How has asset management changed over the course of the pandemic? Which changes are permanent and which are more temporary?
Kelly Lane: One practical change that may be permanent is allowing asset managers to work from home. Many companies are allowing members to work from home during the pandemic, and now they are realizing that this model creates flexibility and may yield cost savings. Over the past two years, I have seen a major shift to using technology platforms to stay connected. Many offices are now attempting to reopen, but as the COVID-19 virus keeps mutating into new variants, it seems that work-from-home or possibly hybrid work conditions are here to stay long-term.
At the onset of the pandemic, when company shutdowns were occurring across all industries, it was unclear how this would impact equipment markets. Fast forward to today and we are seeing major impacts to the global supply chain because of the pandemic. While this disruption is temporary, it has made it increasingly difficult for asset managers. This disruption has caused new equipment shortages and delivery
delays. Asset managers have seen equipment values plummet in 2020, only to reach historic highs in 2021. It’s been a challenge to accurately estimate equipment values in such a fast-changing environment and determine what is normal. Equipment markets typically operate within cycles, but the pandemic has created more volatility than normal.
Stephen Sullivan: The pandemic created the need for agility, making workforce resiliency, teamwork and collaboration key success factors in maintaining a high performing organization. I also believe the movement to “digital first” is accelerating process transformation and innovation through the expanded use and acceptance of advanced technology, enabling interaction with clients through any device, at any time. Additionally, risk management has become more important to protect the business during global volatility and economic uncertainty while continuing to manage client and dealer expectations.
How have the ongoing supply chain issues and the semiconductor and equipment shortages we’ve been experiencing impacted asset management?
Lane: Supply chain and manufacturing disruptions have had a major impact on equipment markets. We are seeing used equipment values soar in many areas, such as trucks, trailers and construction equipment. The chip shortage has caused production delays and limited availability of new equipment. This has led to purchasers looking to used equipment markets to expand capacity and meet demand. Asset managers must recognize that in the short-term, they must adapt to stay competitive, but long-term, an asset manager must use prudent judgement and expect there will be some softening of used equipment values as markets eventually return to normal. I expect we will see more variability than usual in equipment values over the coming years as markets return to equilibrium.
Sullivan: New equipment availability and lead times have protracted to unprecedented levels, creating the need for clients to evaluate new “bridge strategies” to help meet their current equipment needs until new orders can be fulfilled. When equipment is returned, our primary strategy is to support our clients and dealers to help them meet the escalated market demand for used equipment. To compound issues, equipment valuations have become increasingly challenging with current and future market uncertainty, along with impacted production levels and pricing volatility, which lead to additional considerations.
When it comes to the used equipment market, what have you witnessed in terms of demand and pricing?
Lane: The supply chain disruptions caused by the pandemic have had a positive impact on used equipment markets. The shipping backlogs, labor and chip shortages, production delays and long lead times for new equipment have all contributed to incredible demand for used equipment. In some areas, used equipment values have increased more than 60% year over year. New equipment cannot be produced fast enough and there simply is not enough equipment to meet demand and it’s showing. I have seen used truck asking prices almost at what it would cost for new, used corporate jets at all-time highs and construction equipment values incredibly strong right now.
Sullivan: The current market dynamics have generated a liquid secondary equipment market with unprecedented demand for used equipment. Out of necessity, traditional new equipment buyers are now active used equipment buyers. We are seeing digital remarketing and channel management become much more strategic to efficiently meet the current demand for used equipment. Optimizing the logistics and speed of getting equipment up to trade terms and to market has been a big priority.
ESG has become an important concern for lessors and lessees in recent years. How has this impacted asset management at your organization?
Lane: ESG has become an area of growing importance for businesses across all sectors, and City National Bank and Bci Capital are no exception. Last year, we completed a rigorous materiality assessment and gap analysis and defined four priorities for sustainability. This year, we are taking concrete steps in those areas. One of the most important will involve reducing our carbon footprint. As the world accelerates toward a green, low-carbon economy, we are focused on being a part of the solution. This year, we will set a target to reduce those emissions.
At BciCapital, we are looking into how we can support electrification, alternative fuels, renewable energy and other investment opportunities that will have a positive environmental impact. Additionally, today’s asset managers must stay current on topics such as regulatory and governmental change that may impact used equipment markets and/or create opportunities for the business.
Sullivan: Like all of our industry peers, Wells Fargo considers the environmental and social impacts around our lending and investments. In equipment finance, we are currently working to expand our deep domain expertise across emerging sustainable equipment technology. Understanding product road maps, production schedules, secondary market development, useful life and expected current and future costs are areas we are currently focused on. I am excited about this shift as we all work to help accelerate the transition to a low-carbon economy and reduce the impacts of climate change.
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