Equipment finance adopting auto industry insights

Auto industry practices are increasingly influencing equipment finance as more leaders cross over between the industries, where similar business models can enhance affordability and sales, while depreciation remains distinct. 

Incentives and certified pre-owned auto programs are two opportunities to enhance affordability and stimulate sales across the equipment finance sector, Jody Ray, vice president and relationship manager at BMO Bank North America, said during Equipment Finance News’ webinar “High-priced used equipment inventory: The no-man’s land of equipment finance” on Oct. 21. 

“In addition to the certified pre-owned and the incentives, there are some ideas like taking the manufacturer’s equipment warranty that was on it new, and being able to offer that at either a significantly discounted rate or include it as part of the certified pre-owned program, so that they’re getting a factory warranty,” he said. “Sometimes the certified pre-owned autos have a 36-month, 0% loan, but if you go to 72 months for that, then it’s 3.9%, so you can look at the various APRs for the term.” 

Watch the webinar here 

The commercial transportation equipment side already offers certified pre-owned vehicles, with certified pre-owned truck prices averaging $84,029, compared to average new truck prices of $113,326 and average used truck prices of $45,156 as of today, according to EFN’s Age-Based Pricing Insights. 

Depreciation differences 

While certain programs can cross over from auto to equipment sales and finance, other areas, such as equipment depreciation, depend on factors that do not follow auto patterns, John Gougeon, president and chief executive of UniFi Equipment Finance, said during the webinar. 

“It varies by asset type and economic useful life. Certainly, the location and usage of the equipment impact depreciation,” he said. “Using a forklift example, if it’s in a pickling facility, it’s going to depreciate at a much quicker rate than one used in a dry, temperature-controlled warehouse, and that depreciation impacts its re-marketability and its aftermarket value.” 

Since equipment depreciates based on use rather than time, they sees faster depreciation, Kevin Pate, director of fleet and heavy-duty equipment at Shoppa’s Material Handling, said during the webinar. 

“In the first couple of years, you’re looking at probably 25% off the top, and you could be looking at 10% to 12% annually,” he said. “Things start to stabilize around year five or six, and you start looking at nothing more than maybe a 5- to 7-point hit on that residual, so it’s very maintenance, hour and application specific.’ 

Check out our exclusive industry data here.