The Australian Equipment Finance Market

Equipment Finance Statistical Profile

To provide an accurate profile of the equipment finance market, AELA now collects statistics directly from members. Data was initially collected on a quarterly basis from the September quarter 2009, and then monthly from July 2011. As not all members are participating in this survey, we have adjusted to provide an estimate for the total general equipment finance industry (ie, excluding fleet leasing companies). In some of the following tables and graphs we have also shown statistics for the fleet leasing industry, supplied by the Australian Fleet Lessors Association (AFLA). The major fleet lessors are all members of AFLA, but no adjustment has been made to reflect that not all fleet lessors are included in the AFLA statistics.

Accordingly we believe this statistical profile, whilst being somewhat conservative, provides a reliable overview of the financing of capital equipment in Australia.

Table 1: Equipment Finance
Industry Aggregates

For ‘general equipment finance’, new business volume in 2011 was $36.7 billion, and receivables at end December 2011 were $83.5 billion. For the fleet leasing industry, annual volume for 2011 was $4.6 billion, with receivables of $8.9 billion. Accordingly, in total the equipment finance industry in Australia in 2011had new business of $41.3 billion, and receivables of $92.4 billion. These aggregates are illustrated in the following graphs.

Volume 2011 - $41.3bn

Receivables end Dec 2011 - $92.4bn

Product Type
For new business in 2011, within the general equipment finance sector, leasing accounted for 20% of the total portfolio, and a little over a third a third of leasing is operating leases, with finance leases the remainder. Hire purchase was 28%, and chattel mortgage was 52%. These aggregates are illustrated in table 2 below, which also separately shows the general equipment finance business and the fleet leasing industry.

Table 2: Product Type
New Business Volumes 2011

Totals may not add due to rounding

Not surprisingly, leasing makes up 90% of the fleet leasing business; operating leases predominate, but the finance leasing component is boosted because of novated leases, some of which are operating leases but most are finance leases.
 
The trends in this broad mix are not only affected by economic conditions but also by Government policy, with the latter particularly evident in the last decade. The introduction of GST produced a significant shift away from finance leases and initially to hire purchase, as the transitional GST arrangements did not apply to hire purchase. This trend was followed by a move from hire purchase to chattel mortgage and leasing, caused by an inappropriate GST outcome in relation to hire purchase contracts entered into by cash basis taxpayers. Also, as from 1 January 2005, the Commissioner of Taxation’s revised effective life determinations for trucks and like assets translated into unrealistically high ‘safeharbour’ residual values in leases for these assets, resulting in a shift away from leasing to the provision of hire purchase and chattel mortgage products for these transactions.

As detailed in other sections, these tax issues are the subject of AELA’s ongoing consultations with Treasury and the Tax Office, and were raised in AELA’s submissions to the Board of Taxation GST Review and the Henry AFTS Review. AELA is very pleased to note that the GST anomaly in relation to hire purchase cash basis taxpayers will be rectified as from 1 July 2012, and we are hopeful of resolving unrealistic minimum residual values in leases with the Tax Commissioner. Besides GST and income tax, differences between the States in the scope and rate of stamp duty have caused distortions in the product mix. However, as also outlined in another section, all jurisdictions have now largely abolished these duties, and accordingly it is pleasing to report that stamp duty distortions will no longer exist in the equipment finance market.

New Business Volume 2011

General Equipment Finance ($36.7bn)

Total Equipment Finance ($41.3bn)

The graphs above for new business volume in 2011 illustrate the product breakdown within the equipment finance portfolio. With the inclusion of the fleet leasing industry, overall leasing increases from 20% to 27% of new business, hire purchase reduces slightly from 28% to 26%, and chattel mortgage declines from 52% to 46%. The impact of regulatory influences on the composition of equipment finance business has been quite dramatic. Since 2000 total lease business has declined from 60% to around 27%, hire purchase has declined from 40% to 26%, and from very little chattel mortgage business only five year ago it now makes up 46% of the total. These movements underline the significance of the recent changes to stamp duties and the prospective GST changes in removing distortions created by regulatory arrangements. The comparable receivables aggregates are shown in table 3.

Table 3: Product Type
Receivables - end December 2011 - $92.4Billion

Totals may not add due to rounding

Equipment Finance Asset Classes

The AELA statistics provide a break-down of the broad asset classes for the general equipment finance business (ie, excluding fleet leasing); within the total portfolio, cars and light commercials account for 39%; trucks and buses for 16%; mining, earthmoving and construction equipment for 13%; agricultural equipment for 6%: and both manufacturing  and EDP/office machines for 4%.  

General Equipment Finance
By Equipment Type
Receivables end Dec 2011 $83.5bn

State Dissection

The graph below shows the breakdown of general equipment finance by State. NSW/ACT account for 30%, Victoria/Tasmania for 25%, and Queensland for 23%, with the three eastern States together making up 78% of total business. WA accounts for 15%, and SA/NT for 7%.

General Equipment Finance
By State
Receivables end December 2011 $83.5bn

Recent Trends

The graph below shows the quarterly trend of new business volumes for general equipment finance for the period AELA has been collecting statistics from members. Although the Investment Allowance was phased out in December 2009, new business levels did not subsequently slump; volume in the June quarter 2010 was down only 5% on the December 2009 quarter.

Notably, new business volumes exhibited consistent improvement in 2011, with each quarter showing an increase on the corresponding period in 2010. The total equipment finance volume of $36.7 billion was a noteworthy increase on the $32.6 billion in 2010.

Quarterly New Business Volumes
General Equipment Finance
($36.7bn for 2011)