Frankfurt, 21st November 2013 – This year, the leasing industry has facilitated 48.5 billion euro’s worth of investment. It has thus maintained its acquisition of new business at a stable level. “In view of the mood of uncertainty currently afflicting companies and their consequent reluctance to invest, we feel pleased with what we regard as a solid performance,” commented Martin Mudersbach, President of the German Leasing Association (BDL - Bundesverband Deutscher Leasing-Unternehmen). The leasing sector further increased its share of the investment market in 2013, and sentiment within the industry is particularly buoyant at present. So far this year, leasing has accounted for 23 percent of all investment in equipment. “German companies may be investing less, says Mudersbach, “but they are making greater use of leasing as an investment tool.”
In total, the leasing sector has this year enabled its customers to invest 46.5 billion euro (-0.2 percent) in mobile assets (vehicles, machinery, IT equipment, and other movable goods), and 2.0 billion euro (+5.2 percent) in real estate. However, weak demand for cars has put something of a brake on the acquisition of new equipment business, and vehicle leasing has failed to keep up with the increase in demand of around 4 percent for all the other classes of leased goods. And since cars and commercial vehicles make up just under 70 percent of all assets leased, any weakness in performance in this segment is readily visible.
Nevertheless, Germany’s leasing companies are optimistic about their prospects in the new year. Economists are predicting seven percent growth in equipment investment. Mudersbach is confident that if their predictions are correct, the leasing sector will benefit in full from the upturn in demand.
Plea to the Federal Government
Although the outlook is positive, the leasing sector has for some time been uneasy about German companies’ reluctance to invest. “The aggregate rate of investment in Germany has been falling for years. Compared with other European countries, our record is poor,” observed the BDL President. The leasing sector wants the new Federal Government to draw up a stable and dependable framework of operating rules and procedures, and to provide incentives for investment. The reintroduction of the declining-balance depreciation method and providing leasing companies with access to subsidies – specifically, in the field of renewable energies – might be ways of encouraging companies to invest. “But as well as individual measures,” argued Mudersbach, “the German economy needs a forward-looking, joined-up concept for reducing the investment backlog, dismantling unnecessary bureaucracy and supporting small and medium-sized companies”.
Financial market regulators demanding too much of the leasing sector
With regard to the regulations set in place by the German Financial Market Authority, the BDL President criticized what he perceived as a deterioration in operating conditions for leasing companies. He said that the regulatory requirements and obligations being imposed were inappropriate to a sector made up largely of small and medium-sized companies (SMEs), had created additional costs, and took little account of the leasing business model, or of the risk content of leasing transactions. Indeed, considerable numbers of small and medium-sized leasing companies have already capitulated in the face of intense cost pressure by simply ceasing to trade. “It is not acceptable that in their indiscriminate regulatory zeal our lawmakers are adopting – perhaps unwittingly – structural policies that could well cause the leasing market to atrophy. If this happens, the number of investment options available to SMEs will be further reduced.” In its discussions with political representatives, the leasing sector has for a long time maintained that the levels of risk involved in leasing transactions are inherently low. “Our arguments have now been impressively borne out by a wide-ranging European study,” claimed Mudersbach.
European study confirms low-risk nature of leasing transactions
Accountancy firm Deloitte was commissioned by Leaseurope, the European Federation of Leasing Company Associations, to scrutinize 1.5 million leasing agreements transacted with ten leasing companies throughout Europe between 2005 and 2011. The leasing customers were all small and medium-sized companies. The findings showed that the rate of default on leasing transactions was minimal – and significantly lower than the default rates for comparable credit portfolios. Similarly, the losses resulting from lessees defaulting on leasing agreements were also remarkably small. “Leasing companies have an excellent understanding of the assets they place on offer, and of their markets. They know exactly how to remarket used vehicles, machinery and IT equipment at the best going rate,” explained Mudersbach. “The study clearly reinforces the view that the regulatory hurdles for leasing companies are too high, and take no account of market realities”.
Trends for the various categories of leased assets in 2013
Leasing of cars and commercial vehicles looks as if it will be 2 percent down for 2013, but there has been a stabilization in the rate of acquisition of new business since the middle of the year. Be that as it may, the leasing sector has managed to increase its share of the overall car market. According to the Federal Motor Transport Authority, there was a 6 percent drop in the number of new cars registered in the first nine months of the year, but the volume of new car leasing business acquired in this period fell by just under 2 percent – both in terms of acquisition costs and of the number of vehicles registered.
The second most important category of leased assets is production machinery, and in this segment there has been a 4 percent increase in new business. “This is a particularly pleasing result, for the German mechanical engineering sector was expecting a slight fall in demand for their products this year. What’s more, there is every prospect that we can improve on our penetration rate in this sector,” commented Mudersbach. New business acquired through office equipment and IT systems has also increased at an above-average rate (7 percent). “Numerous IT investment projects were put on hold last year,” explained the BDL President, “with the result that in the second half of this year there was a big surge in business.”
In the real-estate segment, new business acquired through the leasing of business properties, office buildings and sales premises has so far this year risen by 15 percent. However, this has been offset by a 5 percent fall in demand for leased production premises, warehouses and other buildings. “Real estate is a big-ticket business, and overall results tend to be determined by a small number of transactions,” explained the BDL President, adding that no real trend could be identified from the data collected.