Effective leasing and hire purchase solutions for companies with SüdLeasing

Financial Knowledge

Effective solutions with SüdLeasing

Leasing and hire purchase give companies the leeway to make investments. Find out how from a case study involving a customer of SüdLeasing.

Stability, precision, safety – these are three of the most important factors when it comes to moving extremely heavy loads on a building site. Speed is often also required, e.g. when a busy highway or an important railway line needs to be closed so that a new bridge can be constructed. Or when a nearly 200-meter-high wind turbine needs to be installed before the next bad weather front arrives. This is precisely where the specialists from Wiesbauer GmbH & Co. KG come in: The crane and heavy haulage experts from Bietigheim-Bissingen, in Baden-Württemberg state, make sure that everything runs smoothly on the building site when the usual tools and methods are not enough. The SME supplies highly qualified employees and specialist machinery from high-profile manufacturers. For example, a nine-axle Liebherr LTM 1750 telescopic mobile crane – a true giant among mobile cranes with its 750-tonne maximum load capacity and a lifting height of up to 193 meters (see video below).

Effectively financing innovation through leasing and hire purchase

"To allow us to offer our customers effective and affordable solutions for even the trickiest of requirements, our vehicle fleet has to be extremely varied and always at the cutting edge in terms of technology," explains Thomas Wiesbauer, the third generation to run the family-owned company. So that it can meet these exacting standards at all times, the SME requires effective financing from expert partners on a regular basis. SüdLeasing is the perfect partner for Wiesbauer. With 400 employees and a new business volume of EUR 1.4bn in 2016, the wholly-owned subsidiary of Landesbank Baden-Württemberg (LBBW) is one of Germany's largest manufacturer-independent leasing companies.

Stability, precision and safety also play a vital role for Wiesbauer when it comes to financing its vehicle fleet. After all, individual investments in machinery with the caliber of the Liebherr LTM 1750 typically involve seven-digit amounts. Wiesbauer finances these investments solely using hire purchase, under which the total cost of the asset is covered by a monthly installment plan concluded with the leasing company. In the same way as for conventional leasing, this conserves the buyer's liquidity and credit facilities while allowing it to budget in the knowledge that the cost will be evenly spread. In the case of hire purchase, however, the leased asset is immediately capitalized by the buyer. When the final installment is paid, the buyer automatically becomes the owner of the asset and is entitled to sell it again, for example – often an attractive option considering the high value retention of cranes. Unlike leases, state subsidies may be included in hire-purchase financing under certain conditions.

Long-standing relationships

"We used to also lease our cranes," explains Wiesbauer. However, this often led to heated discussions when it came to residual value measurement. "After all, mobile cranes tend not to appear in the standard used vehicle price lists." This is why Wiesbauer now uses hire purchase for all major investments in movable assets.

Equipment financiers like SüdLeasing, which has been providing the construction and heavy haulage industry with tailored financing solutions for more than 30 years, can offer extremely tangible benefits for their customers. "For example, our experience of the industry has taught us that mobile cranes are more or less unrivaled in terms of value retention," says Gerd Weil, area manager at SüdLeasing's Stuttgart branch. As well as being an important aspect when it comes to collateral requirements, this naturally also has a positive effect on conditions for the customer. "The hire-purchase assets for Wiesbauer are special large-scale investments for which we arrange longer terms of between 12 and 72 months", Weil explains.

At the end of the term, there is always the option of extending the hire-purchase agreement or financing the final payment with a traditional bank loan – from the LBBW subsidiary BW-Bank, for example. This is one of the particular strengths of the close affiliation between the two companies.
At least once a year, the financing experts Weil and Frank Eisenbeis-Huber, Wiesbauer's customer account manager at BW-Bank, meet with company owner Thomas Wiesbauer for a detailed discussion. "In addition to traditional payment transactions, an area in which the LBBW subsidiary BW-Bank has been supporting Wiesbauer for over 20 years, the conversation usually also turns to the next crane to be financed," says Eisenbeis-Huber.

"Not many financial service providers can manage this kind of intensive, two-pronged approach to customer relationship management," Weil explains. And yet the benefits for the customer are considerable:

  • Only one credit check needs to be conducted.
  • Administrative expenses are reduced because only one reporting process is required.
  • SüdLeasing has direct access to BW-Bank's (financing) authorization (the actual process is conducted solely at BW-Bank).
  • The result: customer care and solutions from a single source.

This model has become so popular that around 80 percent of SüdLeasing's customers in Stuttgart and Baden-Württemberg are also BW-Bank- customers. "Of course, we want to keep increasing this figure and win over the rest of our customers," comments Gerd Weil.

Leasing and hire purchase growing in popularity even in low-interest phase

The crane and heavy haulage expert Wiesbauer is just one of a growing number of German companies across a wide range of industries that are using leasing or hire purchase to replace or supplement external financing. According to the Federal Association of German Leasing Companies (BDL), the volume of investments realized using leasing and hire purchase in Germany reached a new all-time high of EUR 64.2bn in 2016. At EUR 55.1bn, the majority of these investments related to movable assets. Leasing and hire purchase have consistently accounted for more than 50 percent of all externally financed investments in Germany for a number of years now (see charts below).

  • Investments in the leasing industry 2005-2016 in EUR bn

    Investments in the leasing industry in EUR bn

    New business increased to EUR 64.2bn in 2016 (+9%). Around 90 percent of leases are concluded by SMEs.

  • Proportion of externally financed investments attributable to leasing 1990-2016

    Ratio of externally financed investments to leasing

    Leasing is the primary form of externally financed investment. External financing describes any capital raised outside the company. This includes deposit and equity finance as well as debt finance (e.g. bank loans, loans, public funds) and leasing.

  • Breakdown of new movable asset leasing business in 2016 by asset type

    Breakdown of new movable asset leasing business by asset type

    At 71 percent in total, passenger cars and commercial vehicles accounted for the largest share of movable asset leasing business in 2016. Compared with 2015, these asset types saw revenue growth of 8% and 7% respectively.

Traditional leasing accounts for the majority of financing realized via leasing companies. This involves the leasing company purchasing an asset from the manufacturer and leasing it to the lessee at a reasonable cost.

The leasing triangle

  • The leasing triangle: The basic pattern of leasing business

    The basic pattern of leasing business

    In most cases, a lease is a triangular arrangement between the lessee (company), the lessor (leasing company) and the manufacturer of the leased product.

The key benefits of leasing at a glance

  • Leasing is balance sheet-neutral under certain circumstances and serves to improve a company's rating.
  • Leasing conserves credit facilities and improves liquidity.
  • Lessees can budget in the knowledge that the cost will be evenly spread.
  • Lessees can often finance leases directly using the income generated from the leased asset ("pay as you earn").
  • Lease installments can be adjusted to reflect seasonal fluctuations in income.
  • Lease installements are tax-deductible.

Leases can generally be broken down into two forms which mainly differ in terms of the right of termination and risk allocation between the parties.
Operating leases typically involve shorter terms and can be terminated at any time giving the agreed notice.
This means they typically do not include a fixed lease term. The leased asset is returned at the end of the lease, meaning the residual value risk remains with the leasing company.

By contrast, finance leases involve a fixed lease term during which the lease may not be terminated by either party. The fixed lease term is based on the useful operating life of the asset. It may be between 40 percent and 90 percent of the useful life depending on the leasing company and the conditions of the respective lease. Following the expiry of the fixed lease term, the lessee has three options depending on the conditions selected: returning the asset, purchasing the asset or extending the lease. Under a finance lease, the risks and rewards of ownership of the leased asset are transferred to the lessee.

You can find out more about leasing with LBBW here.

Over in Bietigheim-Bissingen, Wiesbauer intends to keep using hire-purchase agreements in future. "For us, the balance sheet neutrality of leasing is still outweighed by the residual value issue," explains Thomas Wiesbauer. After all, special challenges demand special solutions – for construction projects and financing alike.

Compact – The key facts about Wiesbauer

Wiesbauer GmbH & Co. KG is one of Germany's leading full-service providers for heavy-duty logistics. The company's main business area of crane services is supplemented by heavy haulage and industrial installation. Founded in 1958, the family-owned company provides equipment and the corresponding expertise for end-to-end project planning and realization at five locations. You can watch a video of Wiesbauer GmbH's services here.

The service range of Wiesbauer's specialists

  • Crane services: Wiesbauer GmbH has the right crane technology.

    Crane services

    Continuous investment in innovative crane systems means Wiesbauer is always able to offer the right crane technology for every task.

  • Heavy haulage: Wiesbauer's heavy goods vehicles transport loads of up to 100 tonnes in weight and 35 meters in length

    Heavy haulage

    Wiesbauer's heavy goods vehicles securely transport loads of up to 100 tonnes in weight and 35 meters in length throughout Germany and neighboring countries.

  • Installation: Wiesbauer GmbH is a full-service provider for the dismantling, packaging and professional reassembly

    Installation

    Wiesbauer's service range also includes the full dismantling, packaging and professional reassembly of machinery.

  • Wiesbauer GmbH is a specialist for the transportation of wind turbines and components.

    Special vehicles

    The transportation of wind turbines and components is one of the most challenging tasks in the heavy haulage industry. Wiesbauer specializes in precisely these tasks.