As 2018 continues, there are a number of trends in the industry that should continue to drive growth. AmeriQuest’s Patrick Gaskins believes technology will play a major role, while also pointing to tax reform and rising interest rates as contributing factors.
The Equipment Leasing and Finance Association (ELFA) recently identified the Top 10 equipment acquisition trends for 2018. I’d like to add my comments to some of what they said.
According to the ELFA, tax reform will help unleash pent-up demand by business for new equipment. As we are all aware, tax reform will put more money on the bottom line due to the lower corporate tax rates. With the additional net income, companies will have more available cash to invest in their businesses.
At the same time we are enjoying tax reductions, we are also seeing some increases in interest rates and a rise in inflation. The benefit of the tax reductions may be somewhat muted by these other influencers. The reality, at least with truck sales, is that they have been decent over the past several years and are currently being driven by capacity and an increase in demand.
The ELFA also predicted that technological advancements in equipment will attract businesses looking to improve efficiencies. I agree that outside of demand and capacity, technology will have a major impact on equipment sales for years to come.
The way people finance, operate, acquire and dispose of their equipment will also change dramatically due to technological advancements. The life cycle of assets will shorten as a result of technological obsolescence. The days of five- and 10-year “ownership” cycles are going to be long gone.
New vehicle technology will impact new equipment sales and the equipment finance market in a manner similar to what we have seen in the computer hardware and software industries. Just as we have seen an ever-shortening life cycle in the those markets, we should expect similar trends for new equipment.
The ELFA’s Top 10 list also highlighted the continued rebound of key equipment verticals in 2018. This will be true for the transportation sector and will result in a continued acceleration in new equipment sales and financing, again driven by technological improvements.
The ELFA also believes businesses will ramp-up efforts to comply with the requirements of new accounting rules for their leased equipment. The new accounting rules put all forms of lease financing on the balance sheet. This will make companies more aware of the liabilities they have, and how they evaluate the way they finance equipment.
Businesses asking if leasing is still the ideal way of financing equipment can be assured that the answer is absolutely, 100% yes. Buying equipment exposes companies to technological obsolescence and residual risk. With leasing, companies can take advantage of new technologies quicker and avoid residual exposure.
The new accounting rules do not require companies to change how they finance their equipment; they will simply shed additional light on equipment financing. This will lead to healthy conversations between the client and their financing company regarding structure, future goals and additional financing opportunities.
The ELFA also predicted financing options and services for equipment acquisitions will be more innovative and customer driven. In light of all of the changes in the market, customers should have more in-depth conversations with their finance providers and determine how the new tax and accounting rules will affect them in the years ahead. Lessors will need to show their customers the best way to finance their assets and the kind of flexibility they will have with each financing option.
What is really going to drive growth in 2018 is the advancement in technology in all sectors. Tax reform and interest rates will have a moderate impact. However, when making equipment-purchasing decisions, companies will have to look at all of the levers that go into a decision-making process: the cost and efficiency of the new equipment, residual values of the old and new equipment, interest rates, life cycle, etc. All of these factors play a role in the evaluation of financing for new equipment.
All in all, 2018 is shaping up to be to a very good growth year for the equipment leasing and finance industry. Companies want to exchange their obsolete equipment for the latest, greatest, and safest equipment the market has to offer.