Latest Global Asset & Auto Finance Report out now

The outlook for the auto and asset finance industry looks cautiously positive, with innovation the key to unlocking new potential.

At White Clarke Group, we have been tracking the fortunes of the global asset and auto finance market in our regular surveys for four years now, and as our latest report makes clear, a lot of lessons have been learnt.

For more insights into how the market is changing and developing worldwide, download the White Clark Group Global Asset and Auto Finance Survey, May 2016 - or watch the summary video.

Despite the demands of a new accounting regime, global economic dips, and the slowdown in China, auto and asset finance companies are continuing to hold market share and win new business, often by adopting radically different business models, but progress around the world is patchy.

Established markets

The year began with the US and other established markets reporting good growth in new business volumes for the second year running. In fact, according to the Equipment Leasing and Finance Association, the US equipment finance industry is on course to be “knocking on the door” of the $1 trillion mark.

But while the US economy has started to pick up, there remain challenges. These include a fall-off in equipment investments as manufacturing weakness, global uncertainty and low oil prices discourage businesses from spending, and worries about future interest rate hikes.  

The one area accelerating strongly is auto leasing. The National Automobile Dealers’ Association is predicting the seventh consecutive year of auto sales growth, and more cars means more demand for finance. Experian’s quarterly State of the Automotive Market report shows that leasing now accounts for over a third of new financing, a record high.

Headwinds

Against this rather uncertain background, the Equipment Leasing and Finance Foundation (ELFF) has trimmed its forecast for equipment and software investment in 2016, which it now expects to grow at 2.7% rather than the 4.4% previously predicted, citing the number of “persistent headwinds” affecting the sector.

In the past, economic headwinds would have been enough to blow the industry off course. But we are seeing finance companies starting to respond to changing markets with new offerings, such as mobility services based on usage, rather than outright ownership, shared leasing options, and apps which integrate all the elements of the buying chain more closely.

One of the biggest challenges for the industry is the introduction of new accounting leasing standards by both the US Financial Accounting Standards Board and the International Accounting Standard Board, which will pull all leases on a company’s balance sheet for the first time. Our report takes a look at the potential impact of the new regime, due to take effect in 2019.

Despite the demands of a new accounting regime, global economic dips, and the slowdown in China, auto and asset finance companies are continuing to hold market share and win new business

Europe: two halves

Accounting changes will be introduced more slowly in Europe, where leasing remains a story of two halves, our study has found. The northern European countries, where leasing is an established finance option, have largely seen sluggish growth since the financial crisis. In contrast, leasing demand in eastern European countries is surging, albeit from a low base, as commercial businesses develop and a new consumer class emerges.

Data from Leaseurope on the European leasing market suggests that new leasing business in Europe expanded by 8.4% in 2014, reaching its highest annual rate of growth in volume since 2007. New figures suggest 85% of lessors are anticipating growth this year, but the pattern is uneven.

Our report takes a look at the differences between countries such as Germany, where forecasts for the year suggest modest improvements, contrasting with the double digit growth achieved in Poland and Romania.

Emerging markets

We also found a similarly mixed pattern in the Asia Pacific region. In established markets, such as Australia, there have been improvements since the 2008 crash, as we noted in earlier surveys, but growth is now flattening, with annual new business volume hovering around the $37 billion mark.

The big success story has been China, where the financial leasing market is expected to hit CNY five trillion during the first half of 2016, despite the economic slowdown in the country.  China remains a powerhouse in aviation leasing, and our survey takes a look at how the government there is using taxation reform as a means to boost activity.

Leasing markets are also opening up in countries like Thailand, Vietnam and Laos, as businesses develop and new, younger consumers look for financing for purchases such as motorbikes.

As our survey suggests, newly emerging markets face particular challenges. Overall, the leasing market in South America grew 18.7% in US dollars, or 38% in local currencies. Colombia took the lead and generated an impressive 66% growth, but Brazil, previously the powerhouse of the region, experienced a 15% decline, despite large infrastructure investments ahead of this year’s Olympic Games. 

Innovation key

Around the world, our respondents are clear that technology has a vital part to play in streamlining the key elements of finance activity and creating opportunities.  Take the example of Japan, where Orix Auto has launched the first-ever car lease service on the online retailer Amazon, or Ford’s move to app-based shared car leasing services in the US.

For more insights into how the market is changing and developing worldwide, download the White Clark Group Global Asset and Auto Finance Survey, May 2016 - or watch the summary video.