The Equipment Leasing and Finance Foundation, a non-profit organization dedicated to enhancing recognition and understanding of equipment lease financing, has released its 2003 State of the Industry Report (SIR).
Survey respondents describe mixed effects from the economic downturn. For some sheer survival is a goal, while other respondents report that the challenging times have provided an opportunity to refocus their approach, streamline their operations, and clarify their strategies leaving them poised to take maximum advantage of the next economic up cycle. The SIR report, administered by Financial Institutions Consulting Inc. (FIC), reflects year-end 2002 performance.
“The SIR report shows that, despite historically low interest rates, leasing continues to be an important financing vehicle for equipment in the U.S.,” said Lisa Levine, executive director, Equipment Leasing and Finance Foundation. “Respondents maintained satisfactory levels of profitability despite declining revenues, reduced new business volume, and slightly increased charge-offs.”
Controlling costs was cited as a main contributor to steady profitability.
Leasing continues to be the most widely used method of asset-based financing in the United States, accounting for approximately one-third of external financing of total capital investment. However, leasing volume is in direct relation to business equipment investment.
Based on the Bureau of Economic Analysis’ most recent GDP estimates, the SIR states total leasing volume for 2003 is expected to increase only slightly over 2002.
The 2003 estimate for leases is $208 billion out of $668 billion in total new business equipment investment. That figure is up from $204 billion in equipment leases on $655 billion in new business equipment investment for 2002. The SIR’s projection for 2004 shows a modest 5-percent increase over the previous year, barring new world incidents negatively impacting any economic recovery.
The report shows results from the three leasing market segments — small ticket comprising transactions up to $250,000, middle market comprised of transactions from $250,000 to $5 million, and large ticket for transactions over $5 million.
The SIR also includes information by categories of independent, captive and bank-affiliated leasing entities. Key findings include:
• Currently, the industry faces two main challenges: current economic conditions and the potential impact of accounting, legislative, and regulatory changes.
• Many respondents, in 2003, particularly in the small ticket market, are seeing the beginnings of an economic upturn.
• For the 132 survey respondents, 2002 new business volume declined by 4.6 percent over the previous year.
• Bank leasing companies experienced a significant drop in new business volume with captives and independents, financial services firms showing modest increases.
• By ticket size, micro ticket showed a substantial increase in new business volume (23.5 percent) while the other segments experienced declines.
• By channel, vendor and captive programs gained in importance over the previous year, demonstrating the increasing importance of point-of-sale financing.
• New business volume by equipment type shows most transportation, construction equipment, and industrial equipment volume down over the previous year. However, investment in medical and information technology increased during the same period.
Based on interim GDP reports, information technology and computers may continue to show strong growth in 2003 Transportation and industrial equipment continues to decline.
Even by the most optimistic forecasts, certain segments of the leasing industry will continue to experience significant challenges for the next 12 to 24 months.
More than ever, success in this industry requires focus, flexibility, and the ability to rapidly adapt to changing environments,” said Levine.
The SIR contains analysis of industry results, trends, developments and future outlook for the equipment leasing industry. It was compiled using information from the Equipment Leasing Association’s (ELA) Survey of Industry Activity, FIC’s past client experience, in-depth personal interviews, and independent economic data.
The Equipment Leasing and Finance Foundation is a 501c3 non-profit organization established in 1989 by the Equipment Leasing Association of America. The Foundation develops and promotes the body of knowledge to enhance recognition and understanding of equipment lease financing.
The Foundation’s strategic objectives are to maximize the role that equipment leasing plays in the world economy, and to be the prime developer and disseminator of a body of knowledge of the leasing industry.
For more information, visit www.LeaseFoundation.org.