Cat Lift dealers ease the credit squeeze

Climbing the money tree

The ongoing economic crisis is making it difficult for companies to secure the necessary resources to invest in their businesses. How easy is it to gain financing through a dealer in today’s climate and are dealers offering any additional services to encourage customers to invest?

Ruari McCallion finds out what has been achieved.

When the phrase ‘sub-prime mortgage’ was first heard this side of the Atlantic, it attracted very little attention. When the whispers about banks losing trust in each others’ balance sheets and ability to pay first reached audible levels, many – if not most – thought that it was just something happening on the fringe of financial activity, maybe a bit of froth that had to be blown off the top of the banking beer before getting back to the normal merry-go-round. But when Lehman Brothers, a large American bank, was allowed to fail, it became clear that things were rather serious. From crazy lending through a credit crunch to a global banking system that teetered on the edge of collapse took very little time, and the world’s economies in a very short space of time went from perhaps over-exuberant activity to contraction unseen since the 1930s.

We are still living with the consequences now and are likely to continue to do so for the foreseeable future. Instead of significant growth, year after year, we have economies that are barely growing at all. In no small part, this is due to the availability of credit for business investment –or rather, the lack of it. The old saying that ‘money makes the world go round’ has rarely been proven to be more true. Businesses starved of financing cannot expand, take on more staff, boost stock or invest in more efficient materials handling systems.

“...the world’s economies in a very short space of time went from perhaps over-exuberant activity to contraction unseen since the 1930s.”

Problems with Imperfection

“Since 2008, finance houses have been looking for customers with perfect credit scores,” said Impact Handling, the Cat® lift trucks dealer in the UK. “They are charging the maximum amount of money for minimal risk. They are rejecting even potential risk.” It is a very trying situation but, luckily, Cat lift trucks dealers in some countries, at least, are able to help customers to find their way through the maze.

“Our industry in the UK is largely contract hire,” said Impact. “The majority of deals are funded through finance houses – usually industryspecific leasing companies.” So the majority of the deals are funded by the very people who are not lending. So far, so not so good. But there are so-called ‘captive’ finance companies around – tied to or owned by manufacturers or dealers, are there not?

“Our industry in the UK is largely contract hire - the majority of deals are funded through finance houses – usually industry-specific leasing companies.” Impact Handling

“Some companies may claim to have their own finance company but you will find, almost inevitably, that they are backed by a finance house,” Impact Handling explained. This means that financing decisions are ultimately out of the dealers’ hands – they are in the same situation as the overwhelming majority of others. Long standing and loyal customers are finding themselves refused the finance they need to expand, replace or even just rearrange and rejig their fleets.Impact is in a different position, however, and is willing and able to help.
“We wholly own our own equipment. The trucks we put out, we own,” said Impact. It is not beholden to any finance house or bank in supplying customers’ fleets. “We credit check our customers, of course, but we are able to be more understanding and to respond flexibly to changing needs and demands.” Impact Handling gave an example of how this works in practice.

“We wholly own our own equipment. The trucks we put out, we own.”

Impact Handling

Hitting a Moving Target

“The industry norm for contract hire fleet supply is five years. In days gone by, you would go to see the customer after four-and-a-half years and renew the fleet for the next period,” he explained. “Now, customers don’t know where they will be in five years.” Or even less. “It’s a moving target. The beauty of our contract, because we own our own trucks, is that we have the flexibility to change. We can adjust the makeup of a fleet mid-term. Operators who are financed by banks have to settle their existing arrangement and start a new one – and the problem, for the customers, is that they might not be able to get out and rearrange. ”The fact that Impact is able to offer such flexibility is an advantage.

Tighter Criteria

“We have been finding customers coming to us and this is very much part of our sale pitch,” Impact said. “We make a point of letting our customers know how we finance our contracts. It gives them flexibility that is not generally available.” Terms and conditions are a bit tighter, which is only sensible – hardly any business has managed to avoid finding itself landed with bad debts as customers have gone out of business. Impact, like any organisation, only wants to trade with companies that are credit worthy – and if they are, then it can deliver the flexibility and service commitment they need.

In The Netherlands, Crepa is in an advantageous position. “We are not experiencing any difficulties with sourcing finance at all,” said Tom Broeder, regional manager with Crepa BV. “We are part of a larger organisation and our mother company is wealthy and financially healthy. We generally do not need a bank for financing but, if we do, we are able to arrange deals under good conditions.”

Its fleet management is structured in a similar way to Impact’s – essentially, Crepa continues to own the trucks and rents them under contract to the operators. It undertakes credit checks of its customers, of course, and it can afford to be selective, as demand for good quality financing deals is pretty high.

“Our analysis of customers has probably got tighter in recent years but a lot of information is old. Figures in Dun & Bradstreet, for example, are for 2011,” said Broeder. “In the current situation, companies can get into trouble in just a few months, so conventional corporate intelligence resources are not up to the job.” So how does Crepa avoid being caught out?

“Crepa continues to own the trucks and rents them under contract to the operators. It undertakes credit checks of its customers, of course, and it can afford to be selective, as demand for good quality financing deals is pretty high.”

“You can never be 100 per cent certain,” he said, “but if you see that your customer is maybe a bit weak but is related to a larger company, then more security can be asked for. Or they can sign together, the larger organisation can act as a guarantor.” Crepa has made a habit of building up relationships with larger and well-established businesses, from Tata Steel through SABIC and KLM for example. As it is well-funded itself, of course it is approached by new prospective customers. In the current situation, Crepa can afford to be cautious.

Spreading Risk

“We have a healthy spread of exposure and we think before taking on new customers. We do not want to take on a lot of risk,” said Broeder. And while this might be an opportunity to expand its business and encourage customers to expand their fleets, that is an opportunity Crepa is happy to forego. “In fact, we encourage our customers to use as little as possible! It sounds odd but we try to keep the focus on process and ‘right-size’ the fleet to our customers’ needs. That is well received: they realise we are trying to save them money.” Fleet operators are facing challenging times. The best thing to do is to talk to Cat® materials handling dealers to find out how they can accommodate and meet their needs.