New Zealand was built by spirited entrepreneurs and innovators, whose enterprise, graft and vision would never have been realised without business finance to fund buying the tools that built the infrastructure to develop the country.
The tools have changed and today’s finance markets are interconnected, but finance – and in particular asset finance plays a major role in equipping business with the vehicles, plant and machinery to grow their business.
Whether it’s a fleet of trucks for a haulage operator, a metropolitan delivery van, a bobcat for a landscaper or a tower crane used on a major construction, New Zealand’s finance companies have themselves been shaped and formed by the early pioneering days.
These experiences serve to provide businesses of all sizes with comprehensive funding solutions to acquire the capital assets which will enable them to increase output and maximise commercial opportunities.
The three core categories for asset finance companies today are: property, commercial asset purchases (including vehicles) and private vehicles. Some companies prefer one category over another, with one perhaps happy to finance a truck but not a digger and vice versa.
Assessing the size of the asset finance industry is not easy, major players tend to be banks or bank-owned with their numbers subsumed into the corporate whole. However, asset finance is a profitable sector, undertaken by specialists with deep understanding of the industry categories they serve.
Across New Zealand’s transport and equipment industry, the economy is looking up – the Christchurch rebuild and a heavy transport fleet in some need of refreshment, if not replacement, after the austere years brought about by the global financial crisis (GFC).
‘Grumpy growth’ was the term Bill English coined last year, driven partly by the Christchurch rebuild but more recently, an reawakening of Auckland’s sluggish economy, seen as vital in sustaining long-term recovery.
Regardless of growth being grumpy or just tardy, it’s welcomed by the transport and equipment industry. Mark Keatley of TransDiesel, a Christchurch-based heavy equipment supplier, reports “strong business upturn” – while noting that “35% of all construction equipment now coming into New Zealand is Christchurch-bound”.
The demolition phase is slowly becoming a full rebuild, spurring demand for ever bigger, more specialised construction and equipment.
TransDiesel has seen solid growth across small compact machinery and latterly heavier equipment. South island quarries are increasing output to meet rebuild needs, creating demand for transport and equipment.
This is the start of a growth curve and that makes now a good time to review New Zealand’s asset finance sector – so vital to the transport and equipment industry for providing the capital solutions needed to realise the architects’ blueprints, the entrepreneurs’ plans and to regenerate tired and over-used assets.
John Kensington is audit partner at KPMG, and says that after the GFC, equipment owners and fleet operators have tended to focus on maintaining existing assets.
“At present with the Christchurch rebuild sparking economic activity, operators have generally been running older fleets, a consequence of holding on to them post GFC, and maintaining them rather than replacing them,” he observes.
“Now, with an abundance of funding available to be lent, and good understanding of the potential cash flows a piece of machinery can generate when utilised in the rebuild, or as a replacement of ageing fleet assets, banks view the capital asset finance sector with increasing interest.”
Aside from an additional and alternative revenue stream, what else is driving banks to look at asset-based finance?
Kensington says that while certain sectors of industry are experiencing green shoots of recovery, banking and finance may still be suffering a post-GFC hangover: “People are reluctant to borrow or commence projects without certainty, and despite the rebuild there is still uncertainty around the economy’s direction.
“Banks and lenders are finding growth from their traditional markets difficult in the current business environment – they’re increasingly looking to other sectors for business growth, which are not necessarily their first choice, or default sector.”
Competition between traditional banks and asset finance companies is keenly contested, and might politely be described as ‘robust’. There have been reports of bank sales reps calling customers, when they see regular asset payments going out. This sits uncomfortably with finance companies that hold that business currently.
Some banks have occupied a footprint across asset finance for years, but more recent entrants, such as ASB and Kiwibank point out that they are filling a vacuum created by the almost-extinction event that took out so many finance companies from 2006 on. Many of those finance companies – now in receivership or worse – were heavily exposed to real estate, but some operated in heavy assets.
While finance companies clearly enjoy the flexibility of not being a bank, it’s equally true that some enjoy being a part of a bank – that has the double benefit of providing much needed certainty for customers, who after GFC, are looking for financially strong and prudent asset partners to help them fund and manage growth, on a long-term basis.
It is a complimentary and symbiotic relationship that works well and provides crossover opportunities into other financial products such as business banking. Examples of this include ANZ- owned UDC, Heartland-owned Marac and Kiwibank’s Kiwi Asset Finance.
Buying new vehicles, transport, equipment, construction and agri-equipment is cash intensive and in some sectors new equipment can even exceed annual turnover. Equipment finance is, and will be vital for businesses to manage their asset purchases and focus on the business.
