With interest in equipment leasing growing globally, financial institutions must make it easy for all parties to do business with them. In the case of vendor finance programs, it is not only crucial to build relationships with equipment manufacturers but also to provide excellent service to the dealers that sell the equipment and to the customers who lease it.
According to the Equipment Leasing and Finance Association, 72% of U.S. companies use some form of financing when acquiring equipment. One way to improve interactions with companies’ senior leaders is to enhance asset management practices to ensure that the end-of-term period is as easily navigable as the beginning phase of the relationship.
ELFA represents 575 financial services companies and equipment manufacturers in the U.S. equipment finance sector. Membership is diverse, ranging from Fortune 100 companies to small- and medium-sized enterprises to governments and non-profits. While practices undoubtedly differ significantly among these companies, it’s clear that all have a vested interest in successfully managing and growing customer relationships.
“The key is to set realistic customer expectations, and then not to just meet them, but to exceed them — preferably in unexpected and helpful ways,” wrote Sir Richard Branson, author and founder of Virgin Group, in a blog post for Entrepreneur magazine.
Financial institutions that can effectively determine the residual values of equipment, manage the leasing process (and issues that come up during the lease term), and remarket assets that come off lease are well on their way to offering top-notch end-of-term service. At GE Capital, we finance a broad range of equipment, including transportation, material handling, construction, manufacturing, information technology and office equipment, much of which we have the opportunity to sell in the secondary market. We currently have nearly 1.5 million active assets deployed, including more than 1 million pieces of various types of office equipment such as printers, copiers and IT hardware; more than 200,000 commercial vehicles and trailers; and over 70,000 pieces of lift equipment. Managing this portfolio not only presents tremendous opportunities to generate returns for the company but also to deliver positive experiences for customers throughout the lifecycle of all these equipment types.
Growing Interest in Equipment Leasing
The equipment finance market in the U.S. is expected to equal $903 billion in 2014, according to the Equipment Leasing & Finance Foundation (ELFF), the non-profit research arm of ELFA. In 2013, total new business volume grew 9.3% to $112.4 billion, with most growth coming from agriculture and construction equipment and computer software.
“A majority of U.S. businesses will use some form of financing for equipment acquisition. In 2014, investment in plant, equipment and software in the United States is projected to reach $1.5 trillion, of which 57 percent ($860 billion) is expected to be financed through loans, leases and lines of credit, a slight uptick from 55 percent in 2013. In a continuing trend, seven out of 10 businesses will use at least one form of financing to acquire equipment,” ELFA noted in a January 2014 news release discussing equipment acquisition trends.
Elements of Asset Management
For large-scale equipment leasing companies, having well-defined, repeatable processes — processes that are established as a result of solid research and careful forethought — is critical.
At GE Capital, our asset management role is spread across three distinct functions:
The valuation team’s job is to track equipment valuations and calculate our future residual exposure on all asset types. Customers benefit through lease payments that are carefully computed, utilizing various valuation methodologies and approaches, historical data, deep domain knowledge and expertise.
The portfolio management team works with customers to manage their active leases as they approach the lease term’s end, providing them with options to renew their lease, buy the equipment outright or return it, incorporating the specifics of individual contracts.
The remarketing team is responsible for selling returned assets. Ideally, equipment is re-sold quickly and efficiently at optimum price points and with low expense, through using a diverse network of outlets. For example, auctions are often used to sell fleet-type assets such as lift trucks. Specialized equipment such as machine tools can be sold via consignment networks. Other options are to sell directly to customers or wholesalers.
At every step of the asset management process, lenders have the opportunity to analyze their current practices and, through a variety of means, refine and improve those practices. One popular method is the “customer journey map” — a method of documenting customers’ experiences. With a detailed understanding of their first-hand perspective, it’s possible to identify areas of improvement.
GE Capital has applied process improvement programs to streamline asset management in the following areas:
Tracking and Managing Leased Equipment
In October 2010, NMHG Financial Services, a joint venture between GE Capital and NACCO Material Handling Group (NMHG), launched the GE Asset Tracker, which is designed to provide NMHG and its dealers with the ability to track active assets from lease origination through to final disposition. NMHG is the maker of Yale® and Hyster® industrial lift trucks, container handlers and reach stackers.
While equipment is in the field, mobile technology can collect and update important data such as its usage, condition and location. As the lease period comes to a close, the system sends automatic end-of-term notifications containing asset details and then facilitates an orderly remarketing process for returned assets.
Simplifying with Technology
The GE Asset Tracker also has capabilities for managing off-lease equipment. It provides automated end-of-term notifications, as well as condition reports and photographs. Starting in September 2013, NMHG Financial Services launched “e-Inspect” forklift condition reports to ease the return of active assets.
Dealers use the e-Inspect mobile application to evaluate the condition of the assets that are being returned, take the required photos and upload all of the information to the site. That represents a significant improvement over the traditional non-standardized, paper-based reporting and data entry process, which could take hours or even days to complete. The result of these advanced electronic data collection and transfer methodologies is a more streamlined end-of-term process, which benefits end users and dealers.
Remarketing Off-Lease Equipment
Launched in 2009, GE Asset Seller helps vendor finance customers remarket their off-lease and surplus assets in two ways: 1) by facilitating private negotiations between individual buyers and sellers and 2) by hosting online auctions. The GE Asset Seller eAuction platform allows dealers to access information about available equipment, including photographs and condition reports and efficiently place offers in a secure and transparent environment.
Conclusion
The equipment leasing industry has a continuing opportunity for self-improvement by streamlining end-of-term processes with parties across the supply chain, from manufacturers to dealers to end users. In vendor finance, building relationships with manufacturers and dealers is a crucial part of the vendor finance business. In addition, to be successful and ensure repeat customers, lenders should provide top-notch service to end users from the beginning to the end of the lease term, and improving the asset management process is an area that may be particularly ripe for improvement.
Jim Kelly is the new relationship development leader for GE Capital, Equipment Finance and the managing director of the Vendor Programs platform. Kelly is responsible for attracting, winning and growing vendor relationships and building full-service finance programs for equipment manufacturers and distributors of all sizes in multiple industries including: transportation, construction, material handling, industrial, technology, office imaging and healthcare. For more information, visit http://www.geassetmanager.com/. To see the assets currently available for resale, visit http://www.geasset.com/. To stay up-to-date on news in the commercial lending and leasing world, follow GE Capital on Twitter: http://twitter.com/GELendLease.
