Mitsubishi HC Capital America identified five trends that are likely to play a significant role in shaping the equipment finance industry in 2024, including an increase in cash buyers, growth in cross-border deals, a continued increase in as-a-service financing and more.
“Talk of recession, inflation and interest rates have largely replaced conversations filled with worries about the supply chain,” Chuck McKay, senior vice president of corporate development at Mitsubishi HC Capital America, said. “We may be turning the corner in 2024, with a year of rebalancing before a substantial growth period returns in the following years.”
Five Trends for Equipment Finance in 2024
1. More cash buyers. As supply chain stress has eased, commercial vehicle dealerships are seeing more cash buyers and a shortened sales cycle. As a result, dealers will need more floorplan financing to make sure they can keep the right inventory on the floor at the right times. Original equipment manufacturers, looking for ways to support their dealers, will increasingly turn to floorplan financing as one effective way to do so, according to Mitsubishi HC Capital America.
2. Growth in cross-border deals. Coming out of the pandemic, business between Canada and the U.S. are continuing to ramp up. Lenders that offer strong cross-border financing — beyond having sales offices in each country — should do well in 2024, according to Mitsubishi HC Capital America.
3. Continued increase in as-a-service financing. Companies in a wide array of industries are understanding the benefits of the as-a-service business model and will continue to figure out how to implement it, according to Mitsubishi HC Capital America.
“Instead of financing a single product or a product for a specific use, the as-a-service model effectively allows a company to finance its entire balance sheet,” McKay said.
The challenge, according to McKay, will be in the definition and implementation of services to add to a product offering. For example, a trucking company looking to become an as-a-service provider must do much more than just offer lease and sales options; it will also need to provide tracking, roadside service and other support logistics to get vehicles in the right place at the right time.
“Becoming a true as-a-service provider involves well-thought-out strategic and tactical decision-making,” McKay said, noting that he expects the industry to see more joint ventures, co-op agreements and other teaming arrangements. “As-a-service is in the early stages of the growth S curve and we expect the steepness of the curve to continue through 2024.”
4. Rise of asset sharing. Asset sharing is a strategic agreement among businesses to share an asset for the benefit of both organizations. By pooling ownership across multiple users, companies can save money by upping the utilization of devices. Typically, the needed number of assets required decreases, which generally means the overall cost of ownership decreases. Asset sharing, which is more asset-efficient than as-a-service, according to , according to Mitsubishi HC Capital America, is already prominent in the healthcare field, particularly with certain imaging and surgery-related machines.
McKay said that asset sharing requires tracking, maintenance and other support logistics, the same basic core services associated with as-a-service models. “The difference is in the ownership. As-a-service ownership is within a defined entity, whereas asset sharing is a network,” McKay said.
The two models will blur and merge in 2024, McKay said, and as equipment becomes more specialized, the more the models will look alike. “Key to remember is that you can do as-a-service without sharing, but you can’t do asset sharing without as-a-service,” McKay said.
5. Interest rate worries and impacts. Many companies are concerned about the possibility of further interest rate increases from the Federal Reserve and the likelihood of a recession.
“With strong positive indicators — including robust GDP and slowing inflation — it’s looking very possible that we could be in for the mythical soft landing,” McKay said, noting that he thinks interest rates will probably remain at current levels and may decrease somewhat. “The beginning of 2024 should continue to be a rebalancing period, with the economy growing at potential again in 2025-2026.”
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