Commercial Vehicle Finance in Ireland

Truck Finance

When talking to road transport operators it is always interesting to note the wide variance in opinions about vehicle finance. Some believe to purchase outright is the only way, and they can afford to do this they will put down as large a deposit as possible to reduce the amount borrowed. Others will happily contract-rent tractor-units, though wouldn’t dream of doing the same with a trailer. Arguably, the less dedicated a piece of equipment is, the more interested an operator is in buying outright. For example, many operators are happy to buy a skeletal trailer outright. It is a good investment as it requires little running repairs, and if maintained it will last for many years, and can always be quickly turned into cash if the need arises. This is not the same for more dedicated equipment such as fridges, walking floor, ejector or tank trailers. Tipping trailers are another example as they are subject to the vagaries of the construction industry. Where one day they will command seriously inflated prices, another day they are being exported due to lack of demand.

Renault TruckHowever, times are changing and there is a trend towards contract rental. One factor highlighted by Sean Manscier of Renault Truck’s dealer Setanta Vehicle Sales is an operator’s need to be compliant with all road safety legislation. This compliance is more than covered with a repair and maintenance contract. Sean also points out that the contract can be extended to include tyres, meaning all the company needs to be concerned with is fuel and drivers. Renault Truck offers many interesting packages for operators which when fully analysed and compared are difficult to argue against. As vehicles become more complex and operator compliance becomes more stringent, having the main dealer cover all servicing and maintenance comes at a price but brings with it a sense of comfort that all eventualities are covered.

Volvo TruckA great deal, of course, depends on the work and what vehicle specification is needed. For larger businesses, contract rental is very attractive, especially where transport is not the main objective of the business and is simply an overhead to be accounted for when delivering products. Th e supermarket groups would be an example here. To have everything covered in one monthly amount makes it easy to account cost per item sold. Nevertheless, Conor Horan, Sales Director of Naas based Volvo Trucks dealer Irish Commercials, finds that contract rental is beginning to find favour with even smaller operators. Conor noted that “once an operator makes the move to contract hire they do not go back.” He feels that one key aspect of this is the freedom it brings to the operator as they do not have to spend hours reconciling invoices with vehicles and establishing what work was – or wasn’t done. It is easy to lose an afternoon sitting down with the local dealer and thrashing out what needs to be paid. Now they simply schedule an appointment for the regular check or service, bring the vehicle to the dealer – and that is it.

While not all banks and finance houses have an interest or understanding of the transport industry, there are companies out there that do understand the industry. More importantly, they understand the people who work in it. After 142 years in business, Close Brothers Commercial Finance (CBCF) is one lender that certainly knows its customers and understands the industries it lends to. It also understands the way operators work and is fully aware of the fluctuations of this business.

Iveco TruckAdrian Madden is Head of Sales at CBCF, and he feels this is one of Close Brothers unique selling points. His opinion is supported by the volume of repeat business from CBCF’s loyal customer base. The company prefers to assess any application on its own merits, and not on what targets CBCF must achieve. If an operator can present a reasonable proposal for finance then it is judged on those criteria, not on what the whole institution has or has not achieved for that month/quarter. Close Brothers’ flexible approach means it can easily work through the regular short lived economic cycles, preferring to view the longer term outcomes. Th is means CBCF can help customers through some difficult times and when both come out the far side, everyone benefits.

It remains the case that the majority of Irish transport operators are family run businesses, who at times feel they lack the ‘buying power’ of the larger entities. This in spite of the fact that most finance companies would say they service the small business sector very well. Capitalflow was established by Ronan Horgan, in April 2016 and claims to be Ireland’s fastest growing specialist business lender. The company recently announced a new €50 million fund in partnership with the Strategic Banking Corporation of Ireland (SBCI) aimed at Irish SMEs. Capitalflow says the fund will allow it to provide Irish SMEs with lowercost funding for new and used equipment, machinery and vehicles funded by Leasing or Hire Purchase products, and will help drive competition in the SME funding market.

Merc TruckFrom its offices in Dublin and Cork, Capitalflow aims to increase market share significantly over the next two years. It aims to achieve this by providing SMEs with immediate access to its new and existing products designed to meet the needs of Irish SMEs.

Many manufacturers are also banking institutions and will support sales of their products while making a profit on the finance. One such company is Scania, part of the Traton Group, which is the commercial vehicle division of Volkswagen AG – which happens to own a bank. So there is an interest in both Volkswagen companies to make a profit. All of which is a benefit to operators as it creates competition in the market which generally lowers rates. Equally an operator does not have to run with the manufacturer’s finance package and can offer the business to other financial bodies to see where the best deal is offered. When dealing with an in-house company such as Scania Finance for instance, the rates are highly competitive, and the people are well versed with the product, and deals can be highly flexible. This is important particularly for the small and medium enterprise segment where most Irish companies reside.

Speaking with Thomás Gannon of Scania Finance Ireland, he finds that currently it is a buyer’s market where obtaining finance is concerned, arguably due to more aggressive marketing by the mainstream banks. This point was also alluded to by Adrian Madden of CBCF. Nevertheless the particular brand Thomás is working with needs little help to sell new or used units, and the marque has always been helped by strong residual values.

However there is one issue concerning residual values that has yet to fully raise its head. The issue revolves around what might be a reasonably expected residual value for alternatively fuelled vehicles.

Scania TruckCurrently, most of the companies seriously interested in alternatively fuelled vehicles can fund the acquisitions internally. Nevertheless, as the expected move to alternative fuels widens, it will be interesting to see how the landscape develops for natural gas, if a network of CNG, LNG or Biogas filling points becomes readily available. However alternative fuels landscape develop over the next five years, AIB Finance and Leasing is in a position to support the necessary investment. Brendan Crowley is Head of Asset Finance (Area Dublin & Corporate Banking), and noted the Bank’s support of sustainable industry initiatives across many sectors as we move into the future with a changing economy.

Commenting on the economy Brendan is quite optimistic about the future, especially now that we have a somewhat clearer picture of what Brexit might look like. AIB Finance and Leasing provides a wide range of finance options for the industry including asset and working capital finance and despite industry concerns about Brexit, business has been positive. “We are here to support our customers,” he said. Brendan also believes that Irish business is very adaptable to the ups and down of the various business cycles. However, he notes the issue of rising insurance costs as being an ongoing concern.

Does he see any move towards contract hire? Brendan is of the opinion that there is some positive movement though the move is no different to other sectors where much is acquired on what he terms a “subscription model” where a company would pick and choose exactly what is of value to them and leave what is not.

Of course what is of value to one may have little or no value for another. First Citizen Finance is a company that believes the value in any asset is what their customers see value as. First Citizen Finance commenced trading in 2012 though this relatively new company brings with it a wealth of financial experience and First Citizen Finance already has a nationwide presence. Headed up by Chris Hanlon, First Citizen Finance views itself as a dedicated provider of finance to small and medium enterprises primarily in the motor, agri, equipment and commercial real estate sectors.

However the company is not restricted to these headings and can provide tailor-made solutions to a wide variety of businesses. For example an SME who wishes to expand from transport into warehousing can have a bespoke solution developed to cater for all facets of the expansion with the motor, equipment and CRE divisions of First Citizen Finance taking care of the goods vehicles, forklifts, and the premises respectively. All of which can be realised through a variety of financial products best chosen to suit the individual case.

“We are here to help you” is what First Citizen Finance commits to. Having a partner with whom you can expand or diversify from a regular goods or passenger transport company to include some added value services could be a quick and simple way for the SME to grow, which is very appealing.

Harking back to Thomás Gannon in Scania Finance he has a particular interest in the technology side of his industry. Thomás sees many changes coming over the next few years especially with the application of technology to the processing of documentation. He believes we could soon get to the stage where an operator would manage their finance application completely online. As an already established customer, an operator could simply upload the required paperwork through their portal and the application could be processed remotely. There are some interesting times ahead.