The Dig

Johnnie Martinez 12:58:29
Welcome to the dig where equipment finance news editors connect with industry leaders and dealers to discuss News Analysis, market trends, tips and more. I am Johnnie Martinez, second senior associate editor of Equipment Finance News, the one new source for both dealers and lenders. You John on today's episode of The Dig, I am joined by Kirk man of Mitsubishi, HC, capital America, and I'll let him introduce himself further.

Kirk Mann 12:59:05
Hey, Johnnie. Yeah, Kirk man, I am the executive vice president and general manager of the transportation vendor solutions business here at Mitsubishi, HC Capital America, been the been with the company little over eight years. We started out in 2017 or I started out in 2017 with Hitachi, capital America, and in April of 2023 we integrated with a group of Mitsubishi HC capital owned companies, and we became one as Mitsubishi HC capital America. And so we've got a couple of years under our belt on the integration, and have certainly, you know, developed additional capabilities, which has been fun, and hopefully we can talk about some of that today.

Johnnie Martinez 12:59:59
Looking forward to every conversation about everything you guys have been doing and about the state of the market, I think that's a great place to begin. From where you sit from the experience you've had. How are the current supply chain disruptions and economic uncertainties and everything else going on in the industry, impacting how the manufacturers are thinking about financing, and how you guys are thinking about on your end.

Kirk Mann 13:00:23
Yeah, you know, it's interesting, Johnnie, because when probably you think about 30 years ago. I hate to say it, but I was here, and you really saw a lot of OEM involvement in in financing, and it sort of dissipated a little bit over the years. And it's it's coming back, they are increasingly viewing financing as a strategic tool to navigate all these economic uncertainties and and and what started in 2020 with the supply chain disruptions, 37% of our respondents in a recent survey cited economic uncertainty as their top operational challenge, and 49% identified high equipment costs as a major modernization barrier. And so financing has become an essential part to help them maintain momentum in their modernization efforts, and, you know, without overextending capital.

Johnnie Martinez 13:01:39
Yeah, so that makes a ton of sense, and I'm glad you mentioned that survey, because one of the numbers that really jumped out to me was that 90% of the respondents were likely to use financing for new equipment. You know, what does that say about kind of where the customer is right now, where the need for financing is right now in the market, and really the priorities as a whole?

Kirk Mann 13:02:00
Yeah, you know, even against the backdrop of, you know, these somewhat uncertain times, people still need to replace, you know, equipment. And I was talking to a dealer a couple of weeks ago, and he was just telling me, Kirk, you know, these customers, you know, sometimes they feel like they can't buy equipment because of something going on in in the market or the economy. And the truth is, you know, back in September, customers were saying, well, we need to, we need to wait on the the the election. Let we're going to wait on the election and then, and then after the election, they were, well, we need to wait and see what happens with these tariffs. And the dealer in his counsel to the to his customers, really talks about something pretty practical, and that is, wait a minute, here's the value of you know, replacing your current equipment with new, more modern equipment. And if you need to. Replace the equipment now. You should replace it now. And he knows, you know that financing options are available to take some of the pain out of that, that transition, and so I mean, obviously maintaining competitiveness operationally through equipment. Investment is one of the things that our respondents were referring to, even amid some financial pressure, but financing becomes very important because it helps them preserve liquidity while still pursuing better equipment and the efficiency gains that come with it

Johnnie Martinez 13:03:57
got, you know, that makes sense, and it gets especially for you guys, that's an opportunity for you guys to get involved in the game as well when customers approach it that way. Yeah, all right. One of the thing I think it's very interesting to get into, especially in the the current market, right? You talked about how, you know who's playing in the financing game has shifted a little bit been keeps shifting, depending on where the market is, but for the customers, right? There's this ability to, you know, they may want to finance their equipment this way, they may want to prefer to finance their equipment this way. But then there's how it actually ends up, where it actually ends up. So why is that kind of dynamic there? You know, where is that the shift coming from? And how do you see that sort of ebbs and flow changing as people jump in and out of the market? You see the banks jump in and out, some other lenders jump in and out of the market.

Kirk Mann 13:04:49
Well, I think, I think the the key here really is around flexibility, and there's there's really for some customers in the market, and one of the things that the survey pointed out is that 76% of the respondents use bank loans, but 70% prefer more flexible financing, right So, and some of this probably stems from, you know, them doing business with familiar institutions. And Mitsubishi AC capital America has been around now, I think we rebranded about three and a half years ago, and so somewhat a newer organization, but certainly with a dynamic global presence behind us, and and and a lot of flexibility when it comes to how we how we treat the market. Yes, you're right. Banks do tend to come in and out, and that's not because the people at banks are bad people. It's because they have regulators really looking over their business very carefully, and when assets they have on the books are stressed, regulators are very quick to ask them to pare back their activity in that particular segment. Transportation, of course, is a very cyclical market, and so you know you you really ought to have in your basket of lenders, an independent lender that can maybe look at things a little differently and provide some flexibility there. You know, we can do a lot of incredible things, especially when it comes to financing newer technology equipment. You know, some of that technology comes with the truck, and then some of that technology is added to the truck. And so we have ways of financing all of those items that preserve cash flow for for the company. And you know, we we do our our best to meet all of the needs of our customers. But, you know, we're one lender. We have only so much bandwidth, and so we can't lend money to everyone. So we need banks, we need other lenders. But the best thing that people can do, I think, is really have a nice basket of lenders that you can go to and that you can go deep with. That's that's the most important thing, is getting really deep with your lenders and becoming great partners and understanding one another very well, so that when you need to make these investments in newer technology equipment. It's not a big surprise to anybody when

Johnnie Martinez 13:07:57
you're looking at it from that the perspective of a lender of some trying to finance that, right? You talked a bit about, you know, managing it in waves, almost, and getting to a different time. How do you really approach that from the financing perspective to kind. To get through all those challenges. That's a lot of different technology coming a lot of different things that they have to adjust and deal with as it all happens. And I guess the car free by kind of going away, it might help with that a little bit, but it's still something that's going to exist.

Kirk Mann 13:08:26
Yeah, yeah, no doubt. I mean, look, we as lenders, we have to put ourselves in the shoes of our customers regularly. We deal directly with dealers all across the country, but those dealers work with fleets to acquire equipment, and so as our customers are dealing with their customers, working with their customers, they're talking to us about those challenges. I mean, right now you've got, you know, high costs in general, and I'll talk to you about a couple of examples here later, but your costs are certainly higher. There are labor challenges and there's economic pressure. I mean, we've seen, especially in the over the road segment, spot rates have been way down. Freight is way down, and that has taken a very long and great toll on transportation companies around the country, 51% even, even against the backdrop of all of that, 51% of our respondents said that transportation is in the most need of modernization and financing a solution. Solutions have to address those, those items, fleet upgrades, automation, fuel efficiency, all of the other technologies and and they all require customized, sector specific solutions. So it's it's a and I'll give you an example of that. Ryan Pritchard is the CEO of a company called shade. And shade is a sustainability mobility mobility platform. And you know, he highlighted a really big challenge that transportation companies face, that transition to EV one of the things they're experiencing right now is very high insurance costs. And he noted recently in an article that California the Department of Insurance, had indicated that of the 249 surveyed commercial insurers that they had surveyed had developed, had not developed specific underwriting criteria for zero emission trucks. You know, the result has been very high insurance premiums, and so California is responding to this differential with support. And I'm not saying any of this to be critical of insurance companies. I'm only highlighting one of the brick walls that we run into with any technological development. Insurance companies and finance companies both have their challenges in determining risk from a number of different angles, especially with technologies that have no historical data from which we can develop appropriate solutions. But there may be easier ways for finance companies to address risk, and that requires really deep partnerships with commercial operators.

Johnnie Martinez 13:11:40
Gotcha. Well, with all that in mind, as we start to look ahead at the market, right, where do you see the biggest opportunities for innovation in equipment financing, especially as we have all these moving parts, all these shifts going on. Yeah, well, I

Kirk Mann 13:11:56
think, I think flexibility is, is number one. But what that means is, we, we have to be very adept at building out capabilities that that help people drive technological innovation into their business. You know, there's some examples. And in 1995 a mentor of mine came to know this 2000 I'm sorry, he came to me and he said, Kirk, I want you to figure out how we can do usage based billing, based on the mileage that a company does each month, so that at the time and today, that would require knowing where that truck was, where it went, and how many miles that was, and being able to audit the process. We could certainly check the physical truck if we wanted to, but that would have been near impossible at the time in 2000 there were three ways of managing that process. There were transponders that could be connected into a dashboard. System. There were cellular towers that we could leverage to understand where that truck was, and there were satellites so Qualcomm, you know, the big the big providers of telematics in the early days. But the problem was, as we evaluated the map of the United States, we could see that there were tons of black spaces in the geography of the United States. So there wasn't a transponder there, there weren't any cell towers there, and there were no satellites that we could count on to give us accurate readings. And we really needed all three in order to do that. Well, that was thinking pretty far ahead. That was 25 years ago. We just weren't quite to the place where we could do it. But a tool that we had been using, and that we've all been using for a very long time, is fair market value leases. Within the context of a fair market value lease, you're setting a residual at the end of that lease that is known to the finance company only, and it serves the purpose of lowering the monthly payments on that lease. But here's a key thing that the SMV lease does. If the operator knows how many miles they need on a truck annually, then we can target the remaining residual and the term based on those miles. And so effectively, within the context of an FMV lease, you are getting a usage based product for the company. And the biggest challenge with some of the newer technologies is that we have, I've said it before, no or very little historical evidence as to what that unit is going to be worth with all of that technology on it at the end of three, four or five years. But that's one way that we can address some of the squeeze that customers are feeling right now. The other thing that we can do to make it a little easier is bundle the financing for the equipment, plus the integration of that technology and any training that goes on within the context of that bundle financing offering, we have business businesses that provide subscription financing for some certain technologies, and we've negotiated with OEMs, vendors of those technologies to provide financing for their ultimate customer. And that's another way bundled financing. And then certainly we need to be very specific on our solutions by sector. So if it's transportation, if it's for hire, or if it's private, if it's local, if it's over the road, long distance, those are all things that we need to think about as we're developing and providing these, these opportunities. You know, construction totally different world. I mentioned that our usage based billing initiative in 2000 was centered around miles well on equipment, construction equipment, it's going to be more centered around hours on the engine. So, you know, there are ways of accomplishing this, but you know, it really requires for the customer to go deep with us and to help us understand their business in a way that enables our ability to design something that really works. And then finally, you know, I would say that finance companies need to be very good with digital platforms to make the financing process a little easier and certainly faster.

Johnnie Martinez 13:17:04
Gotcha. Well, just one quick thing, and we'll wrap up. But you know, lastly, how would you advise any dealers or OEMs who are trying to balance all these these issues we've talked about today, things like the rising costs, the outdated systems, the growth expectations and dealing with that all at once. What advice would you give?

Kirk Mann 13:17:24
Well, I think same advice I've been given for a long time, and that is to make sure that you have flexible financing partners who understand your business and go deep with them, and I've said that a few times during the course of this interview, and what I mean by that is really spending time with your lender, letting them ask you as many questions as they can possibly think of, and then providing answers that they didn't even have questions for so that they understand you and you understand them. And I think that's that's number one, partnering with flexible financers. And another one is offering customized financing solutions as a part of the sales process. So inside of that. Dealership with the F and I manager, or with a lender that is, you know, lending directly into a fleet environment. I think making sure that those financing solutions are a part of that equipment sales process, it helps, it helps to ease the customer's adoption, because they can afford it. And then third, I would say, invest in scalable, Integrated Technologies, you know, and developing partnerships with organizations that can provide that to you. Shade. I referenced shade earlier in this conversation. It's an example of a platform that has tied the entire supply chain together, and it provides visibility to that entire supply chain. It's different. In the over the road space, you buy a sleeper tractor, you've pretty much bought what you're buying in the medium duty space, you may need to up fit that truck with a body, and so it's going to go to an upfitter. You've got the chassis, the body, and then there are some other items that may come along with that box or body. And so it's really beneficial if the customer can have visibility to that entire supply chain. And then finally, I would say that, you know, sellers of equipment need to be sure that they are very good at educating their customers on the ROI of modernization and all the financing options that are available. So that means that people who are selling equipment need to also be going deep and make great partnerships with financing companies who have the ability to do it.

Johnnie Martinez 13:20:03
Don't, you know that all makes sense and great insight into sort of what people can be doing and really the state of the market and everything that's going on in the industry. And you know, thank you so much for for joining us today and for your insights.

Speaker 1 13:20:18
Glad to be here, Johnnie. Thank you very much. Have a great day. Thank you. You too.

Johnnie Martinez 13:20:30
Thank you for joining us for the dig where we aim to take the industry and you to better results. This podcast is a production of equipment finance news. Visit equipmentfinance news.com to learn more about our lender directory and about our annual event. Equipment finance Connect. Equipment finance Connect is where lenders and dealers come together to network and connect around financing opportunities. We hope you will join us for next month's episode of The Dig. You.

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