Leasing Industry Update [Including Statistics]

Leasing Industry Update: -

Leasing industry news remains positive. With growth within the sector continuing throughout 2016, despite uncertainty growing about the world economy.

This positive growth has been a common trend in the years since 2012 and following the 2008 crash. This is no doubt due to the fact that businesses value the flexibility and reduced risk of acquiring assets on a lease basis as opposed to purchasing them outright.

Data from the UK’s Finance & Leasing Association, released in Q4 2016, has shown that leasing volumes are up year-on-year and finance markets keep on recording consecutive monthly growth.

Over in the USA, findings by the large leasing company White Clarke Group has found that leasing has grown all over the world. What’s more, the UK leasing industry is the third biggest in the world, after overtaking Germany as the biggest in Europe.

The worldwide growth of the leasing industry is led by three key regions: North America, Europe and Asia. With even China’s growing leasing industry still not being able to bring Asia ahead of America (The USA, Canada and Mexico) and Europe in terms of the size of its leasing industry.

On a slightly more sober note, however, growth has slowed a little and a key motive for investment within the leasing industry, this year, has been to renew stock rather than to begin new schemes and projects.

There are also the upcoming changes to lease accounting rules from both the IASB and FASB which will have a huge impact on how businesses see the role of lease agreements, in terms of their financial reporting.

Reasons For Caution

American mobile service provider, Sprint Corp, has stopped leasing certain Android model phones due to the low resale value and a downturn in interest. End users of leased phones are preferring to secure the use of more high-end Android phones and otherwise too expensive iPhones.

Whilst this shows the benefits in flexibility that leasing creates, with suppliers (lessors) being able to adapt quickly to market (lessee) tastes, it also shows how the concept of leasing allows lessees to use otherwise unobtainable assets.

This drives demand towards more expensive assets, but this, in turn, raises the issue of what to do with said assets once agreements end and the asset has fewer willing buyers. The paradox being that the more attractive an item is to lease, the harder it is for the lessor to deal with once the agreement finishes.

This kind of problem is growing in the UK car leasing industry.

In an interview with BusinessCar, the managing director of Ogilvie Fleet, Gordon Stephen, said that residual values of leased assets will be a “key challenge” over the next couple of years, in his sector.

Both private and business car leasing has grown massively in the UK and it may be that the industry is starting to come towards its peak. At some point, the balanced relationship between lease and purchasable asset markets will have to be found.

As leasing continues to become more and more popular, this is an issue which the industry will have to learn to manage. Those who do it best will be those best able to keep close management on their portfolio and charge lessees enough to offset future resale losses without shrinking demand for lease agreements in the first place.

But, in the meantime, leasing continues to grow.

Things Are Still On The Up In The World of Leasing

On the whole, the world of leasing is growing at an impressive rate.

In the UK, concerns early in 2016 about the impact of the Budget on the leasing industry haven’t really come to fruition. Another worry was Brexit but - in the same interview mentioned earlier - Ogilvie MD, Gordon Stephens, has described funding to be flowing into the leasing industry to the point where they have “no concerns” about it.

And it’s no wonder.

As of September 2016, there was 9% growth in new business for the car industry, according to Finance & Leasing Association data. But, overall, there has been a whopping 36 months of consecutive growth in the UK’s leasing and hire purchase sector. And that includes 12% growth year-on-year compared to 2015.

That makes for a pretty steep growth in leasing.

Likewise to Brexit, worries about the state of the world economy once Donald Trump takes over the Oval Office could result in further good times for the leasing industry.

“Leasing assets rather than purchasing them is a sensible way of securing said assets without the headache of being their principal owner.”

Both of these factors create uncertainty in the market. And when things are uncertain, businesses tend to take fewer risks. Leasing assets rather than purchasing them is a sensible way of securing assets without the headache of being their principal owner. The result being a growth in the leasing sector.

In other areas, general growth continues. Vietnam Airlines is leasing another 20 planes in order to meet growing demand for flights in that part of the world - and leasing obviously makes growth viable. Another big reason that the leasing industry continues to expand. As shown by China, other regions experiencing economic growth - especially if it’s rapid - are likely to see a corresponding growth in their leasing industry.

All of this points to more and more businesses turning to leasing as a means of acquiring assets to help them grow. However, they need to be aware of impending lease accounting changes.

Get To Grips With Lease Accounting Changes

IFRS 16 and FASB’s ASC 842 both will result in changes to the way businesses must account for their lease portfolio.

For a start, the vast majority of leases will need to be reported on balance sheet. And, further complicating this issue, the definition of what constitutes a lease is changing. The new definition in principle may result in contracts formally recognised as a lease under the current guidelines now recognised as services and visa versa; so there will be a lot of reconciling data needed.

These and the other changes being put into place will impact cash flow presentations, measurements of liabilities, gearing ratios, and many other accounts and reporting practices.

Before worrying about the impending changes to leasing, it might be worth checking out the full ins and outs of the leasing industry, the concept itself and then looking at the changes.

There may be opportunities for your business to benefit from the ever growing leasing industry and use it to your advantage.

Get the lowdown on the sector in this free 70 page guide and eBook which outlines, in more detail, the basic principles of leasing, the pros and cons, the different types of leasing, advice and guidance on best practice, the upcoming changes… and more.

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