Major Force in the Marketplace
The Most Popular Way of Financing Equipment
Leasing is nowadays an established part of commercial life. The realization that wealth is created through the use of an asset rather than through the fact of its ownership has long been recognized. German company managers have an instinctive reverence for the principle of “mine and thine”, so it is hardly surprising that in the early 1960s they were somewhat sceptical about this newfangled alternative to the traditional forms of credit. Since then, however, leasing has become an investment instrument of unrivalled popularity, and today it accounts for just under half of all investments in equipment financed externally (i.e. not paid for out of equity capital, or out of return flows of capital from depreciation). Over the decades, leasing has become the number one alternative to the classical bank loan, and is now recognized as one of the key engines of innovation and economic growth in Germany.
Steady Long-Term Gains in the Marketplace
The macroeconomic importance of leasing is clearly indicated by the “leasing penetration rate” (i.e. the percentage of overall investments in plant and equipment in Germany that is accounted for by leasing). In the 1960s and early 1970s, leasing was still a barely used investment tool, but already by 1975 it accounted for 5.4 percent of investments in equipment, and by the mid-eighties for almost 15 percent. After a brief period of consolidation, leasing made further market-share gains in the 1990s, and the leasing penetration rate currently stands at 23.2.
Partner of SMEs
There is virtually no area of everyday economic life in which leasing does not play a significant role. Increasingly, it is being adopted by SMEs as their financing tool of choice. At present, the value of assets leased in Germany stands at well over 200 billion Euro. Around 85 percent of the 1.90 or so new leasing agreements signed each year are concluded with SMEs. Annual new-leasing-business volumes (in other words, the total cost of acquisition of the items the leasing sector leases to its customers in any given year) have increased steadily from the equivalent of 2.86 billion Euro in 1975 to the peak values of 54 billion Euro recorded for 2007 and 2008. There was a sharp drop in the value of new business acquired in 2009, when the worldwide financial crisis that erupted in the autumn of 2008 was still raging. Since then, however, the leasing market has been recovering steadily.
Plenty of Growth Potential Still to Be Tapped
If developments in the USA are anything to go by, there is still enormous potential for growth in the German market, where leasing came into its own as an investment instrument about a decade later than on the other side of the Atlantic. The share of the investment market accounted for by leasing in the US has for years remained untill 2005 at somewhere over 30 percent. Due to the financial crisis the penetration rate decrease to approx. 20 percent but it's raising again. The market penetration in Germany is about about 15.50 percent. Clearly, every incentive exists for leasing companies in Germany to go on improving their extremely attractive range of products, and in so doing to gain an even greater share of their chosen markets.