A significant rise in lease activity over the last 12 months has come as a welcome development in Spain, which suffered from years of stagnation following the global financial crisis. Paul Golden reports.
According to data from the Asociación Española de Leasing y Renting (AELR), total new leasing business amounted to €5.4bn in the first half of this year, compared to €4.8bn in the first six months of 2018.
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This increase was recorded despite a fall in the number of new contracts signed from 78,775 to 74,732.
Transportation accounted for 20% of new business in the first half of the year (down from 26% in the same period of 2018) while leasing of maritime and air transport equipment represented 17% of new lease business, up from 8% in the first six months of 2018. Industrial production equipment’s share of the market was unchanged at 19%.
“Consumption in Spain is growing and remains constant, while investments remain on a similar trajectory,” says AELR secretary general Manuel Garcia.
“For now, it seems that the economy maintains an expectation of growth above that of the US.”
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The association expects leasing activity to grow by more than 10% over the next 12 months. “We would like the lease market to grow at a faster rate, but we prefer constant growth based on development of all sectors of industrial activity rather than expansion based on specific operations in specific sectors,” adds Garcia.
This optimistic view of the prospects of the Spanish leasing market is shared by Marco Frühauf, vice-president for sales – Spain, Portugal, Chile and Brazil at Grenke, who expects the market to continue to move forward as the need for technology and new services grows, although perhaps not at the same pace.
“It is difficult to make forecasts given the geopolitical uncertainties we are facing,” he says. “The global economy is affected by so many different factors, including the US-China struggle, Brexit and geopolitical instability in the energy industry. Some decision makers are choosing to wait, or at least be more cautious, when signing leasing contracts, attempting new investments, hiring more employees or preparing larger facilities to be able to cope with potential growth.”
In July, we reported that although data from the European Automobile Manufacturer’s Association indicated that demand for new commercial vehicles in the EU remained positive and had recorded the sixth consecutive month of growth, Spain was the only major market where demand declined. Light commercial vehicle registrations were down by 4.4% in June, outweighing a similar percentage increase in the truck market and increased demand for buses and coaches.
Frühauf notes that as a major car manufacturer, there is tremendous pressure on Spain to promote hybrid and electric vehicles. He suggests that the country did not prepare for this trend fast enough, and that the car industry is expected to suffer as a consequence.
“Last, but not least, there is internal political instability, with general elections having to be repeated in the period of six months, which will slow down the economy and may affect the quality of leasing portfolios,” he adds. “We have to take this into account in our risk adjustments.”
“Spain is a very creative market and leasing agents are always finding new ways to lease new, ‘unthinkable’ assets. But we prefer to go other ways and deliver specific tools to the market that allow our partners and customers to be more efficient by making the whole process easy and intuitive.”
Frühauf describes Spain as one of his company’s strongest markets, and one that has been reacting positively to the improvements it has been proposing over the last 12 months – not only in terms of growth of business but also in terms of prospects.
“We are in contact with technology suppliers, and we perceive a big interest from their side to start to offering leasing instead of selling assets to end customers,” he adds.
“To do so, they need a leasing partner who is supportive. Of course, there is huge pressure on margins due to the lower-than-ever interest rates in the market, even if we are one of the best in class in terms of cost per contract.”
He agrees with the AELR’s forecast of double-digit growth over the next 12 months. “The Spanish economy is tightly linked to external events and will be affected by these. But on the other side, there is such a need for modernisation of companies in Spain – especially small to medium-sized businesses – and in this case, low interest rates will be a positive factor.”
Sense of Ownership
In a country where the sense of ownership is high and traditionally seen as a sign of status among smaller companies as well as individuals, Frühauf acknowledges that every opportunity has to be taken to promote leasing when talking to customers and partners.
“We organise events by ourselves or together with local associations, industry associations and large manufacturers to be advocates of leasing and emphasise its advantages,” he says. “We participate in roundtable events organised by specialist media, and sessions run in parallel to trade fairs; all indicators say that this is rewarding for us.”
Leasing as a finance solution is something that both Spanish consumers and businesses use regularly to finance investments and they are therefore very comfortable and confident about its viability. That is the view of Javier Irigoyen, country manager of the Iberia cluster at BNP Paribas Leasing Solutions, who refers to current levels of growth as highly satisfactory.
“We are present in the key industrial markets – such as construction and IT – which continue to perform well,” he says. “The overall financial assets market in Spain continues to be solid, and the Spanish government is trying to push the market by offering funds with the participation of the ICO [Instituto de Crédito Oficial].”
The ICO is a state-owned bank with the legal status of a corporate state-owned entity, and is attached to the Ministry of Economy and Business via the State Secretariat for Economy and Enterprise Support. ICO participates in various funds destined to finance investments in sectors and activities of special interest for the Spanish economy.
“We support the development of leasing activity in a number of different ways, including through our industrial partners by offering them financing solutions for their end customers and through companies with full service rental and fleet management offers,” says Irigoyen.
“We support the real economy by helping manufacturers and end users to access finance solutions so they can grow their business,” he adds. “We are the leaders in the IT leasing market with 33% of the market share in 2018, and hold third position in industrial equipment. In terms of the number of contracts signed, we had a 24.7% share of the leasing market last year.”
The Spanish leasing market is being driven by investments in transport – both trucks and cars – machinery and industry as well as aviation and shipping, and there are no signs of this growth flattening, suggests Société Générale Equipment Finance (SGEF) Spain CEO Jarmila Spurova.
In August, Société Générale’s fleet leasing subsidiary, ALD Automotive, reported that private lease continued to show strong dynamics. It also passed an important milestone in Spain, where ALD was selected by Amazon for the distribution of personal car leasing. The firm also entered into a partnership with retail chain Eroski in Spain earlier this year.
“Aviation and shipping are leading the annual growth as of June 2019, followed by machinery and industry,” observes Spurova. “Technology and medical, as usual, remain stable. Depending on the period of the year, we can see more variations in transport and construction, as these are always very dynamic markets.”
SGEF has not yet observed any particular impacts of the wider economic climate on the leasing market in Spain, although it continues to closely monitor possible uncertainties in the world economy which will most probably impact the Spanish market.
“The market has not yet recovered the volumes of 2008, although we can observe a consistent rate of growth despite some seasonal effects,” adds Spurova.
“There are two regions that are mainly driving leasing investments: Madrid and Catalonia. At the European level, the market growth of the Spanish leasing market is above average, with still relatively low penetration to GDP, demonstrating its potential for growth. All the indicators make us think that we should expect continued growth with an increase above the level of 2018.”
When asked what SGEF is doing to encourage growth in leasing activity in Spain, the company’s CEO explains that it is working on further diversification of its business in industry, agriculture, transport and construction, having had a historical focus on vendor finance in the high-tech and medical markets.
“This implies the development of new partnerships with international vendors, but also with a wide network of national dealers as distribution partners,” explains Spurova. “We pay particular attention to supporting our partners’ and clients’ green initiatives and to enhance their environmental and energy transitions and sustainable development.”
The company wants to provide its customers with best-in-class service, innovative solutions and flexibility and speed in order to support their sales, she concludes. “Our philosophy is to deliver an excellent experience to our vendor partners. The aim is to become a sustainable partner that is always moving forward.”
Near-Term Challenges
Even though the Spanish market has proven to be resilient in recent years, it is facing some near-term challenges that could affect confidence and investment, observes Alvaro Zafra Leal, AELR board member and Iberia general manager at DLL.
“We will have a general election in November – our fourth election in four years – and there are other macroeconomic uncertainties, whether Brexit or the escalation of trade/tariff tensions between China and the US,” he says.
“All of these factors are creating headwinds that will slow the pace of growth in Spain. Most analyst reports that I have seen are forecasting growth of between 1.7% and 1.9% in 2020, which would be a step down from the 2.1-2.3% range that was predicted for this year.”
However, Zafra Leal also notes that during periods of economic slowdown, the appeal of leasing tends to increase, since direct purchasing and other financial solutions are seen as less appropriate and more risky.
When asked which sectors of the lease market are performing particularly well in Spain, he refers to above-average growth recorded in the industrial equipment and transportation sectors.
“The Spanish leasing market has experienced growth in excess of 10% this year,” Zafra Leal adds. “We have outperformed by improving our market share in key markets through growing our portfolio of vendors and dealers.”
Looking ahead, DLL is working on improving processes and digital facilities to boost customer interaction and increase the ease and speed of doing business. “Additionally, we are exploring new channels as we think that finding new ways to bring leasing into the SMEs and dealers in Spain will be a win-win solution,” says Zafra Leal.
Although the leasing market in Spain is mature and has shown strong growth in the first few months of this year, he accepts that the uncertainty of the macroeconomic environment may yet affect the outlook for the sector.
“There is still room for growth within the Spanish leasing market, but we don’t expect similar growth as over the last 12 months.”
