These were the words spoken by Chris Sullivan, chief executive of corporate banking for RBS in the UK, at a conference held recently by systems provider Sword Apak.

The comment was made in a discussion on the future of manufacturer finance programmes, in which Sullivan expressed his expectation that the majority of manufacturers would soon need to partner with banks in order to achieve access to capital at a sustainable price.

He argued that the cost of funding would only increase in the years to come, putting margins under pressure and forcing manufacturers either to think like banks in terms of the management of their treasury functions, or enter into risk-sharing partnerships with banking partners in order to provide both wholesale and retail finance.

Speaking exclusively to Motor Finance, Leasing Life’s sister title, Sullivan explained: “Of course, every set of circumstances is unique and a generalisation can’t be made. However, banks are increasingly acting as both advisors and funders to manufacturers, and even when manufacturers are providing finance themselves, it is likely that they are borrowing from a bank to fund that lending.”

Colin Maddocks, director of network development for Mazda Europe, agreed that manufacturers had to begin thinking about more than just “moving metal” in their provision of finance programmes.

“In working with bank partners across Europe, we have had to think about cost and profit implications for them – so we have learnt to think like a bank,” Maddocks said.

Change expected

Across the industry, business leaders have responded to the issue with unanimous agreement that captive strategy will have to change to reflect shifts in the capital markets, but have stopped short of sounding the death knell for the traditional captive model.

Black Horse managing director Chris Sutton commented: “Money costs are undoubtedly going to rise in the short term to counteract inflation, as economies continue to recover and money supply stimuli reduces. Manufacturers have been particularly active in supporting sales of new vehicles by providing subsidised finance, but as interest rates rise, this becomes increasingly expensive, especially around provision of zero/low rate APRs.”

Sutton contended, however, that manufacturers need not necessarily be at a disadvantage to banks in terms of access to capital. Traditionally, Sutton argued, banks have had the ability to raise funds to lend out at lower rates than major corporates, but that this had changed as the risk premiums attached to financial institutions had increased in recent years.

“Some corporates can now raise funds in their own right more cheaply than via their bank – depending on the strength of the balance sheet,” he said.

“Since the credit crunch, the importance of liquidity and availability of capital is now much more apparent for both banks and manufacturers. With any joint arrangement the profit element is usually required to be shared, which can place pressure on the margins needed.

“Personally, I believe that we will still see both models in operation in the future – some manufacturers will want, or need to, rely on banks to provide funding and some will be able to raise their own funding by other means.”

Adapting for survival

Meanwhile, consultant and former head of Mazda Bank, Ian Dewsnap, agreed that there would be ways for the current captive model to survive into the future.

“I would not for one minute argue with Darwin. Evolution is constantly going on, and the only constant is change – or whatever expression you care to use. However, I would not buy the argument that captives are dead for a while yet. To answer the question of how they will change, however, one needs to look beyond the UK.”

A dry securitisation market, poor access to funding and consequent higher operational costs, Dewsnap posited, had made some smaller markets no longer viable for single brand “true” captives.

He explained: “Creative solutions have emerged, with some manufacturers taking back ownership of wholesale and moving their point of revenue from wholesale to retail. Some have set up white label operations, others perhaps JVs.

“Certainly the landscape has changed, and the days of the captives in every market their parent brand operates in are gone.”

The survival of wholly owned captives, Dewsnap said, will depend on both the motives and the financial positions of their parents. The German captives in particular, he argued, had particularly strong treasury operations, and might prosper “for a long while yet.”

At the same time as these comments were being made, one German-owned captive – BMW Financial Services – made a muscular demonstration of its group’s confidence in its profit-making ability by completing the acquisition of ING Car Lease by fleet subsidiary Alphabet.

It was certainly enough to cause fleet provider Leasedrive’s commercial director, Roddy Graham, to re-evaluate his view of the viability of the captive model.

“Until last week, I would have agreed with the view that partnership with banks will become the only realistic way for manufacturers to offer finance programmes. However, the news that BMW has acquired ING Car Lease for a not insignificant consideration, and the fact that they will need to feed the business ongoing with a huge level of asset finance, suggests that this particular captive is alive and well.”

If, then, the captive model still has life in it, what will be the next phase of its evolution?

Dewsnap thinks that the situation may change dramatically once Chinese brands start to develop momentum in Europe.

“As and when the Chinese brands have a market share foothold, it will be interesting to see what their decision might be for the use of what seems to be plentiful capital access. Will they partner with existing players, bring Chinese banks with them as partners – or set up their version of the traditional captive model in larger markets?”

While few would disagree that those manufacturers who have chosen to ally themselves with banks will have an advantage in preserving their margins in a pricier funding climate, it remains to be seen whether truly in-house funders will fall foul of their traditional methods, or find new ways to compete.

Article contributed by Fred Crawley, Senior Reporter – Leasing Life & Motor Finance

Crawshaw told delegates at the Fleet Van Summit that the LCV market was “on its way back up”.

“There is an air of optimism about the CV market,” he said. “Manufacturers are now back producing new ideas and new vehicles are being brought out that had perhaps been tucked away.

“We have seen a lot of companies going out and tendering for new business which is a good sign. A lot of older vehicles are having to be replaced.”

Crawshaw pointed to the steady increase in registrations. “Van registrations are a true guide of what’s happening out there” he said. “These are genuine registrations. They are not vehicles that are registered and parked in a field.”

He predicted that registrations would be nearer 260,000 by the end of 2011 – up from 187,000 in 2009.

“That’s a huge increase. But we still have a long way to go to get back to where we were a couple of years ago,” he said.

Crawshaw also said that there were “some very strong residual values coming through, being supported by shortage of used stock”.

But there is still a focus on quality.

“The expectation of the used trade buyer hasn’t dropped during the recession,” Crawshaw said.

Article contributed by www.FleetNews.co.uk

Image copyright: Flickr

The asset finance businesses of some of Europe’s biggest banks have made a strong start to the year. Some are reporting double-digit growth in the first six months, in stark contrast to struggling retail bank divisions.

The banks’ leasing businesses are confident about their prospects amid growing demand from small businesses and manufacturers, and for technology assets.

Lombard, the asset finance business which is part of Royal Bank of Scotland – which is 84% owned by the UK taxpayer – will lend more than £5bn (€5.7bn) to British businesses over the next year – up 20% from the previous year. In addition to wheeled assets, it will also lend more on less publicised areas like technology and, in particular, plant and machinery.

Alexander Baldock, managing director of Lombard, one of the UK’s biggest asset leasing companies, told Leasing Life it was seeing the strongest growth in manufacturing, the small and medium-sized enterprise (SME) sector, and commercial transport (buses and haulage).

Many companies delayed renewing assets during the recession but have begun to invest again.

“Most businesses are six years into what is usually a four-year replacement cycle [for assets],” Baldock said.

The various types of asset finance, such as taking out an amortisation loan, has helped those companies to start investing again as economic recovery increases demand for goods. The flexibility of asset finance has proved especially attractive to business during a time of credit scarcity, said Baldock.

Other bank leasing subsidiaries have also reported a significant improvement in the market.

Société Générale Equipment Finance (SGEF) increased new loans by 19% during the first quarter of this year. Excluding factoring activities, SGEF’s new business was €1.8bn. In Germany, sales increased by 26%. In France, SGEF signed an agreement with La Banque Postale, the banking subsidiary of the French national postal service, for an equipment leasing partnership.
Euro growth

Specialised Financial Services, which includes the French bank’s consumer finance, equipment finance, operational vehicle leasing and fleet management activities, grew its net banking income by 7% to €728m, compared to the same quarter a year earlier.

Dutch asset financing provider De Lage Landen is confident about its prospects after reporting a net profit of €201m last year, a 79% increase in comparison to 2009. It expects a net profit of around €120m for the first six months of the year, and around €280m for the full year. Achieving these figures would create a record year for De Lage Landen.

Chief executive Ronald Slaats said the company’s optimism is because vendors are selling more and requiring financing. “Our international network is helping us in this regard,” he said. “Vendors want international solutions and want to sell into more than one geography.”

Slaats added that vendors in Asia, for example, want to sell more outside their home market, into countries such as Brazil.

Finland’s Nordea saw a 13% increase in sales for its asset and sales finance arm for the first quarter of the year compared with the same period last year. Nordea Finance chief executive Jukka Salonen said the main increases were seen in the small businesses and consumer segment, notably in consumer credit and car finance. Sales have increased in smaller equipment and yellow goods, he added.

Salonen also said there had been more sales to smaller businesses than larger corporations. He suggested the latter group is more hesitant to invest given uncertainty about the future and because it is able to rely on existing capacity.

Salonen added smaller businesses, especially in the transportation sector, are increasing consumption which is giving more work to companies. “Construction has been another area that is picking up”, he said. “We hope the bigger companies will start their investments in the near future.”

In motor finance, banks’ asset finance businesses have also made a good start to the year.

Arval, part of French bank BNP Paribas, has predicted “strong growth” for 2011, especially in rapidly expanding new markets, such as Brazil, India and Turkey, where growth rates have been over 50%.

Growth in banks’ asset finance arms may help them counter criticism that they are not lending enough to small businesses.

A spokesman for the British government’s Department for Business Innovation and Skills said: “The government is committed to increasing the diversity of finance available to businesses, and encouraging businesses to think carefully about what sort of finance is most suited to them.

“Asset-backed finance is one potentially useful source of finance, particularly for businesses who are looking to update or replace their equipment.

“Solutions such as leasing and hire purchase can help facilitate growth, as they offer finance when new equipment is needed to expand a business.”

Regulation

However, despite good prospects, some bank asset finance businesses could be affected by cuts in certain markets as their parent companies ration their lending.

Barclays, for example, has decided it will no longer provide asset finance to companies with turnover less than £5m a year, saying the need for asset finance among larger companies was not shared by its smaller customers.

A spokeswoman for Barclays said that Barclays Corporate continues to provides asset finance to coporates, including health care, transport and the renewable energy sector.

Barclays continues to offer a “broad range” of finance for SMEs, she added.
Although leasing typically produces a higher return on equity than more risky unsecured bank loans, asset finance “is not particularly well understood at a senior level at some banks”, warned George Tonks, a partner at asset finance consultancy Invigors.

Tonks said banks may decide to reduce lending in their asset finance arms and prioritise more high-profile lending such as unsecured bank loans when preparing for the capital requirements of Basel III, which is due to introduced by the end of 2012.

Article contributed by Leasing Life

78% of respondents expect broker-introduced asset finance to grow over the next three months, and 75% expect equipment dealer and distributor finance to do the same.

The asset finance industry plays a vital role in the UK economy, by providing £20 billion of finance to UK businesses each year to support investment and help businesses grow. The new quarterly survey asks senior finance industry executives for their views on the prospects for the UK economy and the asset finance industry. Other survey findings include:

• 21% of respondents think asset finance market conditions will improve over the next three months; 76% think they will stay the same; and only 3% expect conditions to worsen
• 42% expect SME use of asset finance will grow over the next three months, while 58% think it will remain steady

Geraldine Kilkelly, Head of Research and Chief Economist at the Finance & Leasing Association, commented: “The quarterly confidence survey will help us assess trends both in the asset finance market and in the UK economy more widely. We are already seeing a recovery in SME investment via asset finance, including for commercial vehicles, IT and other important business equipment. The survey shows that many of our members expect to see further growth over the next quarter.”

www.fla.org.uk

Rudge has more than 40 year’s experience in the transport industry, including a stint at Dennis Specialist Vehicles and at Glass’s Guide.

He has also worked with several transport finance providers including Lombard, Investec, Citicapital and GATX Capital.

Marie Dunkley, Hitachi head of sales, said, “Transport is a key area for us and this appointment will enable us to secure further our plan for growth and establish Hitachi Capital Business Finance as a reliable and trustworthy leading finance provider in this sector.”

Hitachi Capital Business Finance provides funding for the transport sector through hire purchase, finance lease and operating lease.

Article contributed by Leasing Life

Muir first joined Northgate as group accountant in 2003, before becoming group financial controller in March 2004 and UK finance director in May 2006.

He has also worked for Deloitte LLP and has a degree in economics and accountancy from Newcastle University.

Bob Contreras, Northgate chief executive, said, “Chris has an extensive working knowledge of the business and has worked for Northgate in a wide range of finance positions, demonstrating that he has the capability to be an outstanding finance director.”

Northgate offers LCV hire and fleet management services in the UK and Spain.

Article contributed by Leasing Life

Finance is the key to unlocking a low-carbon economy, and the conference, hosted by the Finance & Leasing Association last month, considered asset finance in particular as a funding option for green technology. Asset finance is increasingly used to help businesses fund everything from the replacement of conventional business equipment to large-scale renewable energy infrastructure.  The event also examined the role of utility companies and the Government in helping asset finance to make a low-carbon economy a reality.

The keynote speaker was Lord Redesdale, Liberal Democrat former energy frontbench spokesman. He said: “It is imperative that as a nation we reduce our carbon footprint. One way of achieving this is to replace old equipment with newer, more energy efficient models. I am encouraged that the finance community is engaging with the energy industry to understand each others’ challenges and develop leasing schemes for the range of low carbon technology that is coming to market.”

The event took place ahead of a major project launch next week by the Carbon Trust in partnership with Siemens to deliver a new low carbon finance scheme encompassing asset finance.

Julian Rose, Head of Asset Finance at the FLA, said: “The last year saw low-carbon leasing progress from vision to reality, as leasing was included in the Carbon Trust’s loan scheme, and deals started to be written for renewable energy equipment.

“Asset Finance is the third most common source of finance for businesses, after bank overdrafts and loans. In last week’s Budget, the Chancellor reinforced the Government’s commitment to a low carbon economy. By bringing together the major delivery agents, we can begin to develop ideas for financing the green revolution that is critical to the UK’s economic future.”

Article contributed by FLA – The Finance & Leasing Association

Image copyright: Flickr

Main tax rates
Chancellor of the Exchequer George Osborne announced that the main CT rate will now fall from the current 28% rate to 26% in the fiscal year starting on 1st April this year. That will be followed by further 1% reductions in each of the next three years to 23% from April 2014.

As previously announced, however, UK fiscal depreciation rates for plant and machinery – i.e. capital allowances (CAs) – will be reduced. These take the form of annual writing down allowances (WDAs) on the reducing balance basis. The main CA rate will be reduced from the current 20% rate to 18% with effect from April 2012.

In itself, the UK’s relatively unattractive CA regime will tend to discourage fixed investment in plant, however it is financed. The advantages of tax-based leasing – i.e. conventional leasing arrangements where the lessor claims CAs – are affected by both the CA and the CT rates.

George Tonks

George Tonks, partner at Invigors consultancy, said: “Falling CT rates tend to be good for leasing in the short term, though less so in the longer term. While the tax rate is falling, lessors can benefit from CAs at a higher CT rate early in the lease period, while paying a lower rate towards the end of the lease period as the WDAs decline and the lease shows more taxable profit.

“In the long run, however, a lower CT rate will make tax a less important driver of asset finance products.”

In the UK, while the lessor is still entitled to CAs on most leases of up to seven years’ duration, and some longer ones with high residual values (RVs), there is also a category of ‘long funding leases’ (LFLs) where it is the lessee who claims CAs. “I am seeing a lot of interest in LFL deals among potential clients currently”, said Tonks.

The Chancellor announced a forthcoming review of the CT rate affecting profits earned in Northern Ireland, to see if further concessions were warranted to make it more competitive with the 12.5% CT rate in the Irish Republic.

Bank levy
To balance the effect of the CT rate reduction on banks, the Chancellor announced a further increase in the rate of the balance sheet levy on UK banks. The main rate of the levy, which essentially taxes the use of wholesale funding, will now rise to 0.078% from 2012, from  the 0.075% rate applying for most of this year.

The levy affects most providers or funders of UK asset finance. It is charged on the global balance sheets of those banks based in the UK, and the UK balance sheets of others. It therefore disadvantages those banks with multinational business who are based in the UK.

Enterprise zones
There are to be new local tax incentives, coming into force next year, for businesses in 21 designated enterprise zones (EZs) to be created in various urban locations in the UK with an identified need for such a stimulus.

EZs are essentially a revival of a scheme used in the 1980s, and phased out in the 1990s. In their original form they involved 100% Year 1 tax write-offs for the costs of industrial and commercial buildings (though not plant and machinery) located in the then designated areas. This created opportunities for tax-based property leasing.

In their new form there will be a variety of tax breaks, including some unaffected by asset finance arrangements. The details are not presently clear, and they may vary from one zone to another.

However, the Chancellor referred to a “ potential to use enhanced CAs in zones where there is a strong focus on manufacturing.” Whether this will eventually apply to industrial buildings and/or plant and machinery, and whether the incentives will be available to lessors otherwise entitled to claim CAs, is not yet clear.

Short life assets
The Chancellor announced an extension of a long standing rule where CA claimants (including eligible lessors) can gain some compensation for inadequate CA rates during their period of ownership of plant and machinery, when it is eventually disposed of.

Under this ’short life assets’ (SLA) scheme, businesses can conditionally opt to take specific plant items out of the general WDA pool, where WDA rates may lag behind the true depreciation cycle and thus defer some of the CAs until long after the useful life of the asset. Where this option is taken, WDA rates during the period of ownership are unaffected, but the business can then claim a “catch-up” balancing allowance on disposal. This ensures that 100% of the asset value is finally written off over the whole period of ownership.

At present, the SLA scheme is restricted to assets disposed of within four years of purchase. The option to de-pool any such assets must be exercised within two years from the end of the tax year when they are acquired. The scheme will now be extended to assets held for up to eight years.

Tonks commented: “This extension will be welcome. However, given uncertainties about RVs and possible lease extensions, it would have been better if the two-year election period had also been extended.”

Anti-avoidance moves
Among various anti-avoidance moves in the Budget announcements, there was yet another change in a frequently adjusted  set of special tax rules affecting the sale of companies in the business of plant and machinery leasing.

These rules were first introduced in 2005, to counteract arrangements to defer tax by selling lessor companies to parent companies in a tax loss position, at the point when a lease which may start in tax loss due to front loaded WDAs (see above) moves into tax profit. They work by imposing an additional tax charge on the selling company at the time of the sale, with a balancing allowance to the acquiring company (which of course could not benefit from such an allowance if in tax loss).

Draft legislation, to be enacted in the coming Finance Bill but to take immediate effect from Budget day, will make two sets of changes to these rules. One set of changes will tighten the definition of plant and machinery assets subject to the legislation, and the the rules for the valuation of  relevant company’s interests in leased plant.

Another change is the immediate end of an arrangement to opt out of these general tax rules for sales of leasing companies, and instead accept a ring fencing arrangement to ensure that tax is paid on the deferred profits over the remaining life of the leases. That option was only introduced in 2009, in response to unusual patterns losses caused by the financial crisis.

It appears that both changes were made to deal with apparent abuses identified by HM Revenue & Customs (HMRC) under the rules as they stood.

Another move, against a leasing technique described by a Treasury Minister as “aggressive tax avoidance”, could not wait for Budget day. It was announced by HMRC earlier this month, again with immediate effect.

This one does not appear to involve commercial leasing arrangements, but artificial sale and leaseback transactions by plant and machinery users who can claim CAs as LFL lessees under the return lease.

This apparent abuse involved the equipment user claiming two separate tax allowances on the same payment to the lessor. Tonks explained: “There seem to have been two arrangements involved, but both centred on RV guarantees by the lessee. In accordance with accounting standards, together with Section 70E of the Capital Allowances Act (CAA) 2001, that guarantee forms part of the minimum payments under the lease, so that under Section 70C CAA it forms part of the ‘amount of capital expenditure’ – i.e. the lessee gets tax relief on the guarantee amount through CAs starting from the inception of the lease.

“Under the respective alternatives, it seems that when the lessee actually pays an amount under the guarantee, that amount either counts as additional expenditure under Section 70D or reduces the disposal value under Section 70E. The new draft legislation seeks to prevent either of these consequences.”

The remedial legislation provides that where a payment under a guarantee is likely to generate tax relief through another channel, it will no longer be classified as capital expenditure of the lessee for CA purposes.

 The overall package
Some finance companies have welcomed the reduction in the CT rate, together with other Budget announcements affecting the UK business sector as a whole. These include an immediate cut in road fuel duty, and the promise of a less burdensome regulatory system for smaller businesses.

Edward Rimmer

Edward Rimmer, chief executive of the leasing and trade finance company Bibby Financial Services, said: “In broad terms the Budget has delivered for those beleaguered businesses which have struggled in recent years through the global downturn. It should go some way towards creating jobs and economic growth.”

Article contributed by Asset Finance International

Chris Sutton, FLA chairman and managing director of Black Horse Finance, explained that the other £50bn, almost 30% of UK consumer lending, went direct to individuals.

“Cutting the cake another way,” he stressed, “over £18bn of the total figure financed more than half of all new private car sales, and 20% of the used car market. Taken together, that’s a huge contribution to UK plc.”

Asset finance leads the way

Addressing visitors at the FLA Annual Dinner in London on February 22, Sutton added: “In the asset finance market, always a good leading indicator of business investment, we saw strong growth in the final quarter of 2010, with finance for commercial vehicles and business equipment up by 20% on the previous year. And it was very good to see that, as a result of the FLA’s efforts, the new government’s Green Papers on business finance and financing business growth explicitly recognised the importance of asset finance for the economy.”

In addition, 2010 was a successful year for the FLA’s new asset finance Fraud Intelligence Sharing scheme, which saved the industry £7m during the year.

“If asset finance is to achieve its full potential in the UK economy,” Sutton stressed, “we need a genuinely level tax playing-field for leasing compared with outright purchase, and we have further to go to achieve that. As many of you here tonight will know, another major feature of our work on asset finance over the last year has been persuading the International Accounting Standards Board that its recent proposals for a new approach to accounting for leases would be expensive and unworkable.

“The good news is that we seem to be making progress, and we hope to see significant changes in the Standard Board’s final proposals later this year.”

NHS leasing

The FLA is also working to ensure that leasing is an attractive and viable option in schools and hospitals facing budget cuts, and the association is already in discussions with the relevant government departments. For example, it is working closely with the NHS to promote the use of leasing by cash-strapped hospital trusts.

Sutton added: “We’re also talking to the Government about the rise of green technology and the part asset finance can play in delivering a low carbon economy.”

Shake-up in consumer credit

In December, the Government published proposals for the biggest shake-up in consumer credit regulation for a generation.

Sutton explained: “Of course it’s no surprise that the Government has proposed that consumer credit regulation should transfer from the Office of Fair Trading to the new Financial Conduct Authority which will replace the Financial Services Association (FSA). But it has also suggested an entirely new regime, which would replace four decades of consumer credit law with a system based on the current FSA regime for the deposit-taking markets. The change could hardly be more fundamental.”

He added: “and the FLA will, of course, be working closely with the Government and the new regulators to ensure it is designed and implemented in a sensible way.”

Despite the recent recovery, the credit markets represented by the FLA have shrunk by more than a quarter over the last three years.

Motor finance market grows in 2010

Despite the slowdown in consumer demand for new car finance in the second half of the year, FLA members’ penetration of private new car sales increased from around 46% in 2009 to just over 52% in 2010.

And the second half of 2010 saw an upturn in consumer demand for used car finance.

Sutton said: “the FLA’s Specialist Automotive Finance (SAF) scheme has also been a great success story. There are currently 11,000 individuals registered for the online SAF competence test, and there are almost 1,000 dealerships SAF approved, including 15 of the top 20 UK dealer groups.

“We hope,” he stressed, “to get the rest during 2011.”

Fraud Unit saves £12m

A further £12m was saved through the FLA-funded Vehicle Fraud Unit, a partnership between the police and the motor finance industry to deal with vehicles obtained and driven illegally.

This year the FLA expects to see further good results from the new police presence at the ports to tackle motor fraud.

“The Government’s proposals for a new approach to credit regulation will of course be one of the dominating features of the FLA’s work on behalf of motor members in 2011. Meanwhile we will be dealing with the implementation of the current regulator’s new lending guidance.”

He concluded: “We now have 204 members, eight more than this time last year.”

Indeed, the latest industry figures published by the FLA illustrate the continued importance of asset finance agreements. One in three small businesses seeking external borrowing use asset finance, with more than a thousand entering into new arrangements every day.

Asset finance “most significant”

With 750,000 small and medium enterprises (SMEs) acquiring assets on leasing or hire purchase deals, asset finance has become the most significant form of debt-financed business investment, with around 250,000 new agreements being signed each year.

Julian Rose, head of asset finance at the FLA, confirmed: “A thousand small businesses are signing leasing and hire purchase agreements every day. With a second consecutive month of growth, our figures indicate that SMEs are increasingly using alternative forms of finance to obtain new and replacement equipment.”

FLA members proved more willing to risk capital in the later months of 2010 as they provided almost £1.7bn of investment in December, a 5% increase from 12 months before. Although the overall 2010 figures for business finance investment were down 9% on the previous year, they showed the potential for growth as the Q4 2010 figures were up 4% on the 2009 numbers, with £4.6bn invested.

The greatest improvement was in business equipment finance and commercial vehicle finance as they grew by 27% and 20% respectively in Q4. Conversely, IT equipment finance fell by 16% from Q4 2009.

The greatest difference though was in aircraft, ships and rolling stock finance. With only £766m invested in 2010, the figures show a drop of 46% from 2009, with Q4 2010 investment dropping by 57%. The December numbers also show the situation getting worse as £51m proved to be a 64% drop from the same month in 2009.

Chris Sutton

Article contributed by Brian Rogerson , Managing Editor – Asset Finance International

Factors such as the banks’ decisions to shorten their balance sheets, and return to core business; falling marketplace demand for leasing; the shortage of liquidity coupled with secondary investors “battening down the hatches”, has been the cause of much inertia.

However this may be due to change in the near future. And there is evidence that manufacturers’ captives and banks’ finance subsidiaries may be main targets in the process.

For some time Scania and MAN have been investigating different projects, mainly related to commercial vehicles, which would make it possible for the two companies to profit from synergies in research and development, manufacturing and sourcing.

Such a move would give Volkswagen (parent of Scania) control of what would effectively be Europe’s largest truckmaker, overtaking both Daimler and Volvo Trucks in terms of market share. In terms of year-to-date sales, Scania and MAN, if combined, would have virtually a 29% share of Europe’s heavy truck and bus market, followed by Daimler at 21.4% and Volvo 22.6%.

Erik Ljungberg, senior vice president corporate relations at Scania, carefully explained, “This process has shown that a full realisation of potential synergies requires a closer co-operation by combining the two companies, while maintaining the unique brand values of the respective company.”

He stressed, however, “At this stage no decision has been taken as there are a number of outstanding issues of commercial and legal nature. A decision can be made only when these issues have been resolved.”

Hit by the recession

Both Scania and MAN suffered badly in the recession. Scania’s net sales fell by 30% in 2009 to SEK62bn (2008: SEK89bn) with operating income falling a huge 80% to SEK2.4bn (2008: SEK12.5bn).

Scania Financial Services similarly fared badly, and by Q3 2010 the size of Scania’s customer finance portfolio amounted to SEK35.2bn, which represented a decrease of SEK5.2bn since year end 2009. Operating income in financial services improved to SEK52m (2008: SEK-69m) during Q3 2010, however, as bad debt expenses decreased.

MAN’s sales fell by 43% during 2009 to €5.2bn (2008: €9.1bn) while operating profit fell to €-49m from €1bn the previous year.

Regarding progress of a possible combining of the two companies Asset Finance International was told: “The discussion is still ongoing. Further announcements will be made as appropriate.”

Fleets on the move

At the same time rumours are rife in the fleet-leasing sector that at least two contract hire companies are in advanced stages of discussion regarding consolidation. GE Capital (with a UK fleet of around 46,000 vehicles) which is known to be planning a major international growth programme, is believed to be interested in acquiring Masterlease (34,000 vehicles) the subsidiary of Ally Financial Inc. (re-branded from GMAC in May 2010). A combination of the two fleet lessors would make the new company the fourth largest UK lessor in fleet size.

GE’s ambitions in the fleet sector were demonstrated recently when it vowed to convert at least half of its 30,000 global fleet and to partner with fleet customers in an aim to deploy a total of 25,000 electric vehicles by 2015.

GE announced that it will initially purchase some 12,000 General Motors vehicles, beginning with the Chevrolet Volt in 2011, and will add other vehicles as manufacturers expand their electric vehicle portfolios.

“Electric vehicle technology is real and ready for deployment and we are embracing the transformation with partners like General Motors and our fleet customers,” said GE chairman and CEO Jeff Immelt. “By electrifying our own fleet, we will accelerate the adoption curve, drive scale, and move electric vehicles from anticipation to action.”

Lombard Vehicle Management (LVM) is also rumoured to be on the market. A subsidiary of the part-nationalised Royal Bank of Scotland, LVM runs a massive 82,000 leased vehicle fleet in the UK and is third in size only to Lex Autolease (307,000 vehicles) and LeasePlan (124,000 vehicles).

It is around 12 months since LVM decided that it would no longer accept new business from brokers or intermediaries. The aim was to concentrate on developing existing customers’ portfolios and seek new contract hire partners on a direct sales basis.

Contributed by Brian Rogerson - Editor, Asset Finance International

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