ELFA - Equipment Leasing and Finance Association - Equipping Business for Success

Leigh Lytle Discusses ELFA’s 2024 Equipment Market Forecast

Posted 03/13/2024

The Equipment Leasing and Finance Association (ELFA) recently unveiled the findings of its 34th annual "What’s Hot/What’s Not: Equipment Market Forecast 2024," offering a comprehensive overview of how the equipment finance industry perceives 15 key equipment markets. Drawing insights from a survey encompassing approximately 130 ELFA members, the report delineates the leading sectors expected to shape the industry landscape in the coming year. Notably, construction, machine tools, medical, technology, and marine/intercoastal sectors emerge as the frontrunners for 2024.

In comparison to the preceding year's findings, this year's survey highlights a notable continuity, with four of the top five sectors retaining their prominence. However, a significant shift is observed as trucks/trailers experience a remarkable descent, plummeting to 12th place from its third-place standing in 2023. This stark decline marks the second-largest drop in the history of the survey, signaling a significant deviation from prior trends.

Equipment Finance Advisor met with Leigh Lytle, President and CEO of the Equipment Leasing and Finance Association, to gain her insights into this widely recognized report.

Equipment Finance Advisor: According to the “What’s  Hot/What’s Not: Equipment Market Forecast 2024” report released on March 12th, lessors are preparing for challenging economic conditions by lowering residual values for most equipment types. How do you feel this will impact new business volume for 2024?

Equipment Finance article with Leigh Lytle - President and CEO - Equipment Leasing and Finance Association

Leigh Lytle: We remain cautiously optimistic about the year ahead and the industry’s ability to adapt to changes. Many are preparing for challenging economic conditions; however, they are also maintaining a level of optimism.

Many residual values were artificially inflated due to limited supplies during COVID and the associated supply chain issues. Today, residual values are decreasing, and how these lower residuals are impacting new business volume really depends on which segment of the market we are talking about, as our industry represents so many different vertical markets. Now that residual values are starting to moderate, our members are stressing that it’s as important as ever to have an even keel when setting values in both the short and long term. We saw so much volatility associated with COVID and supply chain issues that today it feels a bit more like we are moving back to basics. Our members are managing their portfolios with a focus on practicing good business sense, so they are prepared for a range of outcomes.

Equipment Finance Advisor: A significant change to the report was the decline in the rankings for Trucks/Trailers – a major sector in the equipment finance industry. What are you hearing anecdotally from members about the trucks/trailers sector?

Lytle: During COVID, transportation was white hot. There were few new trucks available and used truck prices in particular were very strong. In many cases, trucks and trailers were selling for almost double their previous prices. I think as an industry we expected the values to decline, but the degree of the decline and how rapidly they have declined has been a bit surprising. But since the market has in some ways caught up, members are now seeing an influx of inventory both at auctions and in retail. People are disposing of trucks they acquired two or three years ago – as they are either coming off lease or they are flipping the equipment. With all of that inventory and not as much demand, obviously prices are falling, particularly for used equipment and we can really see how the values these types of equipment were getting a few years ago were inflated. I believe we're seeing a return to normal with maybe even a slight decrease in value because we had a "bubble” phenomenon.

I am hearing some questions about the future of the sector as well given the new emission standards coming and how that may affect valuations, and also how the emergence of electric vehicles will affect valuations in the market at large. We are having a lot of conversations about these issues. In fact, this morning we hosted a session at our Equipment Management Conference on trucks, tractors and trailers as it’s obviously a very hot topic for our members because as you mentioned, it is such a significant segment of the industry.

Equipment Finance Advsor: Is there anything else that is top of mind for members in terms of what is concerning them in the market?

Lytle: There is a lot of attention being given to what is happening in the regional banking sector and the impact this situation may have on the equipment finance industry. Obviously, the commercial real estate market and the leverage that some of these banks have taken on in the banking sector is top of mind, and many are wondering if there will be more consolidation among banks going forward. We have a very diverse membership encompassing independents, banks and captives, so we've seen the ebb and flow historically as banks shift their focus in and out of our segment. Independent finance companies can pick up business from banks provided they have the capital to do so. This is an example of how resilient our industry is, but the regional banking issues are certainly something people are keeping a close eye on. Banks also have a lot to work through including Basel III, provisions related to Dodd-Frank, section 1071 and more. And regulatory scrutiny certainly trumps the list of issues they are working through.

Equipment Finance Advisor: According to the report, the biggest threat to the secondary equipment market is a slowing economy. However, the January Monthly Leasing & Finance Index showed overall new business volume was up 6 percent year-over-year from new business volume in January 2023. Additionally, the Equipment Leasing & Finance Foundation’s Monthly Confidence Index (MCI-EFI) in February was 51.7, an increase from the January index of 48.6.  These reports seem to conflict in some ways with the concern for a slowing economy outlined in the report.

What are you hearing from members regarding concerns for a slowing economy and its potential impact on the industry in 2024?

Lytle: The industry is cyclical like the economy, with some sectors facing challenges, such as trucking, while others are thriving. But everyone is impacted by inflation and high interest rates. While we do not have prime economic conditions, we continue to forecast modest growth in equipment and software investment. If the Foundation’s economic outlook holds, we will see an uptick in investment activity in the second half of the year and equipment finance activity will increase as those investments happen.

I believe people are keeping an eye on what's going on in the broader banking sector as that tends to trickle down. Some members may find new opportunities in teh market, such as independents, because as I mentioned earlier, if they have capital to deploy, this may be a very good time for some of them.

Some members are also being more cautious because if there is regional bank consolidation or if we see more bank failures, they are asking themselves what it may mean for the broader economy and how these factors may impact our industry. But overall, as I mentioned earlier, cautious optimism is the name of the game.

Equipment Finance Advisor: How is ELFA collaborating with its members to maintain a consistent pulse on how the economy is impacting overall new business volume and perhaps as importantly, delinquency?

Lytle: Understanding how to support our members is a top priority of mine and for the entire association. Sharing business intelligence from our members through data and other tools such as the “What’s  Hot/What’s Not: Equipment Market Forecast 2024” report is very important.

Recently we have seen the MLFI showing that new business volume is up, and delinquencies are slowly increasing. This corresponds with what I heard at our Executive Roundtable last week, where more than 100 industry leaders gathered. There does not seem to be a great deal of concern about delinquencies increasing because they are in some ways returning to normal levels.

We are focused on providing opportunities for our members to learn, network and discuss the state of the industry. As I mentioned, we're currently hosting the Equipment Management Conference this week. We also have the National Funding Conference in April, the Credit and Collections Conference in June and many other events to engage our members. I am also personally engaging with our members on a daily basis, traveling to visit them and meeting them at conferences. We are focused on making sure we are providing business intelligence and opportunities to help members make sound business decisions.

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Michael Toglia
Equipment Finance Advisor
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