GlobalDataAn apparent trend away from sales
finance into direct finance appears to continue. Throughout 2007,
sales finance represented 23-30 percent of monthly finance volumes.
In October 2008 this figure was 20 percent, having only once
exceeded 23 percent in 2008.
While the shift has been to direct
financing, broker business has remained fairly consistent at 13-15
percent of FLA volumes, currently running at £3.3 billion per
annum. Up to October, the FLA statistics offer no statistical
evidence to suggest that funders are cutting back on broker
business more than any other financing activity. Presumably this
means where a funder left the market or cut back its activity,
other funders were able to absorb available volumes – based on
anecdotal comments, this may soon change.
Comment
January is usually a time for
reflection on the year past and future. FLA statistics lag economic
activity but, despite a poor month, October YTD is not too drastic
in terms of new business volumes. The question is whether October
is another month-long trough, created by the vagaries of company
reporting, or the start of something more meaningful.
Trends such as a drop in
sales finance volumes may reflect market changes or supply-side
weaknesses of some funders that create opportunities for
others.
The author is a partner in
the consulting and services firm Invigors LLP, peter.hunt@
invigors.com
