2009 State of the Equipment Finance Industry

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In 2009, Equipment Leasing & Finance Foundation (the foundation) commissioned IHS Global Insight to conduct a comprehensive research study on the current industry trends and short-term outlook of the U.S. equipment finance market. By integrating information from various databases with insights from leaders in the equipment financing industry, the study provides an in-depth review and analysis of the industry's current status, trends, and outlook.

Executive Summary:

The financial crisis had a major impact on the equipment finance industry. The U.S. economy experienced the steepest peak-to-trough decline in postwar history. Credit conditions are extremely tight, and business investment growth reached unprecedented lows.
Access to capital is very limited. The Federal Reserve's Term Asset-Backed Securities Loan Facility (TALF) program is providing some relief, but assistance is limited, as only firms with the highest credit ratings are eligible.
The equipment finance industry is showing signs of increased consolidation. Tough economic conditions and scarce credit are driving some players out of the industry. Being depository funded, banks are in the strongest position, while independents run the highest risk of being driven out of the industry.
In 2008, banks gained some market share from the previous year, while independents lost market share. Market share for captives remains almost unchanged.
Respondents to the 2009 Survey of Industry Activity reported the strongest activity in large-ticket leasing compared to the rest. Large-ticket volume grew a modest 1.9% to $21 billion. Micro-ticket volume experienced the weakest activity in 2008, contracting 19.1% from the previous year.
Profitability for the leasing industry, as measured by return on assets (ROA) and return on equity (ROE), in 2008, were 1.2% and 11.0%, respectively, showing declines from previous years.
Credit quality has deteriorated in 2008 and through the first half of 2009. Charge-offs and delinquencies are up significantly from 2007 levels.
A number of respondents in our telephone interviews emphasize an increasing importance of improving business relationships with core clients. As a result of funding challenges, many equipment finance institutions are focusing more attention on serving core customers during this time.
The Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) will likely revise current accounting rules so that companies must capitalize assets that have traditionally fallen under the "operating lease" category. These changes will potentially transform certain parts of the industry, particularly bigger-ticket lessors, while leaving others relatively untouched.
The second half of 2009 is showing positive signs of stabilization in the economy and in the equipment finance industry. IHS Global Insight expects slight positive economic growth in the second half of 2009. Business investment for equipment is beginning to stabilize, and respondents to our telephone interviews are optimistic about the industry stabilizing and returning to growth in the first half of 2010.
Under tough economic conditions in the past, the equipment finance industry has proved to be resilient. Although the industry is undergoing change in this uncertain economic climate, we are confident that the fundamental offering of secured lending and equipment leasing will continue to be key vehicles for businesses to acquire new equipment.

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2009 State of the Equipment Finance Industry

Executive Summary:

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