In offering his “T.O.P.” equipment leasing and finance industry trends, observations and predictions for 2013, Dexter Van Dango includes input from some of his LinkedIn contacts — a diverse group ranging from specialty lessors to consultants to academicians.
“The future ain’t what it used to be.”
Yogi Berra (1925 – )
Like most people, I am much better at predicting the past than I am at foreseeing the future. So, as you can imagine, I was pleasantly surprised when I received an email last month from Jim Denning, vice president – Sales for the Manufacturing Equipment Division of TCF Equipment Finance. It read, “Just read your article again that was published in the Jan/Feb 2012 issue of the Monitor regarding Dexter’s Seven. Pretty dead on. Any predictions for 2013?”
I would rather be lucky than good … and boy oh boy was I ever lucky. The economy would result in unemployment hovering around 8%. Check. No new taxes, no measurable spending cuts, a hefty budget deficit and no decrease in the national debt. Check. No change of address forms required for the Obama family. Check. Capital spending by small and mid-sized businesses would continue to waver. Check. No new training or talent development in the leasing industry. Check. The finance and leasing job market would improve. Hard to say, but I believe 2012 was an improvement over 2011. Pricing competition would start the year fiercely and end ferociously. Check. The European economic crisis is not over. Check.
This year I am making some predictions of my own, but I also sought input from some of my LinkedIn contacts. Readers will appreciate the diverse perspectives that come from folks ranging from specialty lessors to consultants and academia.
Prediction: Capital spending will continue to wane due to lack of confidence. The little we do see will be necessity-based purchases driven by the need to replace worn out equipment. Denning agrees with me and commented via email. “I agree there will be slippage. Presently, I concentrate in manufacturing and we are already seeing it.” Uncertainty is the key word underlying this prediction. The eleventh hour temporary fix of the fiscal cliff did nothing for business confidence. Business leaders continue to be uncertain about the future health and wellbeing of the U.S. and global economies.
Shawn Halladay, managing director for The Alta Group sees things in much of the same way. Halladay went into greater detail in his email response to my query. He began, “One should be in a happier mood at the beginning of a new year, but I have to profess to being a bit pessimistic as to the prospects for the upcoming one. I think the rising levels of regulation — Dodd-Frank, Obamacare, etc. — will dampen business spending, although there will be some increases as companies replace essential equipment.”
Observation: The American people are completely fed up with their so-called representatives in Washington. Halladay also commented on the current political environment. “I am not sure how widespread it is, but the business people I have spoken with are none too happy with the current attitude towards those who are producing results. Many folks are wondering why they should work so hard if it is just going to be taken from them and redistributed (and then still be blamed for not doing their share from a tax perspective). Add to it the lack of progress by those [fools]* in Congress, and I just don’t see a very robust investment picture this year, which of course, translates to weak volumes for the industry.” *”Fools” is my word — not Halladay’s. His was a bit more accurate and colorful, but perhaps a bit less tasteful.
And lastly, Halladay predicts a positive outcome in the proposed accounting changes. His observation was: “On the bright side, there is a lot of dissatisfaction with the lease accounting changes both here and in Europe, so we may see some beneficial movement there, at least in regards to reducing compliance costs for the lessees.” Let’s hope he is right!
Prediction: According to Dr. James Johnson, professor of finance, Northern Illinois University: “Interest rates will hold at their 200-year low for perhaps most of 2013, but will begin to drift up thereafter as our spending continues to exceed our national income. A one-year window, in my opinion, for doing anything at low interest rates.” I agree with Dr. Johnson and so do the majority of the voting members of the Federal Open Market Committee (FOMC), the group tasked with using the tools of monetary policy. Interest rates have been held at artificially low levels since the discount window was first opened in August 2007. Until we see measurable improvement in the economy and a significant reduction in unemployment, we’re likely to see continuation of the present policies for the foreseeable future. The FOMC is now linking rates to the unemployment rate, seeking a 6.5% unemployment rate before any consideration of raising interest rates.
Trend: Equipment leasing and financing is becoming less and less about the equipment and more frequently about the financing of solutions that include services and other soft costs. The Monitor November/December issue included a pie chart from IDC that outlined the technology segments that make up the $67.3 billion U.S. information technology leasing & financing market. It showed packaged software making up 35% of the pie and IT services making up an additional 15%. As software is really intellectual property rather than a hard asset and services are also intangible – which makes half of the financing that took place in the IT segment in 2012 soft as opposed to hard assets. I call this a trend, but I will also predict that this trend will continue and grow. As one of my early bosses said years ago, “Get used to financing air, and lots of it.”
Prediction: Niche players will excel further and faster than generalist lessors in the near term future. Simple business strategy teaches that one cannot compete on price unless one is the low cost producer. Therefore, to charge a higher price one must compete on value. Added value comes in many forms. There are many examples of niche lessors. ILFC tops the list of aviation lessors. Trinity Industries is perhaps the best at leasing railcars and barges. The four key captives lead the pack among IT lessors. Canon dominates the office equipment financing market. Gigantic Enormous Capital and Siemens Financial both compete ruthlessly in the healthcare and medical equipment leasing field.
Surprisingly, some lessors compete in market niches where others fear to enter. Deborah Monosson is one such lessor at Boston Financial & Equity Corporation. Her dad, Sonny Monosson, started the company with the aim of lending money to companies that were high risk, but also possessed good fundamentals. He structured his loans and leases and often took warrants and options as additional collateral. I asked her for a prediction and got the following: “What do I know? I don’t ever predict… I go with the flow and try not to conduct business according to what’s going on around us. We work deal by deal, and we stay focused on our niche. My father had a quote of a professor he had, General Georges Doriot: “Business conditions are no excuse for doing poorly.” 2012 was better than 2011 … and I hope that 2013 is better than 2012. I predict that the world will continue to spin on its axis, that there will be more snow storms, earthquakes and hurricanes to come, but hope that we don’t suffer from them as we did in 2012.” Well said!
Prediction: One or more of the European-based lessors will pull up stakes in the U.S. in 2013. Last year I correctly predicted that the European debt crisis wasn’t over. In fact, the crisis took its toll on several European equipment finance companies in 2012 and will continue to impact results in 2013. The most likely culprits include RBS Asset Finance, Deutsche Leasing, Societe Generale Equipment Finance and Bank Leumi Leasing Corporation. The parent companies of these lessors are spending huge amounts of money to right their ships because of the debt crisis. Small subsidiaries in the U.S. are afterthoughts compared to their European write-off problems.
Observation: Training and development continue to be weak links for our industry. Yet some companies are beginning to focus on the future and invest in their people. My company selects about one-tenth of 1% of our people and designates them to be part of a management development team. None of the participants are young (under 35), but at least there is a formal effort toward internal development. Gigantic Enormous Capital has its HiPot group — the highest ranking people on a three-by-three grid assessing potential and performance. Unfortunately, it relies on biased people to make those assessments. When asked whether they would recommend that their children pursue leasing jobs, none of my LinkedIn contacts responded. I believe we still have some work to do.
Trend: Social media has become — and will continue to thrive — as an important marketing strategy for equipment lessors. In the 1999 publication The Cluetrain Manifesto — described by Wikipedia as “a set of 95 theses organized and put forward as a manifesto, or call to action, for all businesses operating within what was suggested to be a newly-connected marketplace” — many audacious claims were made. The book bluntly stated that business as usual was a thing of the past. Instantly getting your point across — regardless of spelling or grammatical errors — was deemed to be the communication method of the future. The Internet has evolved and social media has replaced email as the instant method of mass communication. If your company is not on LinkedIn, Facebook, Twitter and YouTube, it’s missing a key customer touch point for support as well as marketing. You could be destined to follow the makers of buggy whips!
Thanks to those who contributed to this year’s effort. This is all guesswork, but fun nevertheless. Your feedback is welcome at firstname.lastname@example.org.
Dexter Van Dango is a pen name for a real person who is a senior executive with more than 25 years of experience in the equipment leasing industry. A self-described portly, middle-aged, graying, balding leasing guy in the twilight of a mediocre career, Van Dango will provide occasional insight from the front lines via the Monitor.