Building Relationships: The 2019 Vendor Finance Roundtable
by Monitor Staff May/June 2019
Steve Grosso, Jim Teal and Adam Warner sat down with Monitor for this year’s roundtable where they covered their experiences from 2018, the technological advances they’re seeing disrupt the industry and both the trouble and potential that could be coming down the pipeline for the industry.
Steve Grosso, President, PNC Vendor Finance
Jim Teal, President & COO, Hitachi Capital America Vendor Services
Adam D. Warner , President, Key Equipment Finance
As you look back on 2018, what are some of the takeaways from this past year that you would like to share with our readers? What were the unexpected events, challenges or pleasant surprises that you encountered while developing new vendor relationships and meeting goals?
Steve Grosso: Looking back on 2018, the highlights from our perspective at PNC Vendor Finance are distinct. The fundamentals have remained the same; service and execution are omnipotent. Beyond that, new thinking, creativity and technological advancements have continued to emerge, with the “first movers” being disruptive to staid, sluggish and increasingly inferior traditional organizations.
The fundamentals of service – speed, responsiveness, ease of use and value – are critical to success. However, the delivery systems, including new coalitions of distribution and logistics, and ultimately the infrastructure model and costs are extremely different.
2018 had numerous examples of the above emerge and become front and center in our industry. That said, it is still a vibrant and dynamic place to be!
Jim Teal: While our division of Hitachi Capital America (HCAVS) exceeded its volume goals, it was not without challenges along the way. Rate continues to present issues as our model is one of high levels of customization and service justifying commensurate rates while several of our competitors offer basic financing programs with extremely low rates. When we run into one of these competitors vying for the same vendor, we know one of us is in the wrong place!
Credit issues also posed problems for HCAVS in 2018 in some of our discontinued lines of business, but our vendor business continued to perform well. Finding quality talent has been tough, so we have put additional emphasis on our in-house training program. I’d also say that we were pleasantly surprised at some of our new vendors that really understand and value our type of vendor finance program. They know that in today’s marketplace, fresh ideas and flexibility are a must to attract new customers and keep their existing ones.
Adam D. Warner: I am pleasantly surprised that business and consumer confidence has remained strong in spite of federal policy uncertainty and heightened partisanship in Washington D.C. I think much of that can be attributed to the positive financial impacts from tax reform. Additionally, Washington dysfunction almost seems to have become the status quo, so it isn’t having the same impact as it did initially.
Financing equipment is still a viable alternative to cash, even in this economy. Businesses are conserving capital for growth initiatives, which continues to drive demand for equipment financing. The prolonged economic expansion has created pricing leverage for clients, and our industry must generate additional new business to maintain revenue levels.
Has the process of developing a new vendor relationship changed during the past decade? If so, what has changed and why?
Grosso: It sure has. At PNC Vendor Finance, there’s a spirit of accepting and embracing change. We’ve seen new business models, wide open system architectures such as blockchain, and continued technology advancements that have changed the way we do business. If you’re not changing and providing real value solutions to your partners — game over.
Teal: The process for HCAVS is largely the same as it was a decade ago, albeit with more refinement and precision for rolling out a vendor program. What has changed and continues to develop is the level of education of vendors on finance and the wider range of needs they have. The divergence of customized financing products by industry is growing. We find a greater number of vendors that employ a coordinator that is familiar with financing or have developed their own in-house financing team. This all works well with our model as we have programs that run the gamut of providing a turnkey private-label program that functions like a captive to simply buying deals from a vendor.
Warner: I don’t think the process of developing a new vendor relationship has changed all that much. When pitching a new vendor, the most important thing to determine is the maturity of the financing culture that exists in their sales process. Large, established manufacturers understand the benefits of offering financing at the point of sale, so finance companies must differentiate themselves with price, service levels, and training. When a newer, emerging manufacturer enters the market, the finance company must spend more time and resources helping to build the finance culture across their sales organization.
What is your outlook for the vendor finance market in 2019? What are the greatest opportunities, challenges and concerns that you anticipate?
Grosso: Continued, accelerated change in all the areas I mentioned above. Couple them with an economy that appears to continue to support growth in the sectors in which we operate, and the result is that our forecast is very favorable. That said, some of our projected success is because there are some vendor finance participants that have been distracted from the global issues of a foreign parent or their own internal issues of complacency/regulatory issues or M&A activity. However, for focused, quality operators, there exists a real opportunity to grow.
The exciting thing for us is the vendor finance market is dynamic and of such scale that there are opportunities to grow, create real value, learn, and have fun!
Teal: I’m of the belief that there will be continuing benefits for corporate America from the Tax Cut and Jobs Act of 2017 and that the U.S. economy will continue growing in 2019. While that is a positive, the uncertainty of international trade and the constant polar divide in Washington will keep vendors in a cautious mood about expanding their businesses.
For HCAVS, it provides a great opportunity to offer our creative and flexible financing products and service-first approach to vendors to help them increase sales and keep their customers. This works with vendors that understand the bigger picture of a complete financing program and helps offset the challenge of competitors that enter industries unfamiliar to them and therefore can only offer low rates. We’re also keeping our eye on the changing buying habits and the worsening credit quality of customers. More and more customers want some type of usage-based financing which we have been providing for years. We’ve also added procedures to help mitigate the ever-growing presence of fraudulent activity.
Warner: Managed services financing will continue to become more prevalent in our markets. Initially, it was thought that many manufacturers would fill this need by offering more rental options. That has happened to some extent, but manufacturers selling product still want to recognize and record the initial sale, which is not possible when renting. Additionally, many manufacturers would prefer to receive the sale price up front rather than over time. It will be important for equipment finance companies to find the right balance of usage-based options while limiting their risk on equipment usage or essentiality.
With all the hype about blockchain revolutionizing the way business gets done globally, have you ever stopped to think about whether the equipment leasing and finance industry is ready to dive into this potentially disruptive technology?
Have you ever been asked the question “why do I need you” by your banking colleagues? It’s an indicator of how young the equipment finance line of business is in many regional banks. It also serves as a reminder that it is part of our job as good sales people to explain our value, not just to prospects and customers, but to our own teammates on the banking side.