Highlights

April’s FLA business finance
statistics show another month in which volumes are substantially
below last year.

Excluding big-ticket transactions,
the business finance market was 35 percent down on last year.
Having peaked at almost £25 billion in early 2008, April saw the
12-month total for business finance, excluding big ticket, drop
below the £20 billion (€23.5 billion) landmark.

While a single month’s figures in
the big-ticket market can be misleading, the size of this month’s
annual drop (68 percent) is notable, with £264 million being the
lowest monthly total for 26 months. Consumer and motor finance are
also down, but to a lesser extent.

In terms of asset classes, despite
the relatively weak performance of big-ticket financing, April was
the second highest month in the past half year for ships, aircraft
and rolling stock, and up 25 percent on last year.

Year-to-date, this asset class now
stands 11 percent ahead of the equivalent 2008 figure.

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The performance of other asset
categories remains less convincing, with cars, commercial vehicles,
plant and machinery, IT equipment and business equipment all down
by more than 30 percent on the same month last year.

The current phase of the recession
seems to be hitting plant and machinery particularly hard, with
volumes showing an annual drop of more than 50 percent in each of
the past two months.

At only 12 percent of the total
business finance market in April, full payout leasing was at its
lowest usage level for several years, with the leasing residual
risk, lease/hire purchase and other finance categories all
representing approximately 30 percent of market volumes.

Setting gloom aside and accepting
the possibility of false dawns, there may be some early signs of an
upturn in the figures, or at least a slowing of business
decline.

Plotting the year-on-year change
in three-month rolling averages (which smooth out monthly data
variations and some quarter end impacts), it is possible to see
potential signs of bottoming out of the annual growth curve. This
would coincide with recent CBI surveys of the service and
manufacturing sectors, which have both indicated a reduction in
decline rates.

That said, the Bank of England
Agents Report for May indicates continued weaknesses in investment
demand.

Comment

For those who have not yet tackled
these issues, continuation of depressed sales volumes over a
lengthy period will force CEOs to ask and answer some difficult
questions, including:

• As future portfolio incomes
decline, does the business need to be restructured or
downsized?

• Do we need to exit uneconomic or
subscale markets or portfolios, allowing greater focus on areas
generating the greatest profit?

• Can the current headcount in
front, middle and back office continue to be justified?

• Where are there opportunities
for controlled, risk-mitigated growth – possibly as a function of
competitor exit or decline?

Without tackling these questions
head-on, the coming period is likely to be one of continued poor
performance.

The author is a partner in the
consulting and services firm Invigors and can be
contacted at peter.hunt@invigors.com

FLA new business finance –
April 2009

	£m	Month-on-month (%)	Change on same month last year (%)	Year-to- date (£m)	Year-to-date change (%)	Rolling 12 months (£m)	Rolling 12 months yr-on-yr change (%)
Business finance excluding big ticket	1,466	-4.90	-34.8	5,371	-35.1	19,756	-19.9
Big ticket	264	-62.20	-67.5	1,881	-23.8	5,562	-1.8
Consumer finance	4,482	-12.30	-18.4	17,415	-19.1	56,399	-14.3
Motor finance (extracted from totals above)	1,399	-25.70	-23.8	5,148	-25.3	16,437	-15.3
Source: FLA