Despite a drop of 250 basis points in the interest rate over the last six months, the banking sector’s lending criteria for the financing of heavy and extra-heavy commercial vehicles remain severely stringent. With sales of new trucks down by over 50% from June 2008, FleetWatch asked Michael Kaiser, managing director, MAN financial Services, for his thoughts on the current crisis. 

According to Kaiser, the stricter lending criteria imposed by the banks has caused many operators to delay fleet upgrades. 

“This not only raises operating costs associated with maintaining ageing fleets over the medium term but the replacement cost of vehicles will also rise as input costs increase in the current economic environment,” he says. 

He adds that stricter lending criteria, requirements for larger deposits and on the operational side, increased fuel costs, have also caused a problem in terms of liquidity because they force operators into a situation of unnecessarily high outward cash flow, which could have a serious effect on the industry in the long term. 

Operators in the bulk handling sector, excluding coal transport, as well as owner-drivers, small and micro-operators have been hardest hit, especially those with nonsubstantial contracts, adds Kaiser. 

“The smaller fleet owners are being affected by the banks’ tendency to decline once-off loan transactions, preferring to rather grant finance to established clients. However, operators with supporting cash flows, as well as sound financial reporting will always be entertained by us when trying to access finance.” 

Despite the credit pinch and the slump in trading activity, there are reasons to be optimistic. “The current interest rate trend is positive with the market predicting a further 200 basis point reduction in rates during the remainder of the year. This will hopefully be the spark that ignites the industry upswing in the second half of 2009,” Kaiser says. 

And that the turnaround will come, he is positive. “MAN Financial Services is already seeing an approval rate of between 50 and 60% of all applications tabled. This is up from only 20% to 30% in January this year and can be considered a very acceptable level given the current economic climate. 

“A positive inflationary outlook also means we should see increases in the transport needs required to meet growing demand for consumer goods, as spending increases on the back of improving consumer sentiment. Increased business confidence will hopefully follow to further stimulate growth in the industry,” concludes Kaiser.