Bumpy road for the asset finance industry in 2022
The announcement of a new variant of Covid has lowered hopes of a quick end to the pandemic disruption and cast a shadow over the outlook for the asset finance industry over the next twelve months. Data from trade associations and consultants suggests that while the market is improving, restrictions imposed in response to Omicron are likely to dampen demand, as the auto finance industry struggles with a shortage of new cars and higher prices for used cars.
Leaseurope’s analysis, published in the middle of the year, showed that after experiencing a slowdown in 2020 compared to the previous year in the face of Covid-19, the European leasing market has returned to the path of recovery in first semester 2021.
The total volume of new leases in Europe reached 351.9 billion euros in 2020, down 14.2% compared to 2019.
Most national leasing markets across Europe saw their results deteriorate, with around three-quarters of countries registering double-digit declines in 2020 compared to the previous year. The Baltic Sea region, Croatia, Portugal, Spain and Morocco suffered the biggest losses, with total new rental volumes down by more than 20%. In contrast, Ukraine, Turkey and Greece were the only countries to post growth in new volumes in 2020 while recovering from the low levels achieved in recent years.
The European leasing market suffered a decline in all major asset classes. A contraction in the automotive sector had a significant negative impact on total activity in 2020, with new leasing volumes for passenger cars down 14.1% and for commercial vehicles down 16.2%. Other key asset segments, such as machinery and industrial equipment and computers and office machinery also suffered, falling 7.9% and 9.7% respectively.
However, Leaseurope found that in the first half of 2021, the European leasing market rebounded strongly in European countries. Total rental volumes in the first half of 2021 amounted to 152.9 billion euros, an increase of 32.1% compared to the same period of 2020. Vehicle and equipment rental increased by 39 respectively. , 4% and 24.7%.
Speaking in early October, Jurgita Bucyte, senior statistics and economic affairs adviser, Leaseurope (pictured), said: Pandemic containment measures are gradually easing. Despite some headwinds, such as persistent supply chain disruptions in various industrial sectors, a boom in deferred consumption and rising energy costs putting upward pressure on prices, a further economic recovery is expected for the rest of the year. Based on European economic forecasts, investment is expected to strengthen thanks to favorable prospects for domestic and external demand as well as the implementation of recovery and resilience plans across the EU. As business investment drives demand for asset finance, this clearly gives rise to cautious optimism in the leasing industry. “
However, with many European countries and the UK implementing a range of stricter Covid-19 restrictions induced by the Omicron variant, there is likely to be a negative impact on consumer activity and business investment.
Recent data from the Finance & Leasing Association (FLA) shows that total new asset finance business in the UK fell 7% in October compared to the same month in 2020. In the ten months to October 2021, new business was 17% higher than the same period in 2020.
The plant and machinery finance sector recorded a 9% increase in new business in October compared to the same month in 2020. The business equipment finance and IT equipment finance sectors recorded losses. decreases in new business of 15% and 35% respectively, over the same period.
Commenting on the numbers, Geraldine Kilkelly, research director and chief economist at the FLA, said: pre-pandemic peak. Nonetheless, the market continued to show pockets of growth with new financing for construction and farm equipment up 22% and 18% respectively from October 2020.
“The continued growth of the asset finance market through much of 2021 demonstrates the underlying strength of the industry, with many sectors returning to the levels of new business seen before the pandemic. The pace of the recovery has been hampered by asset shortages that are expected to persist until 2022 as countries around the world face new waves and variants of Covid-19. “
Meanwhile, Cox Automotive has warned that data from its monthly market monitor suggests used vehicle values may never return to pre-pandemic levels, and says a year of frustration over the issues new vehicle production and Covid restrictions have transformed the wholesale vehicle market.
Wholesale vehicle values will show signs of stabilizing in mid-2022 as the market attempts to return to some form of normalcy, according to Philip Nothard, chief analysis and strategy officer at Cox Automotive. However, the coronavirus pandemic has quickly accelerated the online and digital marketplace to what existed two years ago. As a result, it is also entirely possible that a new benchmark for used vehicle values has been reached and that it will never fall back to pre-pandemic levels.
Nothard warns that there is no tsunami of second-hand stock on the horizon, and more attention to detail will be needed as the shape of the market evolves. Cox Automotive research also shows that approximately 1.4 million new vehicles have been lost from the market, which will never enter the used vehicle fleet. While the impact on the under 12 month market has already been felt, it will impact the industry for years to come.
Nothard said: “In July, we affirmed that the used car market has never been more critical to the overall health of the auto industry than it has been in 2021. The last few months have gave more weight to this suggestion.
“As prices have risen for eight consecutive months, recent signs point to a potential market slowdown. And if it remains that prices on the whole have continued to increase, the situation becomes more and more complex, with some models starting to see significant price drops. Also, some numbers we have observed are misleading as they do not represent live market data where many models that saw an increase at the start of the month, which fell at the end.
“It’s important to remember that in the last month of the year this is traditionally a downturn as retail activity slows down before Christmas. Prices are expected to fall in line with usual market cycles, so current prices still reflect high demand with a weak supply market. With the prices as they are,
dealers are getting more cautious, but at the end of the year they’ll need inventory for the new year, so prices are unlikely to drop significantly.
“We expect current market conditions to continue through the first quarter of 2022, and it is entirely possible that we will see a revised benchmark for the used vehicle fleet.”
New car results
According to data from the Society of Motor Manufacturers and Traders (SMMT), 115,706 new cars were sold in the UK, an increase of 1.7% from the November 2020 results – when the effects of the second lockdown of last year also affected the new auto industry. However, despite the increase and the end of four consecutive months of decline, sales figures also represent a -31.3% drop from the five-year average before the pandemic.
Compared to its European neighbors, the UK was the only country to record positive year-over-year results. However, Germany recorded the worst year-over-year performance in November with 198,300 sales and a decline of -31.7%. Italy followed with 104,500 sales representing a decrease of -24.6%, Spain followed with 66,400 sales representing a decrease of -12.3%, with France suffering the smallest decrease with 122,000 sales representing a decrease of -3.2%.
Cox Automotive said the overall picture of monthly performance is best represented when November 2021 is compared to the same period in 2019, the last comparable pre-pandemic year. The performance of new car sales in the UK last month was down -26.1%. Spain and France followed with declines of -28.7% and -29.4% respectively. The fall in sales in Italy was -30.8%, with the largest decline in Germany at -33.7%.
Nothard added: “The fact that all markets are down more than 20%, from what could be a more normal business year of 2019, illustrates that although the UK has seen an increase in sales of new cars, the result should not be taken as a reflection of the recovery.
Indeed, two major trends – electrification and the semiconductor shortage – are expected to continue to impact the UK new car market in the short to medium term, along with the uncertainty of Brexit and l continued impact of Covid-19.
Nothard added: “Our worst-case scenario sees 2021 ending in 1.552 million transactions after a fourth quarter of 245,204. This is a decrease of -4.8% from the year 2020 and -32 , 8% compared to 2019. In our forecasts for the first quarter of 2022, we forecast that the quarter will end with 431,787 transactions, an increase of + 1.5% year-on-year, but – 35% less than the 2000-2019 average.