Leasing can be a lifeline for European businesses while tough economic conditions prevail, and will become vital as industries confront resource scarcity. That was the message from delegates at the Leasing Life European Conference 2012 held in Barcelona at the end of November.
Opening the conference with a brief introductory statement, Fred Crawley, editor of Leasing Life, said the industry found itself in the midst of an existential crisis.
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In reference to the withdrawal of ING Lease from several European markets, Crawley said: "Good management, return on capital and profitability are no longer guarantees of longevity for a leasing company," and warned the Dutch bank would not be last to wind down its leasing business in major European markets.
The topic for the day was "protecting achievement in a capricious market," and Crawley invited the 170-plus delegates in the conference hall of the Barcelona Melia hotel to take the opportunity offered by the event to tackle the issues faced by the industry.
He said: "I am not saying this for the sake of being sensationalist or negative, but rather to provoke a timely discussion among leaders which may ensure greater chances of continued success for us all.
"One great strength of the leasing industry is its sense of community; in the room today there is a network of professionals willing to talk, address issues and share ideas, even when they are business rivals. And that is the purpose of this conference."
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By GlobalDataWith a record attendance on the day and delegates from across Europe and beyond keen to discuss how the industry can protect its achievements and capitalise on its strengths, the event proved a successful reflection on a tumultuous year and kicked off a debate on the collective efforts required ahead of a challenging 2013.
A holy purpose
Outgoing chairman of Leaseurope and Nordea Finance chief executive Jukka Salonen was the first speaker of the conference and started a rallying call which echoed throughout the day when he told delegates leasing had a "holy purpose".
Salonen said leasing had a purpose beyond just lending to business. "It is financing the real economy and creating genuine growth," he argued, at a time when financial services have a negative image among businesses and the public.
Quoting Leaseurope statistics, Salonen said European leasing was a 250bn business and funded 15% of all capital expenditure in Europe. "We are doing the real stuff," he said.
Highlighting the role leasing plays in the wider economy, he then demonstrated the "multiplier effect" of leasing through the case study of a heating installation firm which leases a 500,000 drilling set:
- The acquisition of the asset gives the firm the capacity to install heating systems into 144 houses a year and employ two additional staff.
- The households getting the heating systems save 7,000 a year in energy costs for a 300m2 house.
- The energy saving generates more than 1m in investment capacity, equivalent to 144 leased cars at 580 per month.
The leasing industry, he said, needed to make these effects known to clients and shareholders alike.
Elmar Lukas, managing director of GE Capital EMEA, who followed Salonen on stage, agreed leasing had a vital role to play in growing the European economy.
Lukas said the real economy in Europe was driven by SMEs, which rely on funding to invest and grow.
Quoting GE Capital’s own research into mid-market companies, the SME Capex Barometer, Lukas said firms in seven key European economies – France, Germany, the UK, Spain, the Czech Republic, Hungary and Poland – planned to invest 347bn over the next 12 months.
He said many of the firms surveyed by GE Capital identified a lack of affordable funding as a major obstacle to their intended investment, but stressed the firms would need to invest in equipment to stimulate productivity.
"If anyone is in any doubt about whether this industry is needed, or has a justification in the economy, I think that should it answer it," he said.
The leasing industry could and should respond to that need, he said, "the only question is how best to position ourselves to meet that need."
Product or industry?
If one question could be said to have dominated the Leasing Life Conference 2012 it was this: is leasing a product or industry?
Jukka Salonen brought the question up at the very beginning of the conference when he opened his presentation with the issue, but allowed it go unanswered.
Chris Cooper, chief executive of Challenge Consulting, was more direct when he took to the stage at the end of the first session and said leasing is more than just a product.
"Leasing is not just a product, it is the service of providing access to, and the acquisition of, assets. There is a service and an asset at the heart of what you do," he told the audience.
Nonetheless, he said: "Separating the leasing value proposition from the banking product is at the heart of the crossroads at which we find ourselves."
Cooper argued that leading a leasing business with a product-driven approach leads to pandering to customers and "tweaking" and "tailoring" lease products in a way that can be complex, expensive and unnecessary.
Treating leasing like a product, he argued, also leads to leasing firms competing in
the market on a product basis, meaning
companies feel forced to introduce products their customers neither need nor want because rivals have done so. Companies will be "defined by the fashion and attractiveness of the latest product," he said.
Later in the day Phil Gerrard, a director with Grant Thornton’s leasing and consumer finance team, argued passionately for leasing as an industry rather than a product.
He said the leasing industry is generally seen to be "attached to the coat-tails of the banks" and said it needs to develop independence as an industry.
Gerrard argued banks and manufacturers tend not to be able to add the value leasing professionals can as asset specialists and said leasing should start "looking beyond these industries" and differentiate from straight funding products.
Gerrard was backed up by his Grant Thornton colleague and fellow director Christian Roelofs in the panel discussion that ended the second session, who said leasing was "too much seen as a commoditised product."
"If we are a product we might as well be subsumed into the banking industry," he said.
Saving the world
The importance of leasing and its role in the global economy came up several times during the Leasing Life Conference 2012, but it was Frits Engelaer of De Lage Landen who went the furthest and argued leasing would be central to the economy of a sustainable civilisation.
Engelaer said De Lage Landen had sought to answer two questions in its sustainable business strategy: "Where are we going to be in 2030 and which issues are we going to need to solve?"
The population of the world would be three billion higher in 2030, Engelaer said, and pointed out the growth would come with a need for assets and capital.
He identified four issues manufacturers face today and more so in future which affect their ability to produce assets:
- Depletion and volatility of raw materials
- Dependency on oil
- Waste disposal and recycling
- Take-make-waste production cycle
"Today our whole economy is built on taking raw materials from the earth, building something from it and then selling it," Engelaer said. "This creates an incentive to every manufacturer to produce something which is made to be disposed of as quickly as possible.
"Manufacturers need things to break down," he said, and questioned the value of leasing in this system.
Heading towards resource scarcity and with a growing population, Engelaer said the current model was unsustainable and humanity needs to rethink the way it makes and owns assets to ensure materials can be reused continuously.
Leasing, he argued, and specifically management of an asset’s life cycle, could solve these problems. Engelaer illustrated his point with De Lage Landen’s Life Cycle Asset Management (LCAM) programme which is already in use, but his emphasis was on universal application for the leasing industry.
The DLL model involves working with manufacturers to produce assets with reusable components, managing the repair and refurbishment of used assets, and then the remanufacturer of recoverable raw materials by the original manufacturer, all the while having consumers and businesses lease the use of the asset.
The industry, he said, already has "the right people, skills, partners and technology" to manage totally an asset and its components from production through several reuse lives and back to the manufacturer, and was already doing so in some sectors.
Ken Briffa, director of services at Technogym, a fitness equipment manufacturer which partners with DLL in LCAM, presented immediately after Engelaer, and said the programme was central to his company’s sustainable growth agenda.
"To make [asset management] work, a manufacturer needs a vendor partner," he said.
Briffa said asset management gives manufacturers total control of the used market for their equipment, allows them to limit the churn time for assets and maintain high residual values.
He said the LCAM programme DLL and Technogym operate, which includes a remanufactured product line and is currently funding more than 60% of all Technogym’s equipment, requires a more sophisticated financial package.
Engelaer concluded his speech by telling the audience this was a real chance to make leasing integrated to the manufacturer’s full product offering in a way that would be good for business and good for the planet.
Generation Y
Not for the first time at a Leasing Life conference, the subject of personnel legacy was on everyone’s lips.
At the very beginning of the day Jukka Salonen asked the audience to raise their hands if they had been in the industry for 10, 20, 30 or 40 years to illustrate the level of experience in the room. However, he demonstrated equally well the much-mooted point about the age of the industry.
Elmar Lukas of GE Capital, addressed it directly when he called on the industry to engage with "Generation Y" in its search for new talent.The term, sometimes substituted by "Millennials", refers to people born in the 1980s, 90s and early 2000s, and includes people of graduate-age in search of a career.
Lukas said the financial services industry’s reputation has been damaged among graduates and young people in the wake of the financial crisis, but pointed out it is this generation that will dominate the workforce for the next 40 years.
"People don’t want to go to a party and say they work for a bank," he said.
Generation Y, Lukas said, have a completely different attitude and different expectations from their forebears. For example, nearly 60% of Generation Y expects to leave their current employer after two years, even if they are proud of their job, and a similar figure expects to be in management role within three years.
Lukas said the leasing industry needs to attract Generation Y in competition with attractive companies like Google and Apple and would need to change the way it communicates in order to do so.
Phil Gerrard of Grant Thornton took up the call later in the day when said investing in talent was one of the important things the leasing industry needed to do.
Gerrard suggested looking beyond the industry and developing independence as a sector would attract people drawn by the potential to specialise and gain expertise.
Both Lukas and Gerrard said the future strength of the industry would depend on attracting the right people with a passion for developing the industry.
