The Equipment Leasing and Finance Association's (ELFA) Monthly Leasing and Finance Index (MLFI-25), which reports economic activity for the $650 billion equipment finance sector, showed overall new business volume for January declined by 23.7 percent when compared to the same period in 2008. Month-to-month new business volume decreased 50.6 percent from December to January, from $9.1 billion to $4.5 billion.
The MLFI-25 is the only index that reflects the volume of commercial equipment financed in the U.S. The MLFI-25 complements other relevant economic indices, including the monthly durable goods report produced by the U.S. Department of Commerce, which reflects new orders for manufactured durable goods, and the Institute for Supply Management Index, which reports economic activity in the manufacturing sector. Together with the MLFI-25 these reports provide a complete picture of the status of productive assets in the U.S. economy: equipment produced, acquired and financed.
Receivables over 30 days increased to 3.9 percent as compared to 3.8 percent in December. For the year, receivables over 30 days were 110 basis points greater than 2008. Charge-offs decreased to 1.41 percent as compared to 1.58 percent in the prior month. Credit approvals reached another historic low (65.2 percent). Sixty-three percent of participant companies reported that fewer transactions were submitted for approval during the month, as underwriting standards tightened. Total headcount for equipment finance companies showed a slight decline in December (1.9 percent).
"Although liquidity continues to be a key factor, the focus for many companies is improving the management of their receivables and finding ways to maintain recoveries in an environment where equipment values are rapidly declining," said Kenneth R. Collins, Jr., Chairman and CEO of Susquehanna Commercial Finance, Inc., located in Pottstown, PA, whose company participates in the MLFI. Collins is also ELFA's chairman-elect.
"Credit policies and procedures have and will continue to be tested as will the integrity of business models," said Collins. "We expect credit quality to continue to deteriorate through the second quarter of 2009 and that a number of weaker segments such as transportation, construction and some small businesses that have been surviving on dwindling cash reserves, could be culled by this recession. This perception could also lead to declines in overall new business as qualified financing candidates considering capital investments remain sidelined by uncertainty that the economy will stabilize or improve any time soon," said Collins.
"Our sector continues to suffer from lack of liquidity and declining demand due to the domestic and global recession," said ELFA President, Kenneth E. Bentsen, Jr. "At the same time, credit quality of our asset class, while showing some signs of deterioration, continues to outperform peers. However, until businesses regain confidence that we've reached bottom, and financial markets return to some sense of normalcy, we can expect a continued downward trend in new business originations, further undermining the long-term growth potential of the U.S. economy," said Bentsen.
About the ELFA's MLFI-25
The index is released globally at 9:00 a.m. Eastern time from Washington, D.C. each month, on the day before the U.S. Department of Commerce releases the durable goods report. More information on the Monthly Leasing and Finance Index, including methodology and participants is available below and at http://www.elfaonline.org/ind/research/
The ELFA produces the MLFI-25 survey to help member organizations achieve competitive advantage by providing them with leading-edge research and benchmarking information to support strategic business decision making.
The MLFI-25 is a barometer of the trends in U.S. capital equipment investment. Five components are included in the survey: new business volume (originations), aging of receivables, charge-offs, credit approval ratios, (approved vs. submitted) and headcount for the equipment finance business.
The MLFI-25 measures monthly commercial equipment lease and loan activity as reported by participating ELFA member equipment finance companies representing a cross section of the equipment finance sector, including small ticket, middle-market, large ticket, bank, captive and independent leasing and finance companies. Based on hard survey data, the responses mirror the economic activity of the broader equipment finance sector and current business conditions nationally.
The results of each MLFI-25 are posted on the ELFA website. ELFA is the premier source for statistics and analyses concerning the equipment finance sector. Please visit http://www.elfaonline.org/ind/research/ for additional information.
Participants in the ELFA MLFI-25:
- ADP Credit Corporation
- Bank of America
- Bank of the West
- Canon Financial Services
- Caterpillar Financial Services Corporation
- De Lage Landen Financial Services
- Dell Financial Services
- Fifth Third Bank
- First American Equipment Finance
- Hitachi Credit America
- HP Financial Services
- John Deere Credit Corporation
- Key Equipment Finance
- Marlin Leasing Corporation
- National City Commercial Corp.
- RBS Asset Finance
- Regions Equipment Finance
- Siemens Financial Services
- Susquehanna Commercial Finance, Inc.
- US Bancorp
- Tygris Vendor Finance
- Verizon Capital Corp
- Volvo Financial Services
- Wells Fargo Equipment Finance