The steep falloff in new equipment-lease deals stems from a lack of customer demand and not from tight underwriting, according to most respondents to a survey of leasing companies.
Almost 80% of the participants in a survey of a cross-section of 25 equipment leasing and financing companies that saw declines in business volume in September “said that declining customer demand and not [tightened] credit underwriting standards or spreads were the number-one reason” for the drop-off, Ralph Petta, interim president of the Equipment Leasing and Finance Assn., said in a conference call late last week.
The volume of new business for the companies surveyed declined by 31% in September 2009 from the same period in 2008. At the same time, the companies reported that month-to-month new business volume jumped 27% from $3.7 billion to $4.7 billion from August 2009 to September 2009. (The monthly leasing and finance index is a compilation of data from the ELFA members that includes major “captive” finance organizations such as Caterpillar Financial Services Corp., banks with leasing operations like Bank of America, and independent finance outfits like CIT.)
In response to a question from a participant in the call, however, Petta acknowledged that the boost in business volume between August and September 2009 stems from a normal seasonal upturn, rather than a boost in the economy.
Other findings revealed that conditions in the leasing business were continuing to deteriorate. Portfolio quality — meaning how long lessees take to pay their bills — is “not improving,” said Petta. In September, in fact, the companies reported that 5.6% of their receivables weren’t paid in more than 30 days; that figure was 5% in August of this year. Yet although the September receivables figure was the highest since at least January 2008, there were two outlier companies with extraordinarily high receivables percentages that may have skewed the numbers, Petta noted.
Similarly, the lessors turned in a less-than-terrific performance in terms of losses, according to Petta. As a percent of net receivables, losses rose from 2.05% to 3.01% between August and September 2009. Addressing the September percentage in comparison to the percentage reported for the same month in 2008, 1.1%, he said it’s “a huge spike in average losses reported by the 25 companies on a year-over-year basis.”
Layoffs are another sign of the times at equipment-leasing outfits. The total number of employees at the companies stood at a little over 10,000 as of September 2009, down from 10,400 in the prior month and down from 11,000 in September 2008. The companies are “still shedding employees, looking to cut costs,” according to Petta.
Two leasing-industry executives were at pains to show that the downturn was having a different impact on different sectors of their businesses. One was Tony Golobic, chairman and chief executive officer of GreatAmerica Leasing Corp., which he called “a small-ticket company that services office equipment and telecom segments.” Although those industries as a whole have been hit hard by the downturn, the actual experience of dealers breaks down equally among those whose business has increased, decreased, or remained flat, he said.