The Equipment Leasing and Finance Association's top 10 equipment acquisition trends for 2012 predicts growth in the $628 billion industry in the coming year, along with some uncertainty.
Every year, the association says, U.S. businesses, nonprofits, and government agencies spend in excess of $1.2 trillion on capital goods or fixed business investment, including software, and finance more than half of those assets. Consequently, these trends impact a significant portion of the U.S. economy.
ELFA President and CEO William G. Sutton says, "Equipment acquisition has played a critical role in driving the supply chains across all U.S. manufacturing and service sectors. We have distilled recent research data ... for the top 10 equipment acquisition trends for 2012."
The following is a list of those top trends:
New equipment acquisition will improve gradually, but steadily. The equipment finance industry is forecasting 9 percent growth in investment in equipment and software for 2012.
The aging of equipment and replacement needs will be the main drivers of new equipment acquisition, as businesses await stronger signs of economic improvement before expanding their equipment investment.
Uncertainty over proposed changes to lease accounting will have businesses playing a waiting game.The resolution of proposed changes to lease accounting standards by the Financial Accounting Standards Board and the International Accounting Standards Board later this year will have businesses waiting to find out how their balance sheets, earnings, and other financials will be affected. Meanwhile, industry advocacy will continue to mitigate the negative impacts of lease accounting changes on U.S. businesses and the economy. Through these changes, though, the primary reasons to lease equipment will remain intact, including maintaining cash flow, to preserving capital, to obtaining flexible financial solutions, to avoiding obsolescence.
Used equipment prices will rebound in many, but not all, market segments. The collateral value of many categories of equipment that bottomed out during the last few years will rebound in 2012. Car and truck values will be particularly strong, and construction equipment also will hold its value. Certain segments, such as corporate aircraft, will remain at relatively lower values.
Equipment finance companies will enhance customer relationship and support capabilities to build competitive advantages.End users of equipment will benefit greatly from the efforts of banks and captive and independent finance companies to grow. They'll be providing specialized areas of expertise and value-added customer services.
Credit availability will enable equipment acquisition for eligible businesses.Last year, credit approvals for the equipment finance industry remained above 75 percent. In 2012, businesses seeking financing for equipment acquisitions often will find credit approvals higher in the equipment finance industry than with bank loans.
Organizations seeking ways to cut costs and increase operational efficiencies will look to technology innovations.The flexibility, scalability, and relative costs associated with cloud computing and shared services will begin to compete with new IT equipment purchases for many businesses.
The continuation of a limited bonus depreciation will allow businesses to plan for equipment upgrades or expansions. That depreciation bonus will allow businesses to write off 50 percent of the cost on new equipment purchases in 2012.It remains to be seen whether the 100 percent bonus depreciation rate that expired at the end of 2011 will be restored.
Global financial pressures will continue to add uncertainty to U.S. investment in equipment.The fallout from the euro-zone crisis and other international financial instability will be a wild card in how much U.S. capital investment picks up this year.
Individual equipment markets will see steady growth slightly below 2011 rates. Investment in agriculture, computer and software, industrial, medical, and transportation equipment will be positive, but may not match 2011 growth rates. Construction equipment investment is likely to slow in the immediate near term but could be buoyed by the energy and housing sectors later in 2012.
ELFA is a trade association that represents companies in equipment finance sector, which includes financial services companies and manufacturers engaged in financing capital goods. The 550-plus members include independent and captive leasing and finance companies, banks, financial services corporations, broker/packagers and investment banks, as well as manufacturers and service providers.
For forecast data regarding equipment investment and capital spending in the U.S., see the Equipment Leasing & Finance Foundation's 2012 Equipment Leasing & Finance U.S. Economic Outlook Report at http://www.leasefoundation.org/IndRsrcs/EO/.
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