Written by Brian Holland, President and CFO of Fleet Advantage
As we enter a new era in equipment leasing where competition continues to increase, pricing is becoming more commoditized and leases look more like loans, there is a tremendous opportunity to break away from the competition with innovative solutions and value-added services.
Much of the growth in the leasing industry can be attributed to creative solutions and innovative product design, and while these factors have historically separated leasing from other sources of financing, the abundance of capital is threatening to drive those elements out of the marketplace and further compress margins. Thankfully, there are a number of strategies that lessors can employ to leverage their expertise, foster growth and enhance margins.
Use technology to create new markets
Throughout the leasing industry, a rapidly evolving technology landscape is accelerating change in the customer experience. From education to manufacturing to transportation, cutting-edge technologies are helping provide more customized solutions to clients—often revealing insights that allow us to formulate solutions previously unavailable. As specific solutions are developed and tested, new markets are discovered and new products launched.
Focus on the total cost of ownership
Emerging information technology is also creating fundamental changes by capturing real-time operating cost data that measure the Total Cost of Ownership, not merely the cost of financing. This data, when properly managed, can dictate when and how often a company should acquire and dispose of equipment to achieve the lowest possible cost.
Pending accounting changes will drive shorter lease terms
If the proposed lease-accounting rules ever get implemented, expect to see shorter lease terms as companies look to have less debt on their balance sheets. Lessors that are nimble and can design practical, creative solutions to capitalize on this trend will gain a competitive advantage.
Functional vs. economic obsolescence
All equipment has both a functional life and an economic life. Depending upon outside influences (government regulations, the economy, operating costs, etc.) and new features included in the equipment, these timeframes can change dramatically in a relatively short period of time. The decisive factors come down to cost and productivity. Increased productivity at lower cost is the key to competitive advantage.
Design new product solutions to match changing needs and usage patterns
Most businesses are dependent upon the economy. Many times clients do not know what the future holds and need to develop contingencies. When it comes to finance, structuring and creativity are not only essential to the close the deal but may be paramount a business’s survival. Industry insights that anticipate change, in-depth knowledge of the client’s needs and plans for future growth, and clear understanding of the risk of pitfalls that may be encountered are your best arsenal. Reviewing all the “if-then” scenarios is a necessity to designing customized solutions for win-win transactions.
Look for less crowded spaces where you can bring specific expertise
In our business, we specialize in Class 8 tractors and trailers for private corporate fleets, and use data analytics and asset-specific expertise to bring additional value to transactions. Rather than competing on price and rate, we focus instead on fuel economy, maintenance costs, driver retention, new technology, safety and reducing CO2 emissions. By adding multiple elements to the value proposition, we are able to create incremental value, which we divide equitably with our customers and enhance our overall margins. There are numerous opportunities for lessors to expand their offerings and capitalize on their own respective expertise.
Use data to help customers make better decisions
The very nature of our industry dictates that we capture enormous amounts of data, which can be useful in enhancing transactions and creating new opportunities. With the avalanche of “Big Data,” companies don’t need more information, they need the right information in the form of actionable intelligence that allows them to make better informed and timelier decisions. Developing experience in mining and maintaining data on essential metrics allows lessors to deepen relationships with customers and increase customer reliance.
In summary, be on top of your game. Look for innovative ways to add value to the transaction. Embrace risk. Welcome change.