Financing – much more than a pricing decision

Choosing the optimal bakkie, van, truck, bus, or coach is an important decision. However, choosing the correct financing option is equally imperative, as PATRIK GLAS CROMMERT points out.

We are now well on our way to bidding farewell to the second year of the pandemic. The “new normal” has settled in and most operators have been able to adjust their operations to a more unpredictable reality. Mileages – in the trucking industry at least – have basically recovered to pre-Covid levels and business confidence seems to be recovering.

However, as I write this article, there are still concerns about a potential fourth wave of virus infections hitting this part of the world with the festive season just around the corner. It is unlikely that we are out of the woods yet and consequently we cannot fully rule out experiencing further disturbances in transport load volumes and revenue streams. In other words, operational cost control will still be high on the industry’s agenda. With increasing global inflation pressure, meanwhile, it is not unreasonable to think that interest rates will remain a challenge going forward – especially considering that financing is such a big piece of the cost pie for any operator in southern Africa.

This reasoning is all sound and logical, but is selecting a finance solution mainly a supplier evaluation process, with pricing as the deciding factor? In my opinion, it is a much more complex decision than simply comparing price tags. Don’t get me wrong, pricing is obviously an important parameter, but there are many considerations to take into account before choosing your finance partner.

Having said that, though, I would still lean towards recommending original equipment manufacturer (OEM)/captive financing, although in certain cases you may be able to get slightly better pricing through one of the larger banks. While I may have a vested interest in this subject, I will explain by further unpacking my thoughts on this particular matter.

Customer solution

A well-positioned and integrated OEM finance house should in most cases be able to offer the most competitive package for its customer base. Access to pricing for vehicles, parts, and labour – along with an updated repair and maintenance history and coupled with used vehicle expertise – gives the OEM invaluable internal sources of information and capabilities to put the most appropriate offer on the table for its customers, without losing control of the potential downside risk. A captive finance organisation is therefore more likely to be able to offer a wider range of products and bundled solutions with better and more flexible deal structures, including higher residual values and/or balloon payments, to the benefit of its clients.

Industry knowledge

It probably goes without saying, but after decades in the transport industry a captive finance organisation will have gathered more than enough experience and know-how to help operators through both good and bad times. Finance representatives will possess a solid understanding of what does or doesn’t make a transporter’s business model work from the perspective of operating costs and cashflow. This, together with an in-depth knowledge about business cycles and other market and industry specifics, gives these representatives a strong competence base. From here, they can play a crucial role for operators, grabbing growth opportunities or guiding them through tough financial periods, possibly including advice on fleet downsizing or debt restructuring.

Long-term relationships

Forming a relationship and applying a long-term perspective are key, in my opinion, and even more valid considerations in these turbulent times. There are far more incentives for an OEM finance house, when compared to a bank, to do its utmost to keep the relationship going even when continued support may not seem financially viable. For the OEM, there is so much more at stake than only losing interest income. Repossessing an asset is hence the absolutely final last resort when all other alternatives have been exhausted. OEMs and their finance houses are simply too invested in the relationship to just turn off the taps when your luck in business turns sour.

Faster lead times

Generally speaking, a captive finance house should have faster turnaround times than conventional banks or other lending institutes; they are often more accessible, while their loan and decision processes are in most cases (comparatively at least) slightly simpler. Another contributing factor is the internal pressure within the OEM itself. Any OEM is always keen to improve its market share, reduce potentially oversized and overage stock, and build the rolling fleet, thereby unlocking more revenue streams as quickly as possible. While this is the name of the game for an OEM, these considerations may not be as high up on the agenda for a traditional lender – at least not in the same way.

So, if you are in the market to purchase a truck and are currently evaluating financing options, then I would certainly recommend considering the OEM/captive financing alternative. It may not always come with the lowest price tag but if you are looking for fast turnaround times and tailor-made, flexible solutions for your business – supported by industry specialists who are in the game with a long-term approach aiming to stick with you in the good and the bad times – then captive financing is probably what you are looking for.