With 2019 fast approaching, Corcentric’s Tom Toton looks toward the new year and makes some predictions for the the equipment financing and leasing industry.
There are a record number of tractors and trailers on order for 2019, so next year is expected to be a banner year for truck manufacturers. All of those orders will also create a demand for equipment financing.
It is becoming apparent that the lease vs. buy equation is more favorable toward leasing due to the current tax rate reductions. As a result, there will be a big increase in leasing vs. other financing mechanisms.
More and more companies are starting to realize that with leasing they can eliminate the risk on the back end of the transaction and that it is more advantageous when compared to conventional ownership.
In addition, leasing as a way to finance equipment mirrors the usage costs more effectively than the straight-line depreciation that occurs with an outright purchase. With straight-line depreciation, accounting companies can get caught in a trick bag when having to mark down their equipment to catch up to the market value. Or they may have inflated the write down and incurred too much expense while the vehicle was in operation.
Conditions are very favorable right now for purchase lease backs in 2019, which partially explains their growth, because the used truck market is fairly strong on existing equipment. Fleets can get top dollar by converting their owned equipment into leases and they can then use the cash generated for other growth opportunities in their business.
Naturally interest rates play a role in financing. And while I cannot predict exactly what will happen there, I think the best we can hope for is that they will remain stable and moderate. The used truck market continues to be good, but it is likely that at some point in 2019 we can expect a downturn. If the economy stays “hot,” used trucks will still be in demand. But in the future, with record truck and trailer orders piling up, the used truck market will be slightly flooded. That is when we can expect to see used truck values dropping.
With the midterm elections behind us, the stock market, which does not like uncertainty, should be less volatile. While I do not expect to see rapid economic expansion, I do anticipate continued economic growth. It may not be as robust as it would have been had there been a clean sweep of pro-business politicians, but the economy should keep plodding along.
More tax cuts may be on the horizon, but any movement on infrastructure funding should be good for trucking companies, equipment manufacturers, and leasing, affecting all of the suppliers that are connected to that part of the supply chain.
I am bullish on the long term because I do not see any signs of a slowdown. Look for two more years of a fairly good economy.
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