Auto finance market looks promising but shadows loom

Wednesday, May 13, 2015 - 11:59
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Worldwide the asset and auto finance market is looking positive – but political and fiscal tensions are casting long shadows across the globe

The leasing industry started 2015 with positive expectations.

In the UK, Finance & Leasing Association (FLA) data shows the asset finance market has made a good start to 2015, with growth continuing across key asset sectors. The percentage of UK investment in machinery, equipment and purchased software financed by FLA members increased to 27.2% in 2014, reaching its highest level since 2011.

Across Europe, new leasing business expanded by 8.4% in 2014, reaching its highest annual rate of growth in volume since 2007. Auto lending performed particularly well, with new leasing volumes up by 12.4% on 2013. Improvements were driven by Europe’s four largest economies in northern Europe, while some of the leasing markets in southern Europe saw double digit growth, albeit from a low base.

On the face of it, there are some enticing prospects for auto finance providers however it is theorised there will be a continuing reluctance on the part of organizations around the world to make the sort of really significant investment decisions which would drive the industry to new highs.

Some of the factors for this, include:

  • Significant political uncertainty in key markets about possible legislative and regulatory change. Until recently this would have included the UK, pending the outcome of the general election.
  • Multinationals in many countries are anxiously awaiting the outcome of the long running attempt to create a new global leasing standard, which is scheduled to be published by mid-2015. This will bring most leases onto the balance sheet and change the way companies account for this form of financing.
  • The UK, the US and the EU countries are all absorbing the impact of regulatory change, whether that is the new remit for the Financial Conduct Authority in the UK, the potential widening of powers for the Consumer Financial Protection Bureau in the US, or the ramifications of the Basel framework in Europe.

In one sense, there is nothing that lenders individually can do to tackle any of my list of risks, all of which require concerted, combined action by global leaders. But that is not to say that finance providers are just sitting back – in the opinion of many industry experts, the economic climate is undoubtedly improving, so for lenders who are innovative, know their markets well and can control their costs, the outlook is positive.

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