Highlights
February was another poor month
for finance providers, with FLA new business volumes for business
finance (excluding big ticket) down 39 percent on the previous
year. Big ticket was again higher than 2008, up 6 percent on the
month and 10 percent YTD. Consumer and motor finance continue to
show weakness, though the consumer element to a lesser extent than
with business customers (splitting out motor finance, business
motor was down 47 percent on 2008 while consumer motor was down 24
percent).
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Business car finance showed the
second consecutive near-50 percent annual reduction in new volumes.
The product mix appears largely unchanged, with leasing residual
risk accounting for 67 percent of new car finance compared to 64
percent in February 2008. By comparison, 90 percent of used car
business finance continues to be written as lease/hire
purchase.
SMMT data showed a decrease in
business car registrations in February of 22 percent.
Commercial vehicle finance is also
struggling, down over 30 percent year-on-year – a consistent
picture in three of the last four months. This appears less bad
when compared with a February drop in registrations of 42 percent
on trucks and 58 percent on vans. However, differences between
registrations and finance volumes for both cars and commercial
vehicles are as likely to be timing issues between the different
datasets as any sort of performance indicator.
Other assets categories all
reduced, but not to the same extent. Following an excellent
December volume, IT assets have presented two consecutive months
with year-on-year reductions of around 20 percent.
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By GlobalDataThe broker market showed an 18
percent year-on-year decrease in February, compared to a 40
percent-plus decrease in both direct and sales finance. As a
result, broker new business reached 18 percent of the overall
non-big ticket business finance market, its highest level in over
two years.
Elsewhere in the economy, April’s
Bank of England Agents summary once again highlights that
investment intentions remain weak, with capital expenditure focused
on areas of rapid payback or to support compliance with regulatory
requirements. Investment intentions are driven in part by the
uncertainty of company sales outlooks, as evident in the CBI
Industrial Trends survey (April) showing the fastest quarterly drop
in demand for UK-manufactured goods in 30 years.
The BoE Agents report also
indicated that credit conditions continue to be a major concern for
many firms, with no signs of easing nervousness about using bank
funding lines. This situation – and related working capital
conditions – will have been worsened with an increasing trend among
trade suppliers to demand up-front payments. Working capital for
many was “acute”, suggesting a role for asset finance and related
cash flow solutions.
Comment
Recent statements in the press
have suggested that the worst of the recession is over and an
upturn will be seen from early 2010. That may be the case, but a
predicted GDP decline of over 3 percent for the full year, current
demand and working capital weaknesses, combined with the lag
associated with gaining the level of certainty required to make
positive capital expenditure decisions, suggest that the remainder
of 2009 will be very challenging for asset finance companies.
The end may be in sight but it is
some distance away, and the potential for further casualties seems
significant.
The author is a partner in the
consulting and services firm Invigors and can be contacted at
peter.hunt@invigors.com
