Plant & Equipment Finance Market Update
15 April 2013
Over the last few years there has been a significant change in the manufacturing industry as we have watched the rise of the Australian dollar against most major currencies. It has become an expensive task for businesses to compete against overseas labour and international manufacturing companies. Holden recently announced it would cut back 500 jobs in an effort to stay competitive in the market going forward, whilst iconic brands such as Darrell Lea and Rosella have faced administration & receivership respectively.
This begs the question about what is happening to the value of the plant & equipment within these affected industries. Furthermore, is there still growth in the lending area with the Australian dollar staying at peak highs against most major currencies, in particular the US dollar, British pound, Euro and the Japanese yen. It makes producing the materials more expensive, and puts pressure on Australian businesses to offset a reduction in competitiveness in global markets.
Finance for assets with a good secondary market for resale namely vehicles & certain machinery will be cheaper, more easily accessible & allow longer financial terms than where there is not an active market. However, the lack lustre performance of some industries is flowing through to the underlying assets utilised by these companies. For example, the mining sector where depressed valuations & commodity price reduction may lead to the exploration of alternative funding.
It is evident from the below chart summarising Australian Bureau of Statistics data that finance for plant & equipment is a large component of commercial finance. Overall, commercial & lease finance commitments are reported at $841.8 million down from peak levels in April 2012 of $1,921.8 million.
ABS, Lending Finance 5671.0 January 2013, http://www.abs.gov.au/
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