Germany’s leasing has emerged from the crisis as one of
the strongest markets in Europe, reporting growth of 4 percent for
2010. The German leasing association, BDL, recorded growth every
month during the year.
But even in this strongest of economies, leasing has taken
its knocks. In equipment leasing, new business fell 4 percent in
the first six months of 2010, rebounding during the second half to
bring growth for the whole year to 2.5 percent. And although new
business grew by 4 percent overall, this came against a backdrop of
business investment in hard assets of 6.4 percent.
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Penetration of leasing therefore fell by 3 basis points to
14.3 percent for 2010, down from 14.6 percent in 2009. However
leasing accounted for 21 percent of investment in equipment, a much
higher rate compared to real estate, for which other financing
structures are favoured.
“An important factor for the falling penetration rate was
the good constitution of companies at the end of the economic
crisis. They had stockpiled liquidity, enough to carry out many
investment projects by themselves,” says BDL managing director
Horst Fittler.
It is mostly SMEs which use leasing in Germany. While
large firms only use external financing for 10 percent of their
investments, half of smaller companies’ financing needs are met by
external sources.
“On average, 60 percent of small companies use leasing,
and a large part of their equipment is leased,” says Arno Städtler,
senior economist at the Ifo Institute for Economic Research. “In
the future, this should continue to grow, because SMEs will need
capital from external sources to expand.”
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By GlobalDataTotal new leasing business was €43.6 billion in 2010,
compared to €41.9 billion in 2009. Equipment and vehicle leasing
represented the vast majority of this, at more than €41 billion. Of
the total volume, vehicles accounted for 64 percent, equipment
leasing for 30 percent, and real estate for 6 percent. New business
of vehicles grew by 2.6 percent, equipment by 2.3 percent and real
estate by 35.6 percent.
Growth is continuing this year, and experts are signalling
further improvements due to a mass replacement cycle. Michael
Vander, associate at lease consultancy The Alta Group says:
“Investment indicators show dynamism in plant and equipment
investments. Western German manufacturers are replacing their
assets, and this whole replacement idea has now caught on.” Ifo’s
latest business climate survey confirms this view, and Städtler
said that lessors’ optimism about the next six months had returned
to levels last seen in 2006. “Most people expected a downswing in
the first quarter of 2011, but this hasn’t happened. This is
inevitably influencing full-year forecasts and indicators show that
the growth could reach 10 percent.”
Innovation will play a big part in the anticipated growth.
For Vander, renewables are an asset to watch, with suppliers
already focusing on new technical developments to replace existing
technology.
For Städtler, the industry is in a similar situation to
when leasing was launched in Germany, almost 50 years ago. At that
time, companies like IBM and Xerox realised that the cost of
equipment was too high and started offering leasing. “Today, the
same could happen to electric vehicles. It starts slowly, but when
there is a mass demand and knowledge of second hand market, lessors
and banks will enter this market en-masse.”
Despite the new business opportunities, risk control
remains high on the agenda of most German lessors, after the blow
suffered during recession. SGEF Germany’s managing director Jochen
Jehmlich says: “The peak of the crisis was in late 2009, when a
hike in bad debt hit our industry. Since then, cost of risk has
gone down quarter after quarter, but we still can see that the
balance sheets of some automotive suppliers and transportation
firms are affected. It will take another two years for these
companies to fully recover, but their luck was that the German
economy rebounded so quickly.”
UniCredit Leasing Germany has benefitted from reduced loan
loss provisions. Chief executive Frederik Linthout says: “In
January we reported loan loss provisioning below 2010 levels, and
also below budget. From that prospective, the outlook is very
positive.”
UniCredit Leasing reduced its transportation business
during the crisis. As the segment improves again and companies’
balance sheets get healthier, the lessor is moving back to
transportation, but with a clear risk focus. “We cannot do leasing
without transportation, but want to avoid the losses that some
companies focusing on truck and trailers had. We pick only those
clients where we feel confident in terms of rating and credit
history.”
Deutsche Leasing established a risk model which has also
proved effective during the crisis, limiting overall losses. Chief
executive Kai Ostermann maintains a cautious approach. “The current
economic situation is still insecure. Therefore, we decided to grow
only moderately in 2010 and to maintain a conservative risk policy.
Despite this unsure economic situation and an increasing pressure
on margins, we want to achieve a result similar to last
year’s.”
However if lessors continue with their strict, risk-averse
strategies, they could be storing up a new problem. Vander says:
“They could lose opportunities and their market share could drop.
It is inevitable for a lessor to take some form of controlled risk.
For that reason, knowledge of asset management and second-hand
markets will be increasingly key in the future.”
Spotting an opportunity in the used market, vehicle
remarketing specialist Manheim has just opened its second auction
centre in Germany, near Regensburg, complementing an existing site
in Düren. Manheim Continental Europe managing director David Mercer
says: “We see the German auction market as a key part of the
European growth opportunity due to the scale and level of
development already achieved in this market and the steady increase
in demand for competitive service providers.”
The auctioneer sees leasing companies as a target for
future expansion. Mercer says: “Development of our physical auction
capacity is critical to providing service offers that attract
national level leasing customers, to include defleet, inspection
and storage solutions prior to selling the vehicles.” Commercial
vehicles will be an important part of the growth plans, and the new
centre will sell light and medium commercial vehicles every two
weeks as part of its auction programme.
