European Yellow Goods Leasing Report

Yellow Goods Leasing Report 1Leaseurope - Invigors

European Yellow Goods Leasing Report The role and future of leasing in the construction sector

October 2010

www.leaseurope.org

www.invigors.com


Leaseurope brings together 45 member associations representing the leasing, long term

and/or short term automotive rental industries in the 32 European countries in which they

are present. The scope of products covered by Leaseurope’s members ranges from hire pur-

chase and finance leases to operating leases of all asset categories (automotive, equipment

and real estate) and includes the short term rental of cars, vans and trucks. It is estimated

that Leaseurope represents approximately 93% of the total European leasing market and

the firms represented via its member associations granted new leasing volumes of over

¤209 billion in 2009.

The Federation’s mission is to represent the European leasing and automotive rental

industry, ensuring the sector’s voice is heard by European and international policy

makers. Leaseurope also seeks to promote the leasing and automotive rental products

and produces European level statistics describing the markets it represents.

Visit www.leaseurope.org

About the authors

www.leaseurope.org


About the authors

Invigors is a consulting and advisory services firm providing innovative and practical solu-

tions for asset and vehicle finance companies, manufacturers, vendor finance businesses

and industry suppliers across Europe.

With specialist domain knowledge and a deep understanding of the challenges that face

our clients, Invigors provides a viable alternative to the largest consulting and service firms.

Invigors Partners are recognised experts who have held senior asset finance positions, able

to offer trusted advice alongside highly skilled business transformation, M&A, technical,

research and analytical solutions.

Visit www.invigors.com

www.invigors.com


About the authors

Invigors LLP

Richard RyanPartnerInvigors [email protected]

Leaseurope

Jacqueline MillsSenior [email protected]

Contributing Expert Panel

Tom AntonissenSecretary General, European Confederation of Equipment Distributors (ECED)Patrick BeselaereCEO, ING Lease BelgiumPiero BiagiManaging Director, BCC Lease and Chairman of Leaseurope’s Statistics and Marketing CommitteeClaus HennebergerHead of Industrial Equipment & Transport, SG Equipment FinanceDuncan HullisDirector of UK Sales and European Program Management,Sales & Account Management, De Lage LandenMichel PetitjeanSecretary General, European Rental Association (ERA)Luc SavyHead of Construction and Materials Handling, BNP Paribas Lease GroupMonika StarkHead of Construction and Agriculture Markets Germany, Deutsche LeasingDirk StukkensGeneral Manager Major Accounts, Komatsu Europe International NV/SAAnnick Van LangenhoveRepresentative of SIGMA (Belgian member of ECED)Ralf WezelSecretary General, Committee for the European Construction Equipment Industry (CECE)

Peter HuntPartnerInvigors [email protected]

Jurgita [email protected]


ForewordBy Jean-Marc MignereyCEO, SG Equipment Finance & Leaseurope Board Member

The European Yellow Goods Leasing Report is the second in a series of reports on specalised

industry segment published by Leaseurope. The goal of these yearly reports is to capitalise

on data collected by Leaseurope through its European-wide membership as well as on the

network of expertise that Leaseurope is able to bring together from within the European

leasing and rental industry. The outcome is focused, in-depth market analysis that lessors

can use to better understand their current environment and to plan ahead for the future

of their business.

With the European construction sector having suffered deeply during the recession, a report

that looks at the equipment used to construct the buildings and infrastructure Europe

needs to thrive, and that highlights the pivotal role leasing plays in financing the assets

of the bricks and mortar economy, is particularly timely. Asset finance is a key enabler of

investment in this sector and has an important part to play in helping its recovery.

For the leasing industry to effectively fulfil this role going forward, we need to develop

innovative financial products that are in tune with the needs of our clients. The views

presented in this report have been gathered not only from leading firms in the European

construction equipment leasing business, but also from equipment manufacturers and

other key players such as the rental sector and equipment distributors. The report therefore

provides a unique overview of evolving roles within the supply chain and how asset finance

may need to adapt to this changing structure. It also highlights business, remarketing

and regulatory developments and the resulting challenges that may lie ahead for vendor,

captive and direct finance providers.

With this 360-degree perspective, the European Yellow Goods Leasing Report will help the

asset finance industry better understand the implications of the crisis for the construction

equipment sector and provides the backdrop and insights necessary for the industry to

reflect on future trends and develop the solutions our clients will expect.

Jean-Marc MignereyCEO, SG Equipment Finance & Leaseurope Board Member


Acknowledgements

Leaseurope is grateful for the support and contributions of the many people who made

this publication possible.

First and foremost, we would like to thank Richard Ryan and Peter Hunt, Partners at

Invigors LLP, for their professional moderation of the expert panel meeting held in June

2010 and their close collaboration during the lengthy preparation and drafting phases

leading up to the final publication. The high quality output of this process clearly shows

their in-depth understanding of the European leasing market.

We wish to express our gratitude to Piero Biagi, Managing Director of BCC Lease and

Chairman of Leaseurope’s Statistics and Marketing Committee. With his long- standing

dedication to European leasing statistics as well as to Leaseurope as a Federation, Piero is

the catalyst behind Leaseurope’s industry segment publications and originated the idea

of a report on yellow goods leasing.

We are extremely grateful to the members of the Expert Panel for their valuable and

extensive contributions. The report has greatly benefited from their market knowledge.

Further thanks go to the panel members who helped to enhance the quality of the

publication by taking the time to review the manuscript and provide additional feedback.

We also wish to thank those who helped us identify the right experts for our panel.

Our sincere thanks goes to Ralf Wezel, Secretary General of the Committee for European

Construction Equipment, for helping us enrich the report with the most recent and reliable

information on the European construction equipment market. Leaseurope looks forward

to cooperating with his association, as well as with the European Rental Association

and the European Confederation of Equipment Distributors, on issues of common

interest to our industries.


Acknowledgements

We are grateful to David Phillips, Managing Director at Off-Highway Research, for

providing us with additional statistical data and forecasts.

We are indebted to our Member Associations for contributing their figures and sharing

their knowledge of local leasing markets with us.

Our special thanks to Jean-Marc Mignerey for having patiently reviewed our efforts and

for agreeing to write the foreword to the report.

Last, but not least, we would like to thank Carolina Villamizar for designing a professional,

elegant and user - friendly publication.

Continued


Table ofcontents

01

02

03

04

05

06

About the European Yellow Goods Leasing Report 11 Objective 12Scope 12Methodology 14 The Construction Equipment Market: Industry Scale, Structure, Supply Chain Roles 15 Construction industry output 16Construction equipment market 17Distribution channels 19Current status – impact of the downturn on the construction equipment market 20Impact of rental market oversupply 21Outlook – growth prospects 22 Regulatory and Product Issues for the Construction Equipment Market 24 Engine emissions 25Importation of non-compliant equipment 25Fuel usage and alternative fuels 26Road safety harmonisation 27Telematics 27 The Role of Asset Finance 28 How asset finance is used in the supply chain 29Finance volumes 31Finance penetration levels 33Forces acting on leasing penetration 34 Prospects for the Finance Industry 36 Deteriorating counterparty risks: a self-fulfilling prophecy? 37International lease accounting standards 37Medium term view 39 Residual Values and Remarketing 40 Impact of residual losses 41Outlook for residual risk taking 41


Table ofcontents

07

08

09

10

Finance Product Developments 43 Factors driving finance innovation 44Shift towards rental and greater lease flexibility 44TCO, pay per hour, pay per tonne 45International solutions for large customers 46 Considerations for Vendor Finance 47 Shift towards national programmes 48Role of distributors and dealers 48Factors driving vendor programme success 49 Summary of Key Trends in the Construction Equipment Market and their Potential Impact on the Leasing Industry 50 Appendices 52 Leaseurope members 53Total Leaseurope Leasing Market 2009 54Equipment by Asset Type - Leasing & Hire Purchase 55Equipment by Customer Type - Leasing & Hire Purchase 57Sources 59


01

About the European Yellow Goods Leasing Report


01About the European Yellow Goods Leasing Report

Objective

Throughout Europe, asset finance supplied by the leasing industry plays a crucial role in funding capital investment across all industry sectors. In 2009, Leaseurope’s member trade associations – which represent represent over 2 000 individual leasing companies - reported the financing of €185 billion of movable assets. Amongst these assets, construction equipment is an economically significant asset class where the use of asset finance has historically been high, both as a result of finance provided direct to end customers and through vendor finance programmes involving tailored finance offerings devised to assist the equipment sales process. By way of reference, the European construction equipment market accounted for €9.6 billion of capital expenditure in the EU in 2009, though this was heavily down on its high of approximately €17 billion in 20071.

The last two years have been difficult for the construction sector, with equipment sales down between 30% and 80% across most markets. This has been reflected by a corresponding fall in financing volumes. Further difficulties have been experienced with the retrenchment of some finance providers and a worsening credit risk profile presented by many construction firms.

This report, produced by Leaseurope in association with specialist lease consulting firm Invigors, considers the impact of the extreme downturn in sales volumes experienced by the construction equipment industry, the relevance of asset finance for this industry and the role it can play in the sector’s recovery. Based on insights gained from detailed market analysis and the views of market experts, it aims to provide a useful summary of current trading conditions and a view of future developments for both practitioners and policy makers.

Scope

The simple term lease covers a myriad of different contract types, the common feature of which is that the lessor retains ownership of the leased asset throughout the life of the contract.

With a multitude of definitions existing in local accounting standards, fiscal legislations and in some cases within specific local legislative frameworks for leasing, the only common definition of a lease that can be given on the European level is that provided by IAS 17, the international accounting standard for leases, where a lease is defined as “an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time”. IAS 17 differentiates between finance leases whereby the lease contract transfers substantially all of the risks and rewards related to the leased asset to the lessee, and all other leases, which are known as operating leases. These types of leases can often be accompanied by a range of optional services, including the insurance and maintenance of the leased asset. In such cases, one can consider that the lessee is effectively outsourcing all the asset-related requirements to the lessor.

Given this diversity of terminology, as well as of the products represented by Leaseurope member associations, this report focuses on leases in a broad sense and simply reflects the scope of the Federation’s members’ businesses, as illustrated in Figure 1.

1. CECE Economic Report 2010


The European Construction Equipment Leasing and Rental Market

Scope of the report

Figure 1

Boundaries between different leases:

• From leases to loans: Some Leaseurope members represent companies that provide products referred to locally as hire purchase. These contracts, which can be granted to businesses or consumers, will in some cases meet the IAS 17 definition of a lease, with the customer becoming the owner of the asset either upon payment of its last rental instalment or upon exercise of a purchase option, which is often for a nominal amount (for example, 1 euro). In some jurisdictions, these types of contracts may be referred to as conditional sales as the customer would only become the owner of the asset if all payments are made and only once the final instalment is paid. In other cases, these contracts may not meet the international accounting definition of a lease as the customer could be the outright owner of the asset from the start of the contract. Such contracts are similar to traditional loan finance, with the asset fulfilling a simple security function.

• From leases to rentals: Other boundary issues arise between leases (to finance assets) and rentals (conveying the use of assets). From an IAS 17 perspective, this is not problematic as rentals meet the definition of a lease (see above). In practical terms, in the construction industry rentals under 1 year in length tend to be managed by specialist rental companies, more likely to be members of a local rental trade association than a Leaseurope member trade association. The rental market is however referred to in this report as it is an integral part of the overall construction equipment market, and as rental companies are users of lease finance (that is, customers of leasing companies).

Loans

Financing

Customer

Asset management

Finance Leasing Operating Leasing

Unsecuredloan

Securedloan

Conditionalsale

Hirepurchase

Financelease

Long term rental /Operating lease

Short term rental< 1 year

Importance of asset risk and asset management capabilities

scope of the report

Business focus

Ass

et o

wne

rshi

p

Finance / rental

company


• A continuum: Under dynamic market conditions, the dividing lines between rental, leasing and other forms of asset-based finance are not always clear cut, and a single organisation (either as a customer or on the supply side) can be a user or provider of several financial structures. Rather, the range of products can be placed on a continuum depending on the extent to which the customer wishes to obtain ownership of the asset or whether it simply wants to benefit from its use, for a longer or shorter period, as shown in Figure 1 above. In parallel, finance and rental companies can be placed on an axis according to their level of involvement with the asset, i.e. depending on the level of asset risk and services they provide. The higher the asset risk, the more firms have to establish asset management practices (including remarketing of used assets) to control this risk. Accordingly, the focus of the business can vary from traditional lending to full asset management.

Methodology

A variety of sources and techniques have been used to compile this report.

Analysis and forecasting of construction industry output and investment is based on desk research using a range of official European sources such as Eurostat and others such as Euroconstruct. Significant support on quantifying the construction equipment market was provided by trade organisations, notably the Committee for European Construction Equipment (CECE) and the European Rental Association (ERA), and industry research consultancy, Off Highway Research.

Analysis of European leasing volumes is based on data collected by Leaseurope from its member associations in its annual surveys of the European leasing market. Time series analysis was undertaken to understand changes in market performance over recent years.

An expert panel involving industry leaders from the European leasing sector, equipment rental industry, construction equipment manufacturers, distributors and dealers was held on 30th June 2010 in the European House of Leasing in Brussels to discuss the key issues and trends facing the construction equipment market and how they related to the future of the equipment financing market. Key issues were investigated further through follow-ups with this group of experts and other authoritative market sources.

One of the challenges in compiling this report has been in sourcing comparative quantitative data in order to assess the size of the European construction equipment market in terms of asset sales and finance opportunity. A key limitation here is that there is little country-specific data on leasing volumes for construction equipment available from either Leaseurope or its member leasing associations. At European level,, the lowest asset level of new business volume data applies to machinery and industrial equipment, of which construction equipment is an important constituent. However, this category also includes other asset types such as mechanical handling and agricultural equipment which are also leased in significant volumes.

As a consequence, penetration rates for leasing have been difficult to determine accurately. The approach taken in compiling this report has been to compare leasing volume data from Leaseurope members with equivalent capital investment data from public sources. Whilst this is a standard approach to calculating penetration rates at a macro or asset category level, the two sources may not be directly comparable. Therefore these figures should be taken as indicative rather than definitive.


02

The Construction Equipment Market: Industry Scale, Structure, Supply Chain Roles


02The Construction Equipment Market: Industry Scale, Structure, Supply Chain Roles

Construction industry output

Construction output in Europe totalled €1,363 billion in 2009 of which the five largest countries combined accounted for 69%. Germany is the largest construction market with 20% of the European total, followed by France, Italy, UK and Spain. With 2009 construction output of €83 billion, Central and Eastern Europe accounted for 6% of the total.

European Construction Industry Output 2009

Source: EUROCONSTRUCT Figure 2

Overall construction output in Europe fell by 8.4% in 2009 as the economic recession took hold, following a 3.0% decline in 2008. Despite the modest economic recovery anticipated for Europe in 2010, construction output is forecast to fall further, by 2.2% this year with only a slight improvement of 1.6% forecast for 2011.

Annual Change in Construction Output


6%CEE

8%Nordics

17%Smaller countries

10%Spain

12%UK

13%Italy

20%Germany

14%France

An

nu

al %

ch

ange

-25

-20

2008 2009 2010 2011

Italy

-15

-10

-5

0

5

Germany France UK Spain Total Europe


Of the major European markets, Spain has been the hardest hit by the recession with construction output falling by 17.3% and 21.5% in 2008 and 2009 respectively. With austerity measures in place, a further 9.7% decline is forecast for 2010 with no recovery forecast until 2011. Germany appears to have been the least affected by recession, registering just a 1.2% decline in construction output in 2009 though recovery in 2010 and 2011 is forecast to be very subdued. After experiencing varying degrees of contraction in construction output in 2009, France, Italy and UK are forecast to show smaller declines this year before registering modest increases of around 1% in 2011.

Construction equipment market

The European market for construction equipment totalled €9.6 billion in 2009, a decline from €15.5 billion in 2008. Amongst the major European countries, at €2.2 billion, Italy is the largest market (although Italian sales data inclu-des sales of spare parts), accounting for 23% of the total followed by Germany, France and UK which accounted for 21%, 16% and 15% respectively. Spain’s share of the total has fallen from 8% in 2005 to 6% in 2009.

European Construction Equipment Market by Major Country

Source: CECE Figure 4

Note: This does not cover all European Markets. The category “Others” includes Belgium, Finland, Poland, Sweden.

Market size (in value) = manufacturer sales in home market + imports.

Italian data includes sales of spare parts.

Manufacturers’ equipment sales grew strongly between 2005 and 2007 with an average annual increase across the major countries of 17%. However, construction output growth was more muted suggesting that a degree of overstocking was starting to appear. As construction output declined in 2008, the growth in equipment sales turned negative in all of the major European countries except Germany as manufacturers and distributors reacted to reduce stocks. Sales in most markets fell by around 10% though Spain and the UK were exceptions, experiencing declines of 27% and 24% respectively. The recession accelerated rapidly in 2009 with the market overall down by 38% and most countries experiencing falls of 30-40%. Feedback from CECE members indicates that some modest recovery is expected in 2010 with most major markets anticipated to show growth in sales of between 2-5%. However the Spanish market remains particularly challenged, with a further 20% decline in equipment sales forecast.

Annual Change in European Construction Equipment MarketSource: CECE Figure 5

Note: This does not cover all European Markets. The category “Others” includes Belgium, Finland, Poland, Sweden.

France Germany Italy Spain UK Others

€ m

io

0

2 000

2005 2006 2007 2008 2009

4 000

6 000

8 000

10 000

12 000

14 000

16 000

18 000

An

nu

al %

ch

ange

-50

-40

-30

-20

-10

0

10

2006 2007 2008 2009

20

30

50

Italy Germany France UK Spain Total

40


In terms of asset types, earthmoving equipment (excavators, loaders, etc) accounted for half the equipment market in 2009, with concrete equipment (pumps, mixers) taking a further 21% share. Road making equipment accounted for 15% of the market with tower cranes and crushing, washing and sizing equipment taking market shares of 5% and 9% respectively.

European Market for Construction Equipment by Equipment Type 2009

Source: CECE Figure 6

Note: European market (in value) = manufacturer sales in home market + imports.

Medium to large scale equipment such as excavators, loaders, cranes and rough terrain lift trucks account for the majority of the market by value and are the primary focus for finance. At the other end of the spectrum high volumes of smaller scale machinery such as compaction equipment, mixers, pumps, etc are widely used throughout Europe particularly through the rental channel.

While CECE includes more than 1 200 construction equipment firms within its membership, the market is highly concentrated. Some of the major manufacturers supplying the European market are included in Figure 7:

Some of the Major Construction Equipment Manufacturers Supplying the European Market

Amman Kubota

Bauer Liebherr

Caterpillar Manitou

CNH Manitowoc Crane Group

Doosan Infracore Merlo

Fayat Metso

Hitachi Construction Machinery Sandvik

Hyundai Heavy Industries Takeuchi

JCB Terex

Kobelco Volvo CE

Komatsu Wacker Neuson

Figure 7

50%Earthmoving equipt9%

Crushing, Washing,Sizing equipt

5%Towe cranes

21%

¤9.6billion

Concrete Equipt

15%Road equipt


Distribution channels

Roles within the Value Chain for Construction Equipment

Role Distribution network role

Scale / bulk-breaking role

Asset management

Sales to small customers

Sales to large customer

Manufacturer Likely to have a controlled distribution network. Depending on scale may require product line exclusivity from distributors and dealers.

Large volume sales to large supply chain partners (who then bulk-break) or large customers, except in niche situation.

Even when engaged in servicing multinational customers, which is usually outsourced through the distribution network.

Only in niche situations.

Increasing trend. May require coordination of sales, service and financing activity across multiple jurisdictions.

Distributor Likely to control a specific country or region on a tied basis within a manufacturer network. May support a sub-dealer network.

The large majority or all equipment sales in the market would go through the distributor.

May have full in-country asset management, especially when dealing direct with end customers.

May sell direct and/or via dealers.

May sell direct and/or via dealers.

Importer Recognised importer of specific manufacturer lines, for resale to nominated dealers. An alternative to a tied distributor.

Essentially provides a bulk-breaking service for dealers.

Limited. Focus is on equipment trading.

No – sells to other supply chain players.

No – sells to other supply chain players.

Dealer/repairer Sales outlet with service and maintenance facility. May be tied to selected manufacturers, usually multi-line. Usually supplied by a distributor /importer.

May hold stock of smaller items. Larger items tend to be purchased to order.

Service, maintenance and repair represents a large element of a dealer’s activities.

Yes – often focused on supporting a local customer network.

May depend on the size of the dealership, as larger customers will often require terms or support functions that will not be feasible for many dealers.

Reseller Usually outside an official manufacturer network, buyer and seller or equipment without servicing.

Not tied to a manufacturer but may profit from scale purchasing benefits. Can be opportunistic. Sales may be to dealers, including cross-border.

No Would seek to compete on price but unable to provide service support.

Would seek to compete on price but unable to provide service support.

Auction house Asset disposition channel used across the value chain. Sells across asset types and manufacturer brands.

Able to rapidly dispose of stock but may be at low prices and without distribution control.

No Yes Yes

Rental company Support contracting market and short-term equipment use. Depending on scale may be supplied by any part of the value chain.

Not tied to a manufacturer. Serves a specific business requirement.

High level of asset management. Asset utilisation levels are likely to be a KPI.

Yes May depend on the size of the rental company, as larger customers will often require terms or support functions that will not be feasible for many rental companies.

Figure 8


The predominant route to market for most equipment sales is from the manufacturer via its controlled distribution network, featuring a small number of national distributors or importers who may either manage a geographically spread sales and repair network or support a number of privately owned sub-dealerships. In some cases or in some geographies, the manufacturer may own all aspects of the supply chain.

In terms of competition legislation, the construction equipment sector is subject to the EU Vertical Block Exemption Regulation. This means that territorial exclusivity is generally permissible within a manufacturer’s distribution network. However, the provision of cross border sales over the internet may affect this position as current distribution agreements tolerate “passive” marketing in other territories but not “active” selling. Developments along these lines have the potential for changes to the structure of the industry, with the potential rise of new players operating across borders or in direct competition to incumbent players.

Around 20% of construction equipment sales are reported to be sold into the rental sector. Playing an important role, in particular for contracting firms who require equipment for relatively short periods (typically under 1 year), rental market activity tends to be super-cyclical and is an early, though often exaggerated, indicator of upward and downward shifts in construction sector activity. Very fast to react in terms of equipment buying programmes, swings in rental sector demand can prove challenging for manufacturing capacity and overall supply chain planning. Given its key role within the industry, the impacts of the crisis on the rental sector are discussed in more detail below.

Over recent years, traditional roles throughout the supply chain have come under pressure. For example, depending on the nature of distribution agreements, end customer engagement (especially for larger customers) may occur at all distribution levels, including as part of a multi-country supply relationship with a selected manufacturer. Quite naturally, end customers with sufficient buying power will gravitate to the supply relationship that provides the best overall value or lowest cost – in the process potentially marginalizing the role of downstream organisations.

At a time when there is already downward pressure on volumes, those involved in the construction equipment value chain are increasingly forced to consider additional new competitors, some with radically different business models. These include auction houses and resellers, who have since the downturn become more prominent.

Asset finance providers will be expected to respond to these distribution changes. They may provide new opportunities, for example in supporting the increased volume of equipment sales through international on-line auctions. Of course, new channels also bring new commercial risks that need to be carefully managed.

Current status – impact of the downturn on the construction equipment market

The economic downturn has had a severe impact on the sale of construction equipment, with European unit sales volumes in 2009 reported to be 50% down on the previous year. Related supply chain activities have been adversely affected, such as repair, maintenance and the sale of after-sales parts that historically have provided higher margins.

During this downturn in sales, manufacturers were left with both excess manufacturing capacity and stock, having previously been in a position of lengthy order periods based on over-demand. To a large extent, manufacturing capacity has now been adapted to changed market conditions. Stock was either pushed into the distribution channel or sold by other means, including auctions. As a result, any new manufacturer order is now likely to represent a new build for the factory, rather than simply clearing old stock.

A consequence of reduced manufacturing capacity has been that in 2010 delivery times on some new orders have already started to increase again, even when the number of new orders remains low. To protect their delivery position, this has led to some larger customers making replacement orders that may have the potential to exacerbate existing market over-supply of equipment.

Having moved down the distribution channel, the problem of over-stocking has been felt for longer by distributors and dealers. To sell new equipment they were increasingly forced to accept used equipment in return, including competitor brands. Stock financing facilities provided by finance companies have therefore been a valuable support for this part of the industry. Their capacity and utilisation levels continue to be closely monitored to control risk exposure and optimise capital allocation against unused stocking facilities.


Over-stocking of new and used equipment has generated a number of issues. Resale values on used equipment have fallen, in some cases well below the residual values set by finance companies or the buyback positions set by the supplier organisation to create an attractive finance offering. As these residual losses are realised, the financial status of a number of market participants will be weakened, and the willingness to take future residual value positions is likely to be challenged.

A combination of customer demand and the increasing market share of plant hire companies has encouraged a significant proportion of dealers, often supported by manufacturers, to diversify into equipment rental, which may previously have been considered a non-core activity. A small number of manufacturers have also entered the rental market. One impact of this trend is to increase capacity in an already over-supplied rental market.

Aided by technological advancements, on-line auctions have become an increasingly important route to market for new as well as used equipment. In order to quickly reduce stockpiles, some major equipment manufacturers have used this channel expediently, including “one company only” auctions that focus on the assets of a specific manufacturer and allow the sale of large quantities of stock in a very short period. While auctions have played an important role in the manufacturers’ aim of rapid de-stocking, they have led to assets being sold at low prices, possibly taking business from the manufacturers own distribution network with no control over post-sale servicing or resale activity. This is also reported to have led to increased re-importation of equipment on the grey market (outside of a manufacturer’s controlled distribution network).

Another recent trend, perhaps connected, has been a rise in the number of resellers who buy equipment at best prices and re-sell, but have no service capabilities.

While very few major manufacturers or large distributors are yet to fail, many small and medium sized enterprises – often local dealerships - have ceased trading or are in a weak trading position. To protect their route to market, take advantage of weakened acquisition values or in an attempt to take cost out of their supply chain, some manufacturers and large dealers/distributors have consolidated their position, acquiring smaller players. This trend looks set to continue.

Where consolidation does occur it is likely to favour vendor finance providers, able to deliver aligned financing programmes to support the selling activity of manufacturers and larger distributors.

Impact of rental market oversupply

A rapid downturn in European rental markets took hold in the summer of 2008, firstly hitting those markets most influenced by real estate building - notably Spain, UK and Ireland - before spreading across all markets. Since 2007, equipment investment levels within the sector are reported to have dropped by 70%.

In the period before the downturn, rental companies invested heavily in new stock, driven by an oversupply of credit, low interest rates and increasing manufacturer delivery times, which forced companies to place orders up to two years in advance of their intended use. With the inherent volatility of the rental markets, this meant that many orders were placed speculatively based on future expectations rather than a firm order book. A consequence was that when the downturn occurred, many new equipment deliveries were made after the downturn had taken hold, increasing the oversupply already experienced in the market.

In 2008, the rental market was estimated to be 30% over-supplied. During 2009, fleet investment was reduced drastically, by over 80% in some countries, with even the more stable markets experiencing capital expenditure reductions of 20% to 25%2. One way that rental companies have historically managed oversupply is through sale of their used stock. However, with most used markets saturated, prices reduced and this became a less viable option.

Rental penetration of the European construction industry market peaked in 2008, fell in 2009 and is expected to decline further in 2010. The recovery in rental turnover forecast by the Equipment Rental Association (ERA), the sector’s European trade body, for 2011 is unlikely to be strong enough to outperform growth in the construction sector as a whole. Therefore overall rental penetration is anticipated to be, at best, stable through to 20123.

2. Source: The European Equipment Rental Industry 2009 Report, ERA/IHS Global Insight 3. As above


As a general rule, it is estimated that with natural aging of the fleet it is possible to reduce oversupply by 10% per annum, which would suggest that the rental sector is unlikely to consider large scale equipment investment until 2011 at the earliest.

Additionally, there are other factors that could further delay equipment investment programmes. Going into the downturn, the average age of fleets was very young by industry standards (as a result of previous over-investment) which may delay the replacement cycle beyond 2011. New regulations have started to push up the price of new equipment (see Chapter 03), encouraging rental companies to extend the useful life of existing stock. Heavy price pressure is driving some parts of the rental industry towards a “low cost” model, which may also encourage the extension of asset life.

While some large rental companies have started to reinvest, this remains at very low levels. Until meaningful levels of equipment investment return to the rental market, the construction equipment sector will not return to pre-2008 levels of output.

Another key issue for the rental market – and by inference, the finance companies supporting its fixed asset pool – is reducing creditworthiness within the sector. After years of poor trading, for many rental companies there is likely to be a scarcity of funding to invest in replacement stock, or it will come at higher interest rates and require additional collateral cover. Implications for the sector could be severe, with a rise in company failures or consolidation activity which seems likely to grow slowly towards the end of 2010, accelerating throughout 2011 and 2012. In these circumstances financing company bad debts and early terminations seem likely to rise. The market is likely to show consolidation around large, well capitalised rental firms.

Outlook – growth prospects

There is some evidence that confidence is starting to return to the construction industry with surveys showing less pessimism than during 2009. However the picture is mixed with the outlook for countries such as Ireland, Portugal, Spain and the UK still predominantly negative.

EU Construction Industry Confidence Index

Source: Eurostat Figure 9

These improved expectations on construction output have been reflected to some extent amongst equipment manufacturers. In its monthly business barometer survey, CECE asks members how sales in Europe in the past months compare to the same period a year ago. Up until February of last year the balance of responses (positive over negative) was consistently negative, albeit against an improving trend. This improvement has continued with an increasingly positive balance through to July. In its most recent survey, CECE stated that 30% of its members participating in the survey reported sales to be up by 20% or more (compared to the same period last year), though 10% still were experiencing sales below the levels of 2009.

Bal

ance

of c

onfid

ence

(%)

Jan

00

Jan

01

Jan

02

Jan

03

Jan

04

Jan

05

Jan

06

Jan

07

Jan

08

Jan

09

Jan

10

-40

-35

-30

-25

-20

-15

-10

-5

0

5


Construction Equipment Sales in Europe in Past Months Compared to the Same Period a Year Ago

Source: July 2010 CECE Business Barometer Figure 10

Despite this apparent upturn, demand remains subdued and overcapacity persists in the market. Consequently, sales of construction equipment look set to remain sluggish for the foreseeable future, well below previous levels. Industry commentators have suggested that there is no foreseeable prospect of returning to 2007 equipment volumes. Forecasts from industry research consultants Off Highway Research suggest that even by 2014, sales of medium-large equipment will still be well below the levels of 2005.

Western Europe Medium-Large Construction Equipment Market by Country 2005-2014

Source: Off Highway Research Figure 11

Note: Includes excavators, loaders, rough terrain lift trucks, dump trucks, asphalt finishers and crawler dozers. Excludes compactors, concrete

mixers, pumps, cranes and small-scale equipment.

Data from Off Highway Research shows that the market for medium-large equipment peaked at around €15 billion in 2007 before declining by over 60% to less than €6 billion in 2009. Forecasts show only a limited recovery with marginal growth in 2010 and a modest rate of recovery through to 2014.

Demand in 2010/11 is likely to be for replacement equipment rather than to support new activities, with many companies (especially rental companies) able to manage with their existing stock.

Bal

ance

of r

espo

nse

s

-25

Jul 09 Aug 09 Sep 09 Oct 09 Nov 09 Dic 09 Jan 10 Feb 10 Mar 10 Ap 10 May 10 Jun 10 Jul 10

-20

-15

-10

-5

0

5

10

15

An

nu

al e

quip

men

t sa

les

(€ m

io)

0

2 000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

4 000

6 000

8 000

10 000

12 000

14 000

Germany France UK Italy Spain Nordics Benelux Other

16 000


03

Regulatory and Product Issues for the Construction Equipment Market


03Regulatory and Product Issues for the Construction Equipment Market

Engine emissions

The EU Engine Emissions Directive4 outlines requirements to reduce engine exhaust emissions of all non-road equipment placed on the European market. Currently at Stage IIIA, Stage IIIB will come into force in 2011, to be followed by the final Stage IV in 2014.

Stage IIIB will require very sophisticated technology from manufacturers in terms of engine and exhaust filtration devices, which have to be integrated into the machines. Following that, the most severe challenge will be the Stage IV requirement to almost completely eliminate NOx.

To achieve these standards, manufacturers have undertaken significant investment programmes. As well as a new engine, the solution requires either greater cooling equipment or a separate tank – both of which need space, creating visibility and width issues. The impact for manufacturers has been a significant redesign process, pushing up Stage IIIB equipment prices by as much as 20% without any corresponding improvement in operating performance. The new, more sophisticated equipment will also have higher fuel and servicing costs, further depressing purchasing appetite.

As a consequence, there could be a positive stimulus for operators to buy stage IIIA equipment in late 2010 or early 2011, but a drop in sales volumes is predicted at the start of the IIIB period, with users extending the life of older assets with lower operating costs.

In asset categories where sales volumes are low, there will be some flexibility in terms of the adoption date. However, the redesign costs represent a significant burden, especially for smaller manufacturers and may support further consolidation in some areas.

Over time, it is likely that some local authorities will only allow IIIB equipment to be used in their jurisdiction, which should force equipment sales in some segments of the market. Tightening public spending may limit this impact, as the use of Stage IIIB equipment is likely to drive an increase in contractor prices.

Another factor to consider is the residual value implications for Stage IIIA and IIIB equipment. The IIIB standard requires equipment to use low sulphur fuel. Although this is readily available in most European markets, it is less available in some geographies where used equipment is remarketed, such as North Africa or Russia. IIIA equipment will become less acceptable within the EU. In both cases, it is conceivable that the change could drive a reduction in residual values.

Importation of non-compliant equipment

As EU safety and environmental standards increase, there is a growing problem of imported equipment coming onto the market that fails to conform to European regulatory requirements.

4. Directive 1997/68/EC, amended by the Directive 2004/26/EC


The main sources for such equipment appear to be low cost imports from Asia and the re-import of European manufactured equipment that was specified for non-EU markets. The problem has been compounded by the growth of resellers, re-importation on the grey market and the recent prominence of sales through auctions.

Customs checks of incoming equipment into the EU are currently not systematic and, when goods are checked, it is not necessarily straightforward to accurately indentify equipment that does not conform to EU legislation. Consequently, there is currently no hard data on the number of cases that arise but it is reported that problem is growing and depends on the relative performance of Asian and European markets.

This situation creates a significant risk for finance companies who rely on the equipment to act as lending collateral. The collateral value of non-compliant equipment may be materially below expected value, reducing the assumed security in the lending calculation and representing an immediate bottom line loss on remarketing (either in the context of operating lease or default situations).

Even in a very early default situation, remarketing of a non-compliant asset would have to be confined to non-EU markets, possibly outside the remarketing reach for a non-specialist lender.

Safety and environmental concerns also arise as accidents are more likely to occur with equipment that does not meet EU standards. In the event of such an accident, insurance may be more difficult to claim on non-compliant assets.

Efforts by industry bodies such as CECE (Committee for European Construction Equipment) to engage with customs authorities and health & safety regulators have gained only limited traction to date. CECE has therefore undertaken several initiatives to help buyers identify whether equipment is compliant. In particular, the body has produced leaflets with clear instructions to assist non-experts in ensuring they are purchasing equipment that is conform to EU requirements.

In response to this issue, Leaseurope has distributed this information to its member associations and is considering other actions to ensure the leasing industry is made aware of the situation.

How can finance providers avoid financing equipment that is not compliant with European legislation?

To find out, consult CECE’s brochures for straightforward pointers on how to identify EU-compliant excavators, compact excavators and wheel loaders.

Fuel usage and alternative fuels

While CO2 emissions from construction equipment are not yet regulated, this is without a doubt an area where there will be further regulatory development at European level in the mid-term.

As explained above, low sulphur diesel will be required for new engines to achieve Stage IIIB emission standards. With good availability, adoption of this fuel type should be relatively straightforward though there remain significant concerns, particularly within the rental industry, of the potential for equipment damage as a result of operators using the wrong fuel type. This may need to be reflected with the terms and conditions of future lease and rental agreements, possibly with the ancillary sale of some form of insurance cover.

Hybrid engines have been developed by a number of manufacturers, though to date only one appears to have a hybrid excavator in production. Notably, it is reported to be able to provide a fuel saving in the region of 25%. Fully electric equipment could have potential applications for small machines and in stationary applications, such as mining. Organisations such as CECE are also investigating the use and effect of bio fuels in the area of exhaust emission after treatment technology.

Being a large component of equipment running costs, fuel usage is integral to the total cost of ownership (TCO) calculations performed by many users, in particular larger firms and contractors. Technological development may drive higher unit pricing but this may be outweighed by lower fuel consumption. Replacement of some old equipment may be justified on a TCO basis that may be underpinned by a suitable lease structure.

http://www.cece-eu.org/pdf/CECE_Compl-Excavator Apr 2010%5d.pdf

http://www.cece-eu.org/pdf/CECE_Compl-CompactExcavator Apr 2010%5d.pdf

http://www.cece-eu.org/pdf/CECE_Compl-Wheelloaders Apr 2010%5d.pdf


Fuel costs, usage and availability will all need to be considered when assessing future equipment values. For example, the adoption of new fuel-efficient technologies may lead to downward pressure on residual values on less efficient machinery or where there is limited availability of a particular fuel type in destination markets for used assets.

Road safety harmonisation

While EU harmonisation is in place for cars and commercial vehicles, the on-road use of “non-road mobile machines” – which includes some construction equipment – is subject to differences in legislation across each of the 27 EU member states.

As a result, road going equipment approved for use in one EU country may not automatically be legal for the same use in another country. This may be for relatively minor aspects such as warning plates or lights, though could also cover major build items such as brake systems or steering.

From a financing perspective, this can have a big impact on residual values and remarketing options as there may be some EU markets where the equipment is not compliant.

In the absence of a fully effective EU legislative framework in this respect, manufacturers of construction equipment are working to convince Member States to accept equipment that conforms to standard EN 15573 developed by the European Committee for Standardisation. In combination with “mutal recognition” regulations requiring Member States to explain why they would not accept products that have been lawfully placed in another market, it is hoped that the situation will improve, although EU-level legislation will most likely be necessary to fill this gap in the internal market.

Leaseurope will monitor the situation with its members and provide support to on-going lobbying efforts in this areas as required.

Telematics

In recent years, telematic equipment monitoring systems have been introduced by many manufacturers. These systems serve a number of useful purposes in terms of fleet management, equipment maintenance and asset protection.

By monitoring a wide range of transmitted data regarding the performance and use of on-site equipment, a fleet manager is able to ensure conformance to maintenance programmes based on the actual level of use. Performance issues can also be identified with early inspection and repair work sanctioned without delay. Additionally, assets can be satellite tracked when stolen and in some cases may be made to switch off automatically if outside a defined geographic area. Asset replacement cycles can be adapted to reflect best economic value, either in terms of shorter or longer replacement periods.

Over an entire fleet, the performance improvements can be substantial but require suitable reporting and management processes in place. This can be made complicated for multi-brand fleets as each major manufacturer has developed a proprietary approach to telematics, leaving the user, dealer or rental company with the potentially expensive challenge of integrating different systems and processes. There can also be resistance from dealers and rental companies which perceive that telematic systems will reduce the value of their role to the end user, and reduce service related incomes. Additional purchase cost is also a factor.

The adoption of telematics could drive accelerated development of cost-per-tonne and cost-per-hour finance products. Working with the service and maintenance provider and a guaranteed buyback position (within agreed time parameters), it should be possible to design TCO-related solutions that give greater certainty on business process and job costs for customers in the construction industry.

Effective use of telematics can have a significant impact for finance providers. By improving equipment management practices, residual values tend to be pushed slightly higher allowing a more aggressive financing offer with the potential to win competitive sales. New product development is possible, creating commercial benefits. Asset-related risk is reduced in either a default or end-of-lease situation. Risk of theft is reduced, and likelihood of repossession improved.


04

The Role ofAsset Finance


04The Role ofAsset Finance

How asset finance is used in the supply chain

Asset finance providers offer wide ranging support integral to the construction equipment industry, ranging from heavily embedded, promotionally-rich finance programmes to support manufacturer sales networks on an international basis through to single transactions provided by general finance companies, at a local level. A range of financing solutions are available, summarized in Figure 13.

Throughout the industry, the penetration of asset finance is high with an aligned finance product offering embedded in many equipment sales processes. Frequently the provision of asset finance is essential in closing the equipment sale, especially for small under-capitalised businesses that are characteristic of this market. In some segments, in particular where a company’s commercial activities are tightly aligned to their equipment stock (such as the equipment rental sector), the availability of asset finance can be critical to the success of the business.

The majority of construction equipment manufacturers consider the availability of asset finance to be a critical success factor in their business. In a survey of members conducted in July 2010, CECE asked how important finance was to manufacturers.

Importance of Finance to Construction Equipment Manufacturers

Source: CECE Business Barometer, July 2010; n=70 Figure 12

Half of those responding considered that finance was key to closing sales, while 34% believed that finance was an essential and integral part of their business. 17% stated that finance was managed as a separate profit centre in their business. Only 17% perceived that finance was of marginal importance for their businesses while just 3% considered that it was a barrier in terms of complicating the sales process and getting in the way of closing a deal.

Barrier to doing business

Marginal importance

Key to closing sales

Essential and integral partof the business

Managed as a separateprofit centre

0 10 20 30 40 50

% Survey respondents


The penetration rate of finance varies considerably by manufacturer but tends to be fairly high. The CECE survey asked respondents to report the percentage of equipment sales financed both directly by the manufacturer and by externally funded programmes.

Asset Financing Products Used by Construction Equipment Market

Description Distribution chain role

Manufacturer Distributor / importer

Dealer / repairer

Reseller /auction

Rental company

End customer

Captive finance

Manufacturer owned finance company, with tailored finance offerings

High levels of alignment. The captive would often be a profit centre in its own right, which may create conflicts

Likely to seek to impose financing products on the distributor, depending on relationship power

Likely to seek to impose financing products on the dealer

Little of no involvement

Vendor finance programmes

Tailored finance offerings devised to assist the equipment sales process

Joint co-operation usually on an international basis

Either country-specific programme or as part of a manufacturer programme

Local / transactional programmes or as part of manufacturer programme

Transactional programmes

Wholesale equipment finance (including back to back

Financing structures that support a flow of business with the equipment sales organisation involved in the sale of finance to the end customer

Funding lines can be provided to support a captive finance organisation

Either independently arranged or may be through manufacturer programme



Equipment stocking finance

Financing of equipment stock on a short, variable term basis




Development loans

Loans to support the development of the business

May be available through manufacturer programme

May be available through manufacturer programme

Equipment finance products

Financing of equipment for end customers

Possible referral to local finance company


Through captives, vendor programmes or direct from finance company

Figure 13


Proportion of Business Financed by Manufacturers and External Funders

Source: CECE Business Barometer, July 2010; n=57 Figure 14

Just under 70% of manufacturer respondents stated that they financed some portion of equipment sales directly, though a higher proportion of sales were financed by external programmes, with over half the respondents using external programmes to finance more than 40% of sales compared to just 13% of respondents where over 40% of sales were financed by the manufacturer.Less than 4% used no finance at all to support equipment sales while 63% used a combination of captive finance and externally funded programmes.

Finance volumes

Leasing volumes for construction equipment are not identified as a separate category in Leaseurope’s Annual Statistical Survey though they are included in Manufacturing and Industrial Equipment. After growing steadily by 10-14% between 2004 and 2007, growth in leasing for Manufacturing and Industrial Equipment decreased to 2% in 2008. It then fell by 37% in 2009 with new business volumes falling from €50.5billion to just under €40billion, just slightly above the level of lending achieved in 2003.

Leasing New Business Volumes for Manufacturing and Industrial Equipment by Country

Source: Leaseurope Figure 15

Note: “Others” covers all other European markets as reported in Leaseurope’s Annual Survey.

The largest manufacturing and industrial equipment leasing market is Italy which accounted for 21% of the European total in 2009, followed by Germany and France which accounted for a further 16% each. The UK and Spain accounted for 9% and 5% respectively though these shares have declined significantly over the previously two years.

% S

urv

ey r

espo

nde

nts

0

5

10

15

20

25

30

35

By manufacturer By external funders

% Business financed

80%+60-79%40-59%20-39%1-19%None

An

nu

al e

quip

men

t sa

les

(€ m

io)

2003 2004 2005 2006 2007 2008 2009

Italy Germany France UK Spain Others

0

10000

20000

30000

40000

50000

60000


Annual Percentage Change in New Business Volumes for Manufacturing and Industrial Equipment Leasing by Country

Source: Leaseurope Figure 16

Note: growth rates calculated on the basis of a homogenous sample of members reporting from year to year.

“Others” covers all other European markets as reported in Leaseurope’s Annual Survey.

The 2009 reduction in new business varied by country. Of the larger European countries Spain and the UK fared the worst with leasing volumes declining by 62% and 52% respectively. In France, Germany and Italy the leasing market for manufacturing and industrial equipment fell by 26-30% in 2009 though both Italy and Spain also registered falling volumes in 2008 as well. Amongst the other countries, those in Eastern Europe fared particularly badly, for example new business volumes in Bulgaria, Estonia, Latvia and Romania fell by 67-77% in 2009.

The importance of machinery and industrial equipment leasing varies considerably by geography. Of the major countries, this sector has the highest share of leasing in Italy, at 44% of total new business volumes, and the lowest share in the UK, at 10%. In Italy this high share is attributable not only to the importance of the machinery and industrial equipment sector, but also to the relatively low volumes of lending on computers and business equipment compared to elsewhere. The motor vehicle and Big Ticket sectors take a proportionately higher share of total equipment lending in the UK.

Moveable Leasing Volumes by Asset Category -2009

Source: Leaseurope Annual Surveys Figure 17

Machinery and Industrial equipment accounts for just over 15% of total leasing volumes in Germany, below the European average of 20%, largely due to the above average proportion of car leasing in the country while in France and Spain, the share is above average, between 20-30% as car leasing is relatively less significant in these countries.

An

nu

al %

ch

ange

2004 2005 2006 2007 2008 2009

Italy Germany France UK Spain Others Total

-80%

-60%

-40%

-20%

0%

20%

40%

Machinery and Industrial Equipment Cars Commercial Vehicles ICT Big Ticket & Other

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Total EuropeOthersUKSpainItalyGermanyFrance


In the absence of definitive data on leasing on construction equipment, figures on leasing to the construction industry sector provide an alternative insight into finance trends. Construction equipment is likely to comprise a major proportion of lending to the sector though it should be noted that this data will also include leasing on computers and business equipment as well as cars and commercial vehicles.

Total Leasing to the Construction Sector by selected countries

Source: BDL, Institut national de la statistique et des études économiques, ASSILEA, FLA Figure 18

Note: Includes all leasing to the construction sector excluding real estate. Does not include data from automotive associations.

Although incomplete data is available from national leasing associations, it appears that leasing to the construction sector has followed similar trends to leasing on machinery and industrial equipment. In both 2008 and 2009, new business volumes declined in Italy and the UK while the data shows that lending volumes also fell in Germany in 2009. In fact the data from the FLA indicates that lending to this sector in the UK has fallen for three consecutive years since 2006. There is some contrast therefore with the sales of construction equipment analysed in Chapter 02 where the UK market grew strongly in 2007 before declining rapidly in the past two years. This possibly supports anecdotal feedback that the increase in equipment manufacturing output in 2007-8 added to dealers’ and distributors’ inventories rather than actual end-user sales.

Finance penetration levels

Overall penetration rates for capital equipment (excluding transportation equipment) appear to have fallen in 2009. Leasing volumes on machinery and equipment (which includes construction equipment) as a percentage of capital investment fell from 13.6% in 2008 to 11.3% in 2009 implying a drop in penetration of 17%. This compares slightly more favourably with the pattern for total leasing volumes which appear to have experienced a 19% decline in penetration in 2009.

European Lease Penetration 2003 – 2009

Source: Leaseurope, Eurostat, Commission Spring Forecast, HIS Global Insight Figure 19

Note: Total leasing excludes real estate leasing; machinery and equipment leasing excludes transportation equipment. Penetration

calculated as leasing new business volumes as percentage of capital investment. Covers 20 countries reporting on a constant basis in

Leaseurope’s Annual Surveys from 2003 to 2009.

€ M

io

2005 2006 2007 2008 2009

France Germany Italy UK

0

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

4 500

% o

f in

vest

men

t

2003 2004 2005 2006 2007

Total Movable Assets Machinery and industrial equipment

0

5

10

15

20

2008 2009


Although penetration rate figures specifically for the construction equipment sector are not available either at European level or very rarely at national level, they are possibly much higher than penetration for the machinery and industrial equipment leasing sector as a whole. CECE reports that the European construction equipment market accounted for €9.6 billion of capital expenditure in 2009. It is likely that European leasing companies financed a significant amount of this investment. Data from some individual Leaseurope member markets indicates that penetration of leasing in the construction sector could be as much as 2 – 3 times the levels shown in Figure 19. While penetration in the sector will obviously vary from country to country, the high general levels are confirmed by both data from the CECE survey on finance usage (see above) and feedback from the expert panel. Major manufacturers dominate the construction equipment market and, with their extensive vendor programmes plus sales financed directly, it is likely that the majority of equipment sales are supported by asset finance. Feedback indicates that, within vendor finance programmes, penetration rates typically reach 40-80%, again confirmed by the results from the manufacturer survey in the July 2010 CECE Business Barometer.

Forces acting on leasing penetration

A range of differing forces have created turbulence and local variations in leasing penetration rates:

Forces Acting On Lease Penetration Rates

Increasing penetration Reducing penetration

Reduced end customer liquidity

Increased manufacturer support for vendor programmes (promotions)

Banks shift from loans to more secure lending

Capital adequacy benefits for banks

Retrenchment / exit of some finance providers

Tighter underwriting criteria

Increased refinancing costs for captives

Less access to government stimulus packages than other forms of lending

Higher importance of public sector investment, which attracts lower leasing penetration

Figure 20

By its very nature, leasing should be well adjusted for current trading conditions. Lending is secured against the asset giving firms greater opportunity to invest for growth, especially when the financed asset is fundamental in generating new revenues. For lenders, the collateral value of the asset offers improved security than with an unsecured loan, and requires a lower capital allocation at a time when banks seek to use capital more sparingly. In order to support equipment sales, manufacturers have provided promotional support such as discounts or delayed payment terms for vendor programmes.

Conversely, credit standards have risen and as a result, more firms will have been forced to use cash reserves or other means to fund their capital investment. A number of finance providers have moved out of the market and the large majority have become much more cautious in their lending approach, reducing the range of financing options available within the market. Some independent and manufacturer captive finance companies have seen a significant rise in their own cost of funds, with the result that their finance products have become less attractive to end customers when compared to other borrowing options.

There have also been instances across Europe where governments have developed stimulus packages to encourage capital investment but the design of these programmes has often excluded leasing as a viable funding option to support the economy. These oversights appear to be due to a lack of understanding of the product and its benefits, despite efforts of the industry’s representative bodies to engage with politicians to increase their awareness.

While private sector investment fell in 2008 and 2009, public sector investment remained strong, including construction-related investment. As public sector activity grew in its relative importance, the lower levels of leasing penetration associated with this activity may have contributed to a downward effect on overall lease penetration rates.


Total vs Public Investment (2001-2015, Western Europe), Annual % Change

Source: HIS Global Insight Figure 21

Note: Growth rates are calculated based on EU-15 (excluding Luxembourg) including Norway and Switzerland

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Total Investment Public Investment

0

-5%

5%

10%

15%

20%

-10%

-15%


05

Prospects for theFinance Industry


05Prospects for theFinance Industry

Deteriorating counterparty risks: a self-fulfilling prophecy?

Despite difficult trading conditions, across Europe there have been very few large company failures in the manufacture, supply and rental of construction equipment. However, many small or medium sized rental companies and dealers have ceased trading, especially in Southern Europe where (in some cases) equipment sales have dropped by 80+%.

Where strong supply chain alignment exists consolidation is taking place, for example with distributors seeking to protect their route to market by acquiring sub-dealers. A notable shift has been towards leaner supply chains, allowing lower end customer pricing. One impact of this may be to consolidate the importance of the centrally managed vendor finance programmes arranged between manufacturers and large international finance companies.

From a financing perspective, the effect of poor trading conditions will be felt even when market conditions improve. Finance underwriting relies heavily on historic financial information. Weak trading translates into weakened financial statements, which in turn will lead to lower availability of finance to renew equipment stocks.

Even in Germany, where the construction industry has been less affected than other markets and there have been relatively few company failures, around a third of dealers are reported to be showing significant losses in their most recent financial statements. In these circumstances company reserves are being used up, cash is being injected by shareholders and borrowing from banks has tightened. With savings and commercial banks fearful of continued sector weaknesses and no recovery likely for at least a year, the threat of bankruptcies could become a self-fulfilling prophecy.

The impact of continued weak trading performance is therefore likely to be further consolidation within the market.

International lease accounting standards

Forthcoming changes to the international accounting standard for leasing could have an impact on both the use and availability of leasing.

The new standard, published in draft form for consultation in August 2010, requires all leases and rental contracts to be capitalised on the lessee’s balance sheet. Even contracts that are granted for a maximum term of 12 months will be required to be shown on the balance sheet, although some degree of simplification is provided for these contracts. Construction equipment users who rent an asset for less than a year will for instance be allowed to show the gross value of rentals on their balance sheet (as opposed to a discounted number) and will recognise rental payments in their profit & loss accounts, avoiding the need to split these payments into interest and other components as will be required for all longer term contracts.


As a result of these changes, clients who choose to lease or rent principally to achieve off balance sheet presentation may request products that are designed to minimise the amounts to be capitalised. Being aware of this, standard setters have designed the new proposals in a way that will make such structuring very difficult. One of the only ways to keep the amounts required to be capitalised low will be for lessors to grant very short term contracts, thus exposing them to significant residual value risk that they may not be willing to take on under present conditions.

Consequently, some construction equipment lessors are predicting that requirement for all leases and rentals to be shown on the balance sheet could lead to a reduction in the uptake of these products. However, it should be noted that off balance sheet leases are already taken into account by users of accounts under today’s approach to lease accounting, who use the information provided on operating leases in the notes of the financial statements to assess an entity’s effective debt levels.

Besides the balance sheet effects of the new accounting proposals, there are a number of other potential consequences that asset finance providers in the sector need to consider together with their clients.

In particular, the new accounting methods could generate a significant amount of complexity. For instance, clients will be required to make regular assessments of the likelihood that they will exercise any renewal or termination options which will intervene in determining the lease term over which rental payments are capitalised. Within the construction industry it is common for leases to provide flexibility through such options so that contractors can match their lease terms with their effective need to use the equipment, which will depend on delays or projects completed ahead of schedule. Lessors therefore need to explore whether the requirement to assess the likely lease terms at the start of the lease will hinder this flexibility.

Clients will also have to make probability weighted estimates of any contingent rental payments included in the contract and capitalise these amounts. Rentals based on usage of equipment for instance would be covered by this requirement.

Payments for services such as maintenance or insurance granted within a lease or rental will however not be capitalised but this implies that clients may ask lessors for detailed breakdowns of these service components if such information is not otherwise available.

Not only will these examples of complexity represent significant accounting, systems and process burdens for clients who often choose leasing or renting precisely for the simplicity and flexibility it can provide, in practice it may impede the development of new products that are priced on a usage or “per tonne” basis.

While these proposals will initially apply only to listed companies in Europe, it is likely to be a matter of time before the principles developed at international level are also be applied within national accounting standards. Thus, unless national authorities are made aware of the need to retain existing accounting or to significantly simply the new approach, even smaller businesses could be faced with extremely difficult accounting requirements for leasing and rental

In addition to these fundamental changes to lessee accounting, standard setters are also proposing new accounting treatment for lessors. Although one model would apply in all cases to lessees, two models are envisaged for lessors, Under current proposals, the model to be used depends on whether the lease exposes the lessor to significant risks and benefits associated with the underlying asset. If this is the case, lessors are required to maintain the leased asset on their books and to recognise a receivable together with a liability, known as a performance obligation. Such an approach would result in the grossing up of lessors’ balance sheets and, for bank owned lessors, could lead to a significant increase in the amount of regulatory capital required to be held for these transactions. Even some form of net presentation under this approach would not necessarily be helpful as the model would still create P&L effects, with lessors showing distorted return patterns and cost/income ratios. Consequently, if the model were to apply to a significant number of contracts under a final standard, it may ultimately affect the availability of leasing.

These issues are therefore a top priority for Leaseurope and, thanks to the Federation’s lobbying work, progress has already been made with respect to lessor accounting. Indeed, after considering only the so-called performance obligation model for several months, standard setters began to recognise the flaws of the approach. This resulted in the inclusion of a second model for lessors in the proposals, known as the de-recognition approach. Contrary to the performance obligation approach, de-recognising the rights transferred to the lessee from the underlying leased asset, is a model that correctly reflects the economics of lease transactions and


does not lead to the very negative side effects mentioned above. Importantly, under this approach captive lessors are also able to recognise sales revenue at the start of the lease whereas all revenue is taken over time under the performance obligation approach.

Going forward, the main challenges for the leasing industry will now be to convince standard setters of the need to apply the de-recognition model more widely (and not just to a subset of leases as currently suggested) and to ensure that a general simplification of the proposals (for lessees and lessors) is achieved before a final standard is issued, possibly by mid 2011. Leaseurope will work closely with EU Institutions, its international leasing association counterparts and other stakeholders to secure a workable new standard for the industry along these lines.

Medium term view

Construction assets offer strong collateral value and the sector remains a cornerstone of economic growth. Problems within the sector appear more cyclical than structural, and demand will return in due course. Lending capacity from large, bank-owned finance companies is anticipated to remain available to support well-run, large and profitable firms, wherever in the supply chain they may be.

However, continued economic uncertainty, fiscal tightening and the cancellation of public works, combined with excess market capacity, will hold back the construction equipment industry in the short term and constrain recovery. It is likely that investment confidence will be slow to return. For many within the industry, it appears that 2011 is now being seen as “the end of the crisis” rather than a year of significant recovery, which is predicted to be a slow process thereafter.

Growth in European Construction Output 2006 - 2012


Note: countries covered (see Figure 2).

On that basis and with many construction industry participants posting weak financial statements, overall levels of asset finance in the sector will be subdued in the medium term.

This potentially leaves a significant number of other firms – many of whom have highly asset-intensive business models - for whom the future could be less bright as they are unable to secure adequate levels of finance to support their ongoing business. Non-prime funders will write significant levels of business in this growing market segment, often achieving strong margins, fees and other non-interest incomes but taking significant counterparty risks.

With buyback and remarketing support from manufacturers and distributors, those funders able to manage large vendor programmes could continue to enjoy high financing penetration, but may require credit support and risk-related pricing to achieve the levels of credit acceptance hoped for by their manufacturer partners. Direct lenders, often banked-owned and without access to asset expertise, are likely to remain engaged but more cautious and will mainly limit themselves to full payout arrangements. In turn this may create increased opportunities for niche players, able to leverage market understanding and networks.

An

nu

al %

ch

ange

-10%

-8%

-6%

-4%

-2%

0

2%

4%

6%

8%

10%

2006 2007 2008 2009 2010 2011 2012


06

Residual Valuesand Remarketing


06Residual Valuesand Remarketing

Residual values (RVs) are the pre-set value placed on the asset to be returned to the finance company at the end of the lease. Thereafter the finance company takes the risk and reward of asset disposal. Guaranteed buybacks may be provided by the manufacturer, distributor or dealer, thus relieving the finance company of the end of lease asset risk while still creating an operating lease structure with lower monthly rentals for the end customer (assuming relevant accounting rules are observed).

Impact of residual losses

There is general oversupply in the European used equipment market, which in some markets is very severe. For example Spain, Europe’s largest tower crane market, is hugely over-supplied. Some export of used equipment continues to a number of markets, including North Africa.

Having been set when economic conditions were benign and competitive pressure helped raise residual values in order to lower monthly rentals, many residual values set 3-5 years ago are coming to the end of their lease term and will result in losses for whoever took the original risk position.

Finance companies, manufacturers, distributor and dealers may all be affected. These losses are additional to any normal trading losses and come at a time in the economic cycle when financial statements are likely to be near their weakest. The knowledge limitations of finance companies in the context of the wide range of asset and usage variations they finance will draw scrutiny from internal risk functions, driving a more conservative standpoint.

Outlook for residual risk taking

As a consequence of these factors, the risk appetite for taking residual value or buyback positions has been greatly reduced. Finance companies without their own remarketing expertise will be reticent to re-enter the market. Furthermore, the provision of a buyback can, under current revenue recognition accounting rules, in some circumstances prevent sales revenue recognition which may be unacceptable to a manufacturer or distributor. It should be noted that the existing international revenue recognition standard, IAS18, is under review and a new standard is due to be finalised by June 2011

Where residuals are being taken, only very conservative positions are being offered. A pre-requisite is often that a full service contract is in place so that the asset value can be protected through ongoing service and maintenance, and this may be combined with a requirement for satellite tracking, particularly with larger equipment types. Both provide additional income streams and increase lending profit, as well as mitigate asset risk.

While guides are available to used equipment prices, it is recognised that these prices will vary through the economic cycle and the guides can therefore give a misleading picture relative to realisable end of lease value. Low residual value positions taken at this stage in the economic cycle are inclined to offer higher residual profits in 3-5 years, when used prices should have recovered and the market should be more buoyant.


With many companies backing away from taking residual value positions at this stage in the cycle, those with the risk appetite to take a position may achieve some form of premium – whether strategic, competitive, in the context of key relationships or through higher margins. If future remarketing profit opportunities become clearer and residual levels remain conservative, dealers are likely to be the earliest to grasp the opportunity to take residual value positions, assuming they have the balance sheet strength to satisfy finance company risk requirements.

Assuming that it is still achievable under future accounting rules, some form of operating lease structure is likely to underpin the TCO solution demanded by some major customers, where the total cost of the asset, service, maintenance, repair, warranty and finance are calculated on a cost per hour or – for the cement industry – cost per tonne moved basis. The variable nature of this type of contract will create added complications for the RV setter but could offer significant competitive advantage, especially with larger customers who have developed sophisticated process costing techniques and seek a standard cost model on which to base their own pricing.


07

Finance Product Developments


07Finance Product Developments

Factors driving finance innovation

The main factors driving finance innovation over the next 2-3 years appear to be:

• Uncertain outlook for the construction industry, resulting in variable equipment utilisation rates

• Customer drive towards process cost standardisation and the alignment of pricing and process operating costs

• International outlook of major customers

These are being manifested by a shift towards rental, the development of TCO products and new solutions for international customers.

Other factors, such as changes in buyer behaviour based on “green procurement” for public works, may skew buying behaviour and asset selection but, at this stage, it is not clear that it will affect the nature of the financial solution that is employed. Higher costs associated with equipment achieving Stage IIIB emissions standards without any material performance improvement is likely to limit the adoption of “green machines” in the near term to specific market segments which would support higher environmental requirements.

The structure and payment profile for the large majority of the market will not change in the medium term, with a focus on full payout lending.

Shift towards rental and greater lease flexibility

Recent economic conditions have driven demand for some new product development, especially from larger customers.

Typical construction company order books are reported to have moved from 36 to 4 months, and the risk of “sleeping capital” is very real. This has driven a significant change in the requirement for greater flexibility on contract duration. Large customers may agree to a 5 year funding term for larger equipment but are increasingly seeking mid-term flexibility, including break points. Even where there is a break charge, this is often preferable to a machinery fleet operating well below capacity.

Related to this is the likely trend for large construction firms to move from purchase (HP/leasing) into rental, even if that were to result in higher monthly payments when the equipment is being fully utilised. This seems especially likely if the outlook for the construction industry does not improve and the order book outlook remains short-term.

A move to greater flexibility of funding term and more rental activity is likely to increase the size of the used equipment market. It may also mean more nearly-new construction equipment could be sold in the used market, potentially creating a new set of mainstream or near-prime funding opportunities.


Growth in the used equipment market would drive a greater dependency from finance companies on equipment remarketing knowledge and skills. It may also change the finance company’s view on the attractiveness of the construction sector. Banks are unlikely to want to take more residual risk, certainly not in the short term. At the same time, customer requests for greater flexibility will create an immediate challenge for the industry. It is also important to note that these trends in market demand relate precisely to areas where both lessees and lessors could face the greatest difficulties if the proposals for a new international lease accounting standard are to be maintained in their current form.

TCO, pay per hour, pay per tonne

Over recent years, large companies have moved increasingly towards total cost of ownership (TCO) type calculations when acquiring assets, to ensure that best value is generated over the life of the asset. Increasingly, this has been adapted to individual business processes, so that costs can be allocated against a process or contract in a manner that ensures accurate pricing and job profitability. Notably, this has led to increased demand for cost-per-hour or cost-per-tonne pricing structures, subject to the asset type and commercial situation.

In deriving these pricing structures, major customers are demanding of their supply chain partners to accurately assign the entire range of full life costs on a variable production basis.

Typically, the manufacturer or dealer/distributor would be expected to provide or arrange:

• Purchase price

• Guaranteed RV

• Warranty

• Guaranteed repair & maintenance costs

• Lease offer

Some costs may be managed within the business, for example fuel purchasing and usage. Being a large component of equipment running costs, fuel usage is integral to the total cost of ownership (TCO) calculations.

Depending on the nature of the TCO arrangement, the lease term may be a fixed length or be variable subject to a notice period or trade-out arrangement. Some form of operating lease structure is likely to underpin the TCO solution. The variable nature of this type of contract will create added complications for the RV setter but could offer significant competitive advantage, especially with larger customers who have developed sophisticated process costing techniques and seek a standard cost model on which to base their own pricing.

It is likely that over time, a shift to these types of TCO financing model with major customers will trickle down through the market. Where applied, it would make the lease process more complex and require high levels of integration between manufacturer, service provider and funder, thus favouring a vendor or more likely captive finance model. It may also result in a blurring of the distinction with rental companies, who may be more attuned to this type of customer demand. Direct finance providers would remain largely excluded from this type of product, but would still be in a position to support the larger share of the market that requires non-complex funding solutions.

For international companies, usage-based contracts may be attractive across a number of markets, including some jurisdictions not covered by the manufacturer captive finance company, and require co-ordination of the pricing and activities of independently owned dealers in local markets. Again, the impact of changes to accounting rules should not be neglected when examining the feasibility of such products.


International solutions for large customers

There appears to be a growing trend amongst international companies to seek European financing solutions. While a captive finance company often has greater alignment with the manufacturer, it may also have limited geographic reach. In these situations, international co-operation with well-positioned vendor finance or direct finance providers is likely.

Other financial structures may emerge from these multi-country relationships, for example leveraging a finance company’s more developed international treasury practices. Finance companies able to look beyond existing vendor programme solutions may identify new ways to support both vendors and end customers on an international basis.


08

Considerations forVendor Finance


08Considerations forVendor Finance

Shift towards national programmes

In the early 2000s there was a clear trend towards centralised captive finance companies and exclusive, single supplier European vendor programmes. In the last 18 months this has reversed in response to recent economic events, a reduced willingness or ability of some financial institutions to lend and significant cost of funds changes for different players. As a result, there appears to have been a clear trend amongst manufacturers towards the management of best-in-class country financing arrangements rather than relying on a single financial partner across all of Europe.

The new approach has its limitations, not least the ability to co-ordinate and embed consistent sales strategies or new product launches at a European level. As a result, it is assumed that there will be a shift back to a single supply, multi-country model once banking liquidity and construction market growth returns. On that basis there is now a limited window of opportunity for single-country, best-in-class vendor finance providers that has not been available for some time. For a more ambitious provider, this could secure operating scale in selected markets and high quality relationships (with European potential) as an early stage of developing a European vendor finance business.

Role of distributors and dealers

The shift towards a managed series of individual country solutions remains fairly well aligned with the business models adopted by the largest vendor finance providers operating in the construction sector. While their first emphasis has been at the manufacturer level, it is strongly recognised that the relationship with national distributors is crucial to programme success. In many cases, these organisations are independently owned, large enough to qualify as potential vendor programmes in their own right and can source competitive arrangements from their local market. Furthermore, by sourcing their own vendor finance arrangements, local distributors can often maintain greater control, with the programme designed to achieve their specific business aims and not those of the manufacturer.

While it is easier for large finance companies to negotiate with big companies (manufacturers or national distributors), the alignment of smaller, dealer sales organisations can also be very important in the deployment and success of vendor programmes. Without a powerful manufacturer finance offering, the dealer can be ambivalent to the use of financing tools or can play a role for the customer in acting as a finance broker, in either case undermining the manufacturer programme. Moreover, finance companies expect equipment to be maintained in an above warranty condition (using dealer servicing operations) and the dealer network provides a valuable remarketing channel for end of lease assets. Remarketing outside of the dealer network can be viewed as extra competition for the dealer, who is also likely to be holding used stock from trade-ins or used sales activities.

A key success factor is balancing their requirements with the requirements of the manufacturer. Ultimately, the adoption of a manufacturer finance programme is dependent upon its ability to give distributors and dealers a competitive solution, either based on commercial structuring, promotions, pricing, ease of use or a combination of other factors.


As well as retail finance products aimed at the end user, the programme may include the financing of dealer fleet for long term rental, or development loans for growth of the dealership. Some manufacturers will carefully position development loan money in order to support the creation of an optimal distribution network, including the support or acquisition of underperforming dealerships.

Factors driving vendor programme success

A commonly used measure of programme success is the finance penetration of manufacturer sales, subject of course to the manufacturer’s aims for the programme, which may be – for example – grow market share, increase retention of most profitable customers, exert control over the used asset market or increase cross-selling of profitable, ancillary income lines. At this stage in the economic cycle, credit support to ensure completion of sales is one of the main programme requirements for many manufacturers. A good vendor finance programme should be aligned to the strategic and commercial aims of all parties.

Vendor penetration rates can vary radically but in some markets have been reported to be as high as 80%. The level of support from the manufacturer is a key factor in achieving high penetration. Commercial subsidies from the manufacturer are important. Deep integration into dealer incentive and discount programmes can force loyal behaviour and repeat business, especially where the manufacturer has greater relationship power than its supply chain partner. Point-of-sale support is valuable, by whatever means is appropriate. In markets such as Germany and Italy which have very low construction industry concentrations and many small construction firms, local branch representation can be a key success factor. By contrast, in the Nordic countries, the top 10 contractors are reported to account for over 60% of the construction industry output. Geographic variations are significant - the differences in industry concentration highlight why a single, European model can be difficult to implement effectively.

Inevitably, credit support – financing deals with customers who would otherwise struggle to pay for the equipment – is at odds with the caution currently displayed by many finance providers. Manufacturers may be asked to provide programme support through loss pools, discounts and other risk mitigations structures.

Given the complexity of asset and operating conditions, lack of market transparency for used equipment pricing and related disposition risks, without the manufacturer providing remarketing capability it is considered unlikely that an international programme would achieve high levels of finance penetration.


09

Summary of Key Trends in the Construction Equipment Market and their Potential Impact onthe Leasing Industry


Key Trends & Potential Impacts on the Leasing Industry

Key trends Captive finance Vendor finance Direct finance

Reducing counterparty risk Thanks to equipment-related profit streams, able to fund less secure transactions. Likely to grow.

Will require manufacturer credit support to maintain acceptable acceptance levels.

Reduced funding appetite in some market segments, with potential growth for specialist / non-prime funders. May increase potential to take other security and greater share of the customer’s broader financial wallet.

Changes in International Accounting Standards

Will add complexity to the treatment of service-inclusive leases, potentially impeding adoption of rental and usage-based financing products. Sales revenue recognition needs to be confirmed under the final lease standard as this depends on lessor model(s) that will ultimately be adopted.

Will add complexity to the treatment of service-inclusive leases, potentially impeding adoption of rental and usage-based financing products.Sales revenue recognition in cases of manufacturer/dealer provided buy-backs may depend on the outcome of the future standard revenue on contracts with customers.

Will favour lower risk full payout structures, preferred by generalist funders

Reduced appetite to take RV risk

Well-placed and able to tactically support RVs but some competitive advantage may be sacrificed to manage risks and revenue recognition.

Should remain competitive with potential to leverage best positions with manufacturer, distributor or dealer.

Will become increasingly asset exposed without in-house expertise.

Equipment regulation – emissions, road safety, etc

Best placed to understand commercial funding implications, but compliance costs may drain parent company reserves and constrain captive finance activity.

Assuming close liaison with the manufacturer and distribution network, well placed to develop appropriate funding solutions and manage risks.

Some risks will remain unclear without access to specialist knowledge.

Telematics Integration with sales and maintenance processes can drive new funding solutions.

Would require high levels of co-operation with the manufacturer and distribution network. Increased variables may add challenges to financial product structuring.

May improve asset risk exposure on relevant machines. Structured funding solutions based on telematics-led asset management unlikely to be possible.

Growth of rental Growth may be supported by the captive, either funding rental companies as customers or with a rental product offering at a national/distributor level.

Growth may be supported by the vendor finance provider, either funding rental companies as customers or with a rental product offering at a national/distributor level.

Opportunities for wholesale funding of rental companies, assuming satisfactory risk profiles.

Growth of TCO /cost-per-use products

Best able to provide viable TCO solutions, especially when linked to telematics solutions.

Would require high levels of co-operation with the manufacturer and distribution network. Increased variables may add challenges to financial product structuring.

Unlikely to be viable.

Growth of on-line auctions Except for “one company” auctions, little opportunity for a captive finance provider. Loss by the parent of distribution control may increase RV-related risks.

Potential disturbance to residual value levels that could increase risk exposure. Potential for new types of vendor programme.

Likely to increase ability to dispose of end-of-lease equipment. Auction buyers less likely to be supported by captive or vendor finance, so new funding opportunities may emerge.

Outlook Growing opportunities assuming funding is competitive and sustainable

Even higher levels of integration with the manufacturer and distribution network will be required

Potentially more difficulties for the traditional general finance model, but wholesale opportunities and scope for niche players

Figure 23


10

Appendices


Leaseurope Members

Austria

Verband Österreichischer Leasing- Gesellschaften

Belgium

Association Belge de Leasing -

Belgische LeasingVereniging

Renta

Bulgaria

Bulgarian Association for Leasing

Cyprus

Cyprus Car Rental Association

Czech Republic

Czech Leasing & Finance Association

Denmark

DANSKE BILUDLEJERE

Finans og Leasing

Estonia

Estonian Leasing Association

Finland

Federation of Finnish Financial Services

France

Association Française des Sociétés Financiaires

Fédération Nationale des Loueurs de Véhicules

Germany

Bundesverband der Autovermieter Deutschlands e.V.

Bundesverband Deutscher Leasing-Unternehmen e.V.

Greece

Association of Greek Leasing Companies

Greek Car Rental Companies Association

Hungary

Hungarian Leasing Association

Ireland

Irish Finance Houses Association

Italy

Associazione Nazionale Industria dell’Autonoleggio

e Servizi Automobilistici

Associazione Italiana Leasing

Latvia

Association of Latvian Commercial Banks -

Leasing and Factoring Committee

Luxembourg

Fédération Luxembourgeoise des Loueurs de Véhicules

Malta

Rent A Car Association Malta

Netherlands

BOVAG

Nederlandse Vereniging van Leasemaatschappijen

Vereniging van Nederlandse Autoleasemaatschappijen

Norway

Norges Bilutleieforbund

Finansieringsselskapenes Förening

Poland

Polish Leasing Association

Portugal

Associação Portuguesa de Leasing, Factoring e Renting

Romania

Leasing and Non-Banking Financial Services Association

Serbia & Montenegro

Association of Leasing Companies in Serbia

Slovakia

Association of Leasing Companies of Slovak Republic

Slovenia

Bank Association of Slovenia â€“ Leasing Committee

Spain

Asociación Española de Leasing y Renting

Asociación Española de Renting de Vehículos

Federación Nacional Empresarial

de Alquiler de Vehículos con y sin Conductor

Sweden

AFINA regrouping Finansbolagens Förening

and Svenska Bankföreningen

Biluthyrarna Sverige

Switzerland

Association Suisse des Sociétes de Leasing

Ukraine

Ukrainian Union of Lessors

United Kingdom

British Vehicle Rental and Leasing Association

Finance & Leasing Association

Correspondent Members >

Morocco

Association Professionnelle des Sociétés de Financement

Tunisia

Association Professionelle Tunisienne des Banques

et des Etablissements Financiers


Total Leaseurope Leasing Market 2009

General Notes:

Growth rates shown are calculated based on a homogenous sample of members reporting in both the 2008 and 2009 Annual Statistical Enquiries

Leasing figures include data for long term rental/operating leasing

Leaseurope members not reporting in this enquiry: yprus: Cyprus Car Rental Association; Denmark: DANSKE BILUDLEJERE; Germany: Bundesverband der Autovermieter

Deutschlands; Ireland: Irish Finance Houses Association; Luxembourg: Fédération Luxembourgeoise des Loueurs de Véhicules; Malta: Rent A Car Association Malta; Norway: Norges

Bilutleieforbund; Serbia & Montenegro: Association of Leasing Companies in Serbia; Ukraine: Ukrainian Union of Lessors; Morocco: Association Professionnelle des Sociétés de

Financement; Tunisia: Association Professionelle Tunisienne des Banques et des Etablissements Financiers

Other Notes:

Figures for Austria include cross border activities mainly carried out in CEE. When restricted to Austrian domestic only the new leasing volumes granted in 2009 decreased by

23,17% compared to 33,66% as shown in the table above.

Outstanding figures for Portugal relate only to finance leasing

New Production (Mio€) Outstandings (Mio€)

2009 2008 % 2009 2008 %

AT Verband Österreichischer Leasing-Gesellschaften - VÖL 5 661,19 8 533,30 -33,66% 24 595,80 25 100,06 -2,01%

BE Association Belge des Entreprises de Leasing 3 756,40 4 856,42 -22,65% 11 637,40 12 211,80 -4,70%

BE RENTA 1 590,53 2 372,98 -32,97% 4 691,67 4 588,67 2,24%

BG Bulgarian Association for Leasing - BAL 598,47 2 082,57 -71,26% 2 546,46 2 972,78 -14,34%

CH Schweizerischer Leasingverband - SLV 6 146,06 7 430,73 -17,29% 14 796,58 14 042,79 5,37%

CZ Czech Leasing and Finance Association - CLFA 2 671,84 5 224,37 -48,86% 8 545,83 10 173,27 -16,00%

DE Bundesverband Deutscher Leasing-Unternehmen e.V. 40 680,00 54 660,00 -25,58% 142 300,00 144 000,00 -1,18%

DK Finans og Leasing 4 654,86 6 906,55 -32,60% 12 980,18 12 635,08 2,73%

EE Estonian Leasing Association 378,55 1 127,63 -66,43% 2 270,65 2 728,80 -16,79%

ES Asociación Española de Leasing y Renting - AEL 7 054,11 14 208,17 -50,35% 36 945,35 43 547,79 -15,16%

ES Association Espanola de Renting de Vehículos - AER 1 739,86 3 336,00 -47,85% 9 438,00 8 533,00 10,61%

FI Federation of Finnish Financial Services - FKL 3 051,00 3 844,00 -20,63% 8 209,00 8 465,00 -3,02%

FR Association française des Sociétés Financières - ASF 27 055,00 33 747,00 -19,83% 82 623,00 83 591,00 -1,16%

FR Fédération Nationale des Loueurs de Véhicules 6 301,00 7 477,00 -15,73%

GR Association of Greek Leasing Companies 1 726,90 2 564,78 -32,67% 9 386,42 9 882,69 -5,02%

GR Greek Car Rental Companies Association 45,00 43,60 3,21%

HU Hungarian Leasing Association 1 679,74 4 765,79 -64,75% 9 528,06 11 733,82 -18,80%

IT Associazione Italiana Leasing - ASSILEA and ANIASA 28 269,00 41 784,00 -32,34% 128 259,00 136 900,00 -6,31%

LV Association of Latvian Commercial Banks - Leasing and Factoring Committee 264,40 1 050,19 -74,82% 1 816,54 2 494,75 -27,19%

NL Nederlandse Vereniging van Leasemaatschappijen - NVL 4 546,00 6 282,00 -27,63% 10 000,00 11 140,00 -10,23%

NL Vereniging van Nederlandse Autoleasemaatschappijen 3 478,00 5 477,00 -36,50%

NO Finansieringsselskapenes Forening 3 367,97 4 758,49 -29,22% 9 737,62 10 571,04 -7,88%

PL Polish Leasing Association 5 066,09 9 370,66 -45,94% 12 275,40 13 063,57 -6,03%

PT Associação Portuguesa de Leasing, Factoring e Renting - ALF 4 775,00 6 530,00 -26,88% 18 021,00 17 794,00 1,28%

RO Romanian Leasing and Non Banking Financial Services Association 1 307,35 4 600,78 -71,58% 4 618,67 6 227,49 -25,83%

SE AFINA - Associations of Swedish Finance Houses 7 654,79 10 606,32 -27,83% 21 101,32 23 152,94 -8,86%

SI Leasing Committee of the Banking Association of Slovenia 1 108,23 2 124,11 -47,83% 3 703,32 4 023,56 -7,96%

SK Association of Leasing Companies of the Slovak Republic 1 511,00 2 651,69 -43,02% 3 478,00 3 676,78 -5,41%

UK Finance and Leasing Association - FLA 33 214,36 50 749,04 -34,55% 92 140,88 109 484,52 -15,84%

TOTAL 209 352,69 309 165,18 685 646,14 732 735,21

% (based on homogenous sample) -32,28% -6,43%


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(bas

ed o

n ho

mog

enou

s sa

mpl

e)

Not

es:

Gro

wth

rate

s sh

own

are

calc

ulat

ed b

ased

on

a ho

mog

enou

s sa

mpl

e of

mem

bers

repo

rtin

g in

bot

h th

e 2

00

8 a

nd 2

00

9 A

nnua

l Sta

tist

ical

Enq

uirie

s. F

igur

es s

how

n fo

r Por

tuga

l do

not

incl

ude

oper

atin

g le

asin

g.

Foot

note

s in

the

tab

le a

bove

refe

r to

coun

trie

s re

pres

ente

d by

mor

e th

an o

ne M

embe

r Ass

ocia

tion

:

1. A

ssoc

iati

on B

elge

des

Ent

repr

ises

de

Leas

ing,

2. R

ENTA

, 3.A

soci

ació

n Es

paño

la d

e Le

asin

g y

Ren

ting

– A

EL, 4

.Ass

ocia

tion

Esp

anol

a de

Ren

ting

de

Veh

ícul

os –

AER

, 5.A

ssoc

iati

on fr

ança

ise

des

Soci

étés

Fin

anci

ères

– A

SF, 6

.Féd

érat

ion

Nat

iona

le

des

Loue

urs

de V

éhic

ules

, 7.A

ssoc

iati

on o

f Gre

ek L

easi

ng C

ompa

nies

, 8.G

reek

Car

Ren

tal C

ompa

nies

Ass

ocia

tion

, 9.N

eder

land

se V

eren

igin

g va

n Le

asem

aats

chap

pije

n –

NV

L, 1

0.V

eren

igin

g va

n N

eder

land

se A

utol

ease

maa

tsch

appi

jen.


Sources

Committee for European Construction Equipment Economic Report 2010April 2010

Committee for European Construction Equipment CECE Business BarometerJuly 2010

EUROCONSTRUCT - Europe’s Leading Construction Business Research GroupVisit www.euroconstruct.org

European Commission, Directorate-General for Economic and Financial AffairsEuropean Economic ForecastSpring 2010

Eurostat For Gross Fixed Capital Formation visit Annual National Accounts For EU Construction Industry Confidence Index visitBusiness and Consumer Surveys

European Rental Association/IHS Global Insight The European Equipment Rental Industry 2009 ReportApril 2010

IHS Global InsightDataInsight-Web

Institut national de la statistique et des études économiques LE CRÉDIT-BAIL en 2008Octobre 2009

Leaseurope Annual Statistical Enquiries2003-2009

Leaseurope members:Association Française des Sociétés FinanciairesAssociazione Italiana LeasingBundesverband Deutscher Leasing-Unternehmen e.V.Finance & Leasing Association

Off-Highway ResearchThe Global Volume and Value ServiceApril 2010

www.euroconstruct.org

http://epp.eurostat.ec.europa.eu/portal/page/portal/national_accounts/data/database

http://ec.europa.eu/economy_finance/db_indicators/surveys/time_series/index_en.htm

http://www.ihsglobalinsight.com/ProductsServices/ProductDetail1017.htm


European Yellow Goods Leasing ReportThe role and future of leasing in the construction sectorOctober 2010

Responsible Editor: Anne Valette, Head of Communications, Leaseurope This publication is the second in a series of annual Europeanleasing industry segment reports produced by Leaseurope

Contact:LeaseuropeBoulevard Louis Schmidt, 87BE-1040 Brusselswww.leaseurope.org


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European Yellow Goods Leasing Report

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