Peter Hunt analyses
market statistics for the year to 31 March 2009
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Highlights
Green shoots of recovery or
quarter end? March’s FLA business finance statistics (excluding big
ticket) showed an increase of over 30 percent on February’s total
but – convincingly – was still over 30 percent down on March 2008.
With the last five months showing year-on-year reductions around
the 30 percent mark (ranging from 23.5 percent to 38.3 percent) an
all-too-familiar, consistent pattern is evident.
Big ticket showed a 15 percent
annual decline but a 46 percent monthly increase. As always, it is
easy to read too much into big ticket statistics (especially on a
monthly basis) but year-to-date (YTD) volumes have held up well,
just 2 percent adrift of 2008 figures.
The annual March registration
boost gave motor finance numbers an even larger monthly increase
(109 percent) until the comparison is made with last year’s March
figure (16 percent reduction).
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By GlobalDataMarch quarter end seems a good
time to reflect on performance year to date. All asset classes are
down at least 20 percent, with the exceptions of aircraft, ships
and rolling stock (up 6.7 percent) and international assets (2.5
percent) – both bigger ticket asset categories where longer lead
times and financial engineering remain important features.
In the first quarter, both direct
and sales finance were down nearly 40 percent YTD, with broker
introduced business fairing somewhat better, 24 percent down on
last year.
As well as prevailing economic
conditions, structural changes in supply (such as the withdrawal of
Bank of Scotland from the direct finance market) and the banks
retaining capital to serve their core customer base have reduced
direct finance supply. As a result, finance providers setting
appropriate underwriting standards have been able to enjoy higher
quality business through the broker channel, at the same time
enjoying increased margin potential. Nonetheless, direct finance
remains 60 percent of the market, with a further 24 percent taken
by sales finance, and margins up everywhere.
In terms of finance product
performance, YTD lease full payout and lease/hire purchase are down
around 40 percent, with residual risk leasing 21 percent down and
‘other finance’ 12 percent down.
Over the past three months, ‘Other
finance’ – likely to include big ticket structures not neatly
contained within other definitions – has made up nearly 30 percent
of the market. The rationale behind a below-market decline in
residual risk leasing is not clear, though it is easy to speculate
that in current economic conditions lessees have sought to reduce
cash outflows and mitigate residual value exposure risks.
Elsewhere in the economy, car
registrations in March were down 30 percent YTD, a figure mirrored
in the fleet sector and a common theme across the road vehicle
sector – with trucks and vans both down over 40 percent YTD and
buses and coaches down nearly 30 percent. The first-quarter number
of compulsory liquidations and creditors’ voluntary liquidations
(England and Wales) increased by 56 percent on last year. All in
all, not a good picture for asset finance providers.
Comment
The most recent CBI
Industrial Trends Survey, CBI/PWC financial services survey and
Bank of England Agents Summary all suggest we are moving through a
new phase of the recession, with the pace of contraction slowing.
Investment intentions are reported to remain weak but credit
availability is improving slightly.
Though not yet evident in
historic FLA statistics, perhaps we should be planning for those
green shoots of recovery? Current high spreads and a more benign
bad debt environment in the future is potentially an excellent
combination for superior performance in 2010 and 2011.
The author is a partner in the
consulting and services firm Invigors and can be contacted at
peter.hunt@invigors.com
