Transcript Canada - Canadian Finance & Leasing Association

The Canadian Marketplace
Joseph R. LaLeggia
Immediate Past Chair, Canadian Finance & Leasing Association
President, IRWIN COMMERCIAL FINANCE
Canadian Finance & Leasing Association ~ Association canadienne de financement et de location
2007 ELFA Annual Convention Panel on International Markets
October 28, 2007
1
The Canadian Finance & Leasing
Association
• Equivalent to ELFA in the U.S.
• The association represents both equipment and
vehicle leasing (fleet + consumer) industry in
Canada
• 250+ members
• Many members are Canadian affiliates of
American parents
• Industry dominated by top 20 companies which
own or manage 95% of total assets
Canadian Finance & Leasing Association ~ Association canadienne de financement et de location
2007 ELFA Annual Convention Panel on International Markets
October 28, 2007
2
Key Funding Partner for Canadian
Business
• After the traditional
lenders (banks and credit
unions), CFLA members
are the largest provider of
debt financing
• About 60% of the
industry’s customers are
small and medium-sized
businesses
• 10 to 1 rule to the U.S.
www.canadianleasing.ca
Canadian Finance & Leasing Association ~ Association canadienne de financement et de location
2007 ELFA Annual Convention Panel on International Markets
October 28, 2007
3
Assets Owned & Managed in Canada
•
Owned & managed
assets grew 11% in 2006
to C$106.6 billion
• Equipment and
commercial vehicles
accounted for 46% of the
total
CFLA Member Company Assets
Owned & Managed in 2006: C$106.6 billion
Commercial
Equipment
40%
Retail Vehicles
54%
Commercial
Vehicles
6%
Source: 2007 CFLA Survey of Industry Activity
Canadian Finance & Leasing Association ~ Association canadienne de financement et de location
2007 ELFA Annual Convention Panel on International Markets
October 28, 2007
4
New Business Volumes
New Business Volumes
22%
100
20%
95
18%
90
16%
85
14%
80
12%
75
2002
2003
2004
2005
Investment (C$ billions)
Penetration Rate (%)
• Business spending on
machinery and
equipment was C$93.8
billion in 2006
• Market penetration:
between 21%-23% of
this spending is financed
by CFLA members
2006
Leasing Market Penetration Rate (left)
Business Spending on Machinery & Equipment (right)
Source: 2007 CFLA Survey of Industry Activity; Statistics Canada
Canadian Finance & Leasing Association ~ Association canadienne de financement et de location
2007 ELFA Annual Convention Panel on International Markets
October 28, 2007
5
Market Drivers
•
•
•
•
•
Economic Growth
Interest Rates
Capital Costs & Availability
Demand for Equipment and Capital
Health of the Industry and Competitive
Pressures
Canadian Finance & Leasing Association ~ Association canadienne de financement et de location
2007 ELFA Annual Convention Panel on International Markets
October 28, 2007
6
Canada: An Economic Success
Story
• Canada is experiencing its second longest
period of economic expansion in history
• Business investment is expanding for a fifth
consecutive year
• Canada is on the strongest fiscal footing of any
G7 nation with federal and provincial
government budget surpluses and a falling debt
burden
• Core inflation remains within a set range of 1%
to 3%
Canadian Finance & Leasing Association ~ Association canadienne de financement et de location
2007 ELFA Annual Convention Panel on International Markets
October 28, 2007
7
Leasing Market Trends
• Fourth year of rising new
business leasing
volumes
25%
22
20%
20
15%
18
10%
16
5%
14
0%
12
-5%
10
2002
2003
% Change (left)
2004
2005
2006
New Business Volume (right)
Source: 2007 CFLA Survey of Industry Activity
Canadian Finance & Leasing Association ~ Association canadienne de financement et de location
2007 ELFA Annual Convention Panel on International Markets
October 28, 2007
8
Annual Volume (C$ billions)
• Intensely competitive
business environment
with too much money
chasing too few deals
Annual % Change
– 16% growth in 2006
– 16% average annual
compound growth since
2002
New Business Volumes
Positive Economic Outlook
8%
-2%
6%
-4%
4%
-6%
2%
2007:1
0%
2005:1
10%
2003:1
2%
2001:1
12%
1999:1
4%
1997:1
14%
1995:1
6%
1993:1
16%
1991:1
8%
Real GDP Growth (left)
Before Tax Corporate Profit Share of GDP (right)
Source: Statistics Canada
Canadian Finance & Leasing Association ~ Association canadienne de financement et de location
2007 ELFA Annual Convention Panel on International Markets
October 28, 2007
9
Profit Share of GDP (%)
GDP Growth & Profits Both Strong
% Change at Annual
Rates
• Real GDP is expected to
grow 2.7% this year and
2.3% next year
• Corporate profits are at
record levels
Cost of Funds Will Rise – But Not by
Much
Treasury Bill Rates
6
5
4
3
2
1
Canada, 3 month yields
2007:1
2006:1
2005:1
2004:1
2003:1
2002:1
0
2001:1
• Interest rates in Canada
are expected to rise
again soon – but not by
much
• While yields on
government securities
have not moved much,
the subprime crisis
continues to restrict
liquidity in the market for
asset-backed
commercial paper
US, 90 day yields
Source: Bank of Canada; Macroeconomic Advisers, LLC
Canadian Finance & Leasing Association ~ Association canadienne de financement et de location
2007 ELFA Annual Convention Panel on International Markets
October 28, 2007
10
Business Machinery & Equipment
Spending & Capital Costs
-5%
-10%
-10%
2007:1
-5%
2006:1
0%
2005:1
0%
2004:1
5%
2003:1
5%
2002:1
10%
2001:1
10%
2000:1
• Despite solid economic
growth, strong profits
and falling capital costs,
growth in business
spending on machinery
& equipment has been
tepid
• It is expected to rise just
1.2% this year and 4.3%
next year
% Change from Previous Year
…But Business Spending on Machinery
and Equipment has Disappointed
Business Spending on Machinery & Equipment
After Tax Cost of a Unit of Machinery
Source: Statistics Canada; The Centre for Spatial Economics
Canadian Finance & Leasing Association ~ Association canadienne de financement et de location
2007 ELFA Annual Convention Panel on International Markets
October 28, 2007
11
The CAD’s Rise is Reducing Canada’s
International Competitiveness
Canada-US Exchange Rate
(US cents per Canadian dollar)
100
90
80
70
2006:1
2004:1
2002:1
2000:1
1998:1
1996:1
1994:1
1992:1
60
1990:1
• In January 2002, the
CAD was worth 62.5 US
cents; today it is worth
over $1 US
• This rise has reduced
our international
competitiveness, but too
little new business
investment is taking
place to improve our
productivity
Source: Bank of Canada
Canadian Finance & Leasing Association ~ Association canadienne de financement et de location
2007 ELFA Annual Convention Panel on International Markets
October 28, 2007
12
Competitive Pressures Mounting
22%
100
20%
95
18%
90
16%
85
14%
80
12%
75
2002
2003
2004
2005
2006
Leasing Market Penetration Rate (left)
Business Spending on Machinery & Equipment (right)
Source: 2007 CFLA Survey of Industry Activity; Statistics Canada
Canadian Finance & Leasing Association ~ Association canadienne de financement et de location
2007 ELFA Annual Convention Panel on International Markets
October 28, 2007
13
Investment (C$ billions)
New Business Volumes
Penetration Rate (%)
• In a buyer’s market, has
pricing been rational?
• Reduced liquidity could
spur a new round of
mergers and
acquisitions
Impact of Globalization in Canada
• Globalization has many dimensions
Business Growth – Canada welcomes
investment by leading foreign firms but
produces few of its own global leaders
Business Standards – Canada “follows the
leader”
• Canada tends to be “one of the arms of
globalization. It’s rarely the body”
Canadian Finance & Leasing Association ~ Association canadienne de financement et de location
2007 ELFA Annual Convention Panel on International Markets
October 28, 2007
14
The Future of Leasing and Finance
• The future of leasing & finance is linked to
the economy
– Canadian economic fundamentals are
basically positive
• The health of the US economy is a major
driver of the Canadian economy
– Risks to the US economy frequently become
risks to the Canadian economy as well
Canadian Finance & Leasing Association ~ Association canadienne de financement et de location
2007 ELFA Annual Convention Panel on International Markets
October 28, 2007
15
Canada: The Reader’s Digest
Version
• Canada-US trade partnership
– Each others #1 customer
– US$2 billion of goods cross the border each day
• Innovative technology & manufacturing
– Automotive & aerospace production
– Blackberry
• Canada: Natural Resources Superpower
–
–
–
–
–
–
2nd largest proven oil reserves
3rd in natural gas production
1st in hydro electric power generation
3rd largest producer of aluminum & diamonds
1st largest exporter of forest products
3rd largest supply of renewable fresh water
Canadian Finance & Leasing Association ~ Association canadienne de financement et de location
2007 ELFA Annual Convention Panel on International Markets
October 28, 2007
16
Current Issues
•
•
•
•
•
•
Vicarious Liability
Tax depreciation for M&E
Accounting Standards (Harmonize & small bus.)
Sales tax – new reporting
Electronic waste disposal taxes – who collects
Credit/liquidity crunch
Canadian Finance & Leasing Association ~ Association canadienne de financement et de location
2007 ELFA Annual Convention Panel on International Markets
October 28, 2007
17
Thank you
Questions?
For more information:
Canadian Finance &
Leasing Association
www.canadianleasing.ca
Canadian Finance & Leasing Association ~ Association canadienne de financement et de location
2007 ELFA Annual Convention Panel on International Markets
October 28, 2007
18