The Dig

Johnnie Martinez   0:06
 All right. On today's episode of the Dig, I am joined by Ivan Franklin of Mitsubishi HC Capital America and I will let him introduce himself further.

 Ivan Franklin   0:15
 Yeah. So obviously, I'm, I'm Ivan Franklin.
 As Johnny just mentioned, I'm the the VP of Business Development focusing on new OEM finance partnerships for Mitsubishi HC Capital America.
 I've been with the company now and it's kind of crazy to think, but it'll be 12 years coming up in September. That's been through a couple different iterations.
 We work Creek grids and we're about by Hitachi.
 Got you.
 Then we're about by Mitsubishi, so there's been changes too, but I've been. I've been here for all of those.
 So it's been a great experience know I currently report to our Itasca IL Office, but I I work out of my home here in Stillwater, MN.
 So you got me on a good day because the sun's been shining the last couple days, which we haven't seen in about 3.
 So energy levels are high, but yeah, that's that's my my, my background for my, for myself, I've probably been in.
 Construction financing now for seven to eight years.
 I didn't start there in equipment finance, but that's where I've been. And you know, I've learned a lot.
 I think it's a great industry and I'm excited to continue my career and and growth within this industry as well.

Johnnie Martinez   1:16
 OK.

Ivan Franklin   1:21
 And you know, no. Go ahead, Johnny. Sorry.

Johnnie Martinez   1:27
 You rob the construction industry specifically and that's kind of going to be our focus here today. And you know one of the reports that the Mitsubishi HC Capital America put out.

Ivan Franklin   1:33
 Yeah.

Johnnie Martinez   1:38
 Back in January was some of the trends to identify, but I wanted to get your take on it. As someone who's a lot more in in the trenches, in terms of what the?
 You know, construction industry should be expecting for the rest of this year and sort of what are those key trends to to watch.

Ivan Franklin   1:58
 Yeah. You know, there's a a handful of trends that that we're kind of seeing out there.
 I think the first one we saw on the latter part of 2024 and it's going to, I think continue to creep into 2025 and that's just a little, you know, economic uncertainty and some slowness in the market. You know inflation still here I think.
 From an anecdotal standpoint, we're still seeing some equipment purchases drag on or some finance quotas that out there longer than normal, right?
 So I'm hoping that's not going to be the case.
 25 But that's kind of what we've seen.
 And my next point.
 I'm proud of myself.
 It took me all but a minute and a half to shamelessly plug some financing, but I think there's going to be a continued shift towards flexible finance offerings.
 We're already seeing it now and I think we'll continue to see it, but an increase in in appetite for FMB leases and operating leases since they provide the most flexibility and typically have the, the lowest monthly payment and then maybe some structured finance.
 Solutions and when I say that I mean things with skipped payments or seasonal payment streams on on loans and leases, things that match the cash flow cycle of businesses, we'll see too.
 Other things are growth in the rental industry.
 I think we probably say that year after year, but it's going to be the the case this year as well.
 It's a continually growing market and again for some of the same reasons, right.
 I think it's more flexible for customers and also can be cost effective since you're paying for the use of the equipment.
 Ment electrification is going to be a big one. You know all the OEMs out there have some form of electric piece of equipment that there's, you know, big marketing push behind. And then lastly just increased adoption of technology.
 So things like AI telematics and automation.

Johnnie Martinez   3:49
 That that makes a ton of sense.
 And yeah, it's a lot of the the same themes behind all the the trends, right.
 It's about meeting these these user needs these customer demands and getting exactly what they kind of need depending on where their business is going.
 All right.

Ivan Franklin   4:05
 Exactly.

Johnnie Martinez   4:07
 And I kind of want to work back to front there.
 You know you left off on the the digital transformation side of things. The technology side of things, right?
 How is the digital transformation going to start impacting the construction industry and then we can get into some of the other particulars about AI and BioMed, things like that.

Ivan Franklin   4:24
 Yeah. From my perspective, it's reshaping the construction industry by improving things like efficiency, reducing cost and enhancing project management.
 I think overall everything is becoming more efficient.
 This is being done through various tools like BIM, AI and Automation, and an increase in you know IoT and telematics. Like I mentioned before.

Johnnie Martinez   4:50
 Gotcha. OK. And you know as those will start to to come out and become more of that is it any particular segments gonna stand out and is it gonna be you know a lot of use in non residential or is it across the board and kind of trans?
 Into the non residential market really as you start looking into next year.

Ivan Franklin   5:07
 Yeah, I I mean, I think it's.
 I think it's going to be across the board.
 On the tech stuff, right?
 And you know, this is something that I'll mention. I know enough to be dangerous about on the tech side, but these are obviously tools being used to make business more efficient and help make smarter decisions in real time.
 So I think it can be kind of, you know, spread across the across the spectrum.

Johnnie Martinez   5:30
 Dad and I guess it's sort of sort of with that, right?
 Is there's an increase of use of technology we're gonna deal with the increased use in in data which goes into one of the big trends I know from from the last year and from what I've gathered going into this year as well as the adoption of of data.
 Centres the growth of that, the construction of that sector specifically is one that has been, you know, talked about a ton.
 You know, I I guess beyond sort of the the tech adoption, right?
 What is sort of going into that?
 What are you seeing in terms of driving?
 Especially the data center construction.

Ivan Franklin   6:00
 Yeah, you see that in the news every day, right?
 And you know, I think it's a, it's a couple different things.
 One, primarily the growth of AI and cloud services, is requiring more data centers to be built.
 Edge Computing is another one which is driving construction of localized data centers in various regions.
 And then I think the big one is just the corporate expansion.
 So you know those companies that we hear about every day, right?
 Like Amazon, Google, Microsoft, they're all continuously expanding data center capacity and have to build out data centers.
 So I I think those are some of the factors in really driving all those increases.

Johnnie Martinez   6:36
 That's no that that makes sense.
 And I I guess somewhat building on that sort of transitioning as well, looking at the the financial landscape as we're kind of going into this year, right, there's this continued phasing out of bonus depreciation.

Ivan Franklin   6:43
 Thank you.

Johnnie Martinez   6:50
 There's certain about the tax breaks out of the the talks, tax cuts and JOBS Act, sort of as as you planning the equipment fin or working on the the equipment side and the instruction side and trying to put make sure this sales and financing package is kind of.

Ivan Franklin   6:56
 Mm hmm.

Johnnie Martinez   7:03
 Come together.
 What are you seeing in that regard? What are you know?
 Concerns in that regard or or just kind of how is it changing how you're operating, if at all?

Ivan Franklin   7:13
 Yeah, not necessarily concerns. I think I see it impacting in a couple different ways, right.
 There could be one where companies are still going to be looking to buy equipment or own equipment, right?
 Taking out capital leases or loans just to take advantage of the tax break before those ramp down even more, right?
 Or the flip side of that and I think something that we've been seeing is there's going to be a shift from from capital loans and buying equipment outright to more of those lease structures that I talked about before.
 And I think the reason is with the, the less immediate tax benefit from bonus depreciation. You know, businesses may favor leasing or finance structures that allow them to preserve cash flow while gaining asset access to the equipment.
 So I think there's going to be just maybe a shift in just the strategy overall.

Johnnie Martinez   8:00
 Yeah. And I'm I'm curious how much that also you know contributes to or is contributed to by the decision of those companies having our terms of you know expansion and diversification, right?
 We're seeing a lot of these mega companies start to come together more and more where it is.
 A lot of these different things that they're involved in in that side.

Ivan Franklin   8:17
 Yeah.
 Right. And I I I don't know if I quite understand your question.
 Could you rephrase that?

Johnnie Martinez   8:26
 Yeah. So financial strategies can companies consider when they're expanding geographically or diversifying and you know you're seeing, yeah.

Ivan Franklin   8:32
 OK.
 Yeah, yeah, I think, you know, financial fair, Ed is you have to take into account specifically when getting equipment when you're looking to expand in a different region or maybe diversifying into a different area of business is just managing your risk and cash flow, right and taking a.
 You know, a good look at that and I think the strategies that that should be in play are will be in play, are leasing and renting over buying, right.
 So you know, as a business expands in a different region or new business area, I think.
 That leasing equipment or renting will help preserve cash flow to reduce financial risk.
 But then even more importantly, it also will provide flexibility at the end of the term, like if you're leasing, you have the option to renew that lease.
 You could buy the equipment or return the equipment.
 This way it's taking away any risk of ownership as you either toe dip or give yourself exposure to different markets.

Johnnie Martinez   9:28
 Yesterday with that one thing I wanted to ask because it came up in the report as well as the decision to kind of have that growth by acquisition, right to to bring those other companies under your umbrella, you know how that that works in establishing companies in other.
 Regions you know to help these construction firms grow, but also to your point, right?
 There's the asset management component as well.

Ivan Franklin   9:53
 Yeah, yeah.
 And you know, acquiring companies, obviously a great strategy to, to grow faster. I've been a part of two of them, acquisitions and mergers. So I know the insides of it, but you know some of the things you get from it are instant market expansion and local expertise when.
 You know, accompanied a different region, access to an existing workforce, which is obviously is a positive. And then I think what you just mentioned mentioned expanded equipment fleet and operational efficiency, right.
 So you gain access to existing equipment from the company that you just you just bought this, reducing your need for expensive new equipment and then it could also improve your fleet utilization by reallocating equipment between regions since you're now touching different ones based on demand.

Johnnie Martinez   10:42
 Yes, you know that that don't make sense.
 One of the things I wanna talk about 'cause. I know it's a a big thing for HP, CHC Capital America and it's, you know, part of the the trends as well going on, especially in the construction side is the sustainability component to it all. And one thing to.
 Start with is.
 You know how is net zero construction becoming the the industry standard?
 How is that sort of process adopting?
 I know for for you guys that whole area is a big part of.
 The the M HCC as kind of core structure and so just.

Ivan Franklin   11:11
 Yeah, stg.

Johnnie Martinez   11:11
 Getting into that, Yep.

Ivan Franklin   11:14
 Yeah. And it's becoming more more of a thing, you know, net zero. You know, we're building produces as much energy as they consume.
 There's a couple different reasons why this is becoming, you know, more out there. You know government regulations and building code changes are one of them. A lot of cities and states are setting up net 0 carbon emission goals for building an infrastructure.
 I think there's a growing demand from client and investors, you know, many major corporations have some sort of net 0 carbon commitment.
 That might require them to build sustainable offices, warehouses and data centers. And then I think lastly there's, you know, institutional investors prioritize ESG compliance.
 You know, favoring companies that adopt sustainable construction practices and then one final one too is just cost savings. I think in general for customers, I think there's an initial larger capital outlay when you're doing these types of constructions, but.
 Are construction projects and buildings, but over the course of time you do see Acas having cost savings without efficiently the ramp.
 From an energy perspective.

Johnnie Martinez   12:15
 Gotcha. I think that that last part is kind of one of the interesting bits that gets a lot a lot of times when having the sustainability conversation is there's, you know the the investor side of it, the business side of it the the check in the boxes side.
 Of it. But there is a a benefit to it actually from a an operations standpoint from you know optics for these low emission energy efficient net zero style equipment.

Ivan Franklin   12:29
 Yep.
 Yeah. And I used to see it too, before I was in construction.
 I was kind of thrown in a bunch of different marketplaces and one of them was green energy and we'd finance some LED lighting retrofits.
 So think of like grocery stores or car dealerships with the big ones.
 And there is a.
 There's a huge cost savings on going through those projects and switching them to more efficient and sustainable lighting such as an example.

Johnnie Martinez   13:04
 Guess you know that that makes sense and I guess you know with all that in mind and this this sustainability effort and he has is the the cost savings component too, but also you still gotta get the equipment financed right. And as we start looking at sort of.

Ivan Franklin   13:16
 Yeah. Yep.

Johnnie Martinez   13:16
 The the end of last year, end of this year, right?
 Why is this becoming increasingly important in the construction space? To get all of this, you know sustainable equipment, the the other equipment finance for these these customers.

Ivan Franklin   13:32
 You know, I think it's financing has begun becoming more and more important.
 I mean, I would argue that it was always important. But in 2004 and 2005, it's getting more important and I think some of the reasons are just for some of the economics and marketplace issues I brought up earlier. You know, inflation slowness, I think.
 Financing can be used as a tool if you're looking from the perspective of a dealer and OEM to help sell equipment in a tougher marketplace.
 Right. And I think it's gonna be from the OEM perspective, a really big thing in 2025.
 We're seeing a lot of OEMs that are flush with inventory, so they need a strategic finance partner like someone like us who understands the business and can create customized finance programs to help them move that equipment, whether it's to the dealer on a floor plan or to the.
 End user on some sort of.

Johnnie Martinez   14:25
 Great.

Ivan Franklin   14:25
 You know aggressive FMB lease or or loan?

Johnnie Martinez   14:30
 Gotcha. Yeah, I think that's been kind of part of it, especially over the last few years.
 Is this the mix between, you know, traditional financing, leasing, rental and sort of you know everyone needs the equipment, especially in the construction industry because of just the demand is there, but how do you get all the packages lined up so that everyone's getting what they need?
 And ultimately the equipment is getting out there to the end customer.

Ivan Franklin   14:55
 Yeah. Yeah. And I and I think a good point on that too.
 And just was specific to Mitsubishi and how we differentiate ourselves while partnering and it just kind of comes down to our value prop, right?
 So we're the largest non bank owned, non captive owned company in North America, which means a couple things, right.
 We have a large access to resources, but what I think is more important is that we we're we're non bank, right?
 So at the end of the day, we can do an A credit just as good as a bank can, but we can really show our value as a partner.
 By being able to either dig deep.
 Through into that credit box or being able to do things that are flexible and customizable in terms of product offerings, which should help dealers and OEM sell more equipment. And I think the flips are the the additional part of that too that differentiates us is our enterprise value.
 Prop. So we're truly able to customize a turnkey OEM finance program within our company, our OEM finance program support.
 Floor plan rental fleet financing both from the the dealer owned.
 Rental fleet and long term rental and then obviously retail financing and leasing and we can do this in both the US and Canada all under one roof.
 So I think I think that's a differentiator for us.

Johnnie Martinez   16:06
 Yes. Yeah, I think that's one of the things that's always fascinating, you know, especially talking with anyone from from Mitsubishi.
 Is that that partnership component to it of just this is how we're we're going to make sure that everyone gets what they need.
 We're working together, we're structuring these things that make the most sense, which is ultimately what transitions on to the customer.

Ivan Franklin   16:25
 Yeah, and and I think another thing to that too is with the ability to be customizable and and do the things that the different things that we can do, it's also important to have a consultative sales process, right.
 You know, we we make it a a big point to whether we're talking to an OEM, a dealer or an end user to ask questions, to understand their business needs.
 Maybe some of the pain points that they're seeing out there, just so we can structure something that's going to work for them.

Johnnie Martinez   16:51
 Gotcha. Yeah. That was one of the other things I was gonna get into as well as you know how you guys are working with companies, especially as these these market conditions keep changing, right?
 Just everything going on, whether it is politically or environmentally or what have you and it is it constantly evolving landscape and you've always got to be able to, to your point consult in that process and kind of figure out, OK.
 Here's what we need to do now, and here's what we made it to do six months from now.

Ivan Franklin   17:16
 Yeah, learn and be able to evolve with it, right?

Johnnie Martinez   17:21
 Yeah, sure.
 OK, with that one?
 There's two thing I wanted to circle back to just real quick the the rental demand aspect to it, right as you guys are seeing the construction industry that is that is a large component of it that's going anywhere. We're seeing some of these rental houses get even more.
 Aggressive because they expect it to keep going that way. So as you look at construction in 2025, how is is that going to be a a fact to it?

Ivan Franklin   17:40
 Yeah, yeah.

Johnnie Martinez   17:45
 You know that demand for.
 Rentals and and sort of. How do you guys address that from? From where you said?

Ivan Franklin   17:52
 Yeah. I mean it's a, it's a growing market.
 It's a lot of opportunity, right?
 Certainly for a finance company, being able to make sure that you can support it, I think how it's going to affect the construction industry is 1/2 to provide a lower upright cost and increase flexibility for customers you're seeing, you know that's how customers want to buy you.
 See it in other in other industries, you know, call it an as a service model, but that's typically that's.
 You know specifically what it is for construction pay for the use of the equipment.
 And you know, it's growing. And my conversations typically are at the the OEM level and you're even seeing Oem's kind of adjust their or adapt their sales strategy. I mean, they've always targeted rental, but you're seeing it more and more like heavily targeting the nationals going after.
 The independent rental companies. But now they're even building strategies and and tasking their dealers to start their own their own rental fleets as well.
 So as a finance company, you need to be able to support that.

Johnnie Martinez   18:51
 Gotcha. That makes sense.
 And kind of building off that, is there any other challenges or potentially even opportunities that you know these construction industries gonna face as we kind of get into the rest of 2025 and sort of the role that the finance sector is going to play in that?

Ivan Franklin   19:08
 Yeah, I I think it's just I I brought it up earlier in this. I mean, as it pertains to to my world and and working with OEMs, it's just you know there's a lot of competition out there.
 There's a lot of inventory that's, you know, it seems to be a different world obviously than it was after the inventory crunch after COVID.
 So it's now.
 It's more key than ever to have an effective finance partner that understands your business that can support all the different areas that I mentioned right floor plan.
 Retail rental fleet.
 And at the same time, a finance company who can be no aggressive, nimble and flexible with what they can offer.
 Because right now, again, there's equipment everywhere.
 There's the competition's high and typically financing can be one of those tools that can help you close close business.

Johnnie Martinez   19:56
 Question. I guess what that factored in is as well?
 There's a level of, you know, working with these companies, to your point, you guys, the partnership aspect to it, working with everyone involved, right?
 Balancing that aspect of here's what the costs are. Here's what demand is. Let's figure out again the best structures for what needs to be done, and across all these different lending sectors.

Ivan Franklin   20:19
 Right, right.
 Yeah, exactly.

Johnnie Martinez   20:22
 OK.
 Just two other quick things I wanted to ask you here. As we we wrap up.
 You know, the first thing I want to say is, as someone who's been in the industry as long as you haven't, you've been through sort of these different transitions from a a corporate standpoint, right?
 What is a? A piece of advice you would give to someone who's just now kind of breaking into the equipment finance sector or is that one of these big firms that is maybe hearing talks of, you know, there's going to be some changes coming. How do you kind?
 Of manage that.

Ivan Franklin   20:47
 Be humble and be open.
 I think you know no one picks or at least from my my experience, no one like grows up thinking they're going to be an equipment finance.
 It's kind of a random industry. I kind of feel like I was able to land at A at a company called Creek Ridge Capital that opened up a a management trainee position.
 So I had the opportunity to go to different groups and learn the business before I got into sales and that was a huge thing for me.
 So I think for young people getting into this industry.
 It's one to be humble and be open to learn 'cause. There's a lot of good people in this industry who are gonna bring you along as you as you grow in your career, at least that was my experience.
 And then also embrace embrace the edges of your comfort zone, especially if you're in sales, because that's where all the growth happens.

Johnnie Martinez   21:34
 Gotcha. And then last but not least, is there anything else you think listeners of the dig podcast should know about Mitsubishi, HC Capital America, the construction industry or or anything else?

Ivan Franklin   21:46
 I.
 I I think I covered it again.
 You know, talking through the Mitsubishi value prop and and what differentiates us, again the largest non bank non captive in North America.
 We put together customized finance programs again that touch all different areas of an OEM sales process with floor plan rental fleet, retail financing and leasing. And and we're adding partners and and growing everyday.
 So excited to see what 2025 brings us.

Johnnie Martinez   22:14
 You have to know that then makes sense.
 And yeah, especially as you talked and as we've sort of gone through a few times on this, right, this holistic aspect to it, all right, of it's the the way business is done nowadays.
 You can't.
 This sort of thing of it is a one kind of business unit aspect.
 It has to be this, this broad thinking, 'cause there's so many different things that customers are gonna need that you know, OEMs and deals have to find ways to provide. And it just it the ecosystem has to be there.

Ivan Franklin   22:41
 Yeah. And I and I I tried the whole podcast to not say the term one stop shop just because it's a little corny, but you know.
 There it is.

Johnnie Martinez   22:51
 It it it's all good.
 You know these episodes. We we we try to have a little bit of fun with them. And so no one's gonna be upset about the the corny lines and I appreciate it.

Ivan Franklin   24:54
 Yeah.
 I mean, I'm. I'm a huge fan of podcast.
 I mean, that's how it's a it's a better way to digest information I think and learn things.

Johnnie Martinez   25:02
 Mm hmm.

Ivan Franklin   25:03
 So I I I think you guys found a cool niche and yeah, I'd, I'd love to come back if you guys will ever have me.

Johnnie Martinez   25:09
 Oh, I appreciate.
 And yeah, I'm sure they'll be a a time to circle up and then talk about the industry again.
 And you know, I I appreciate your time today and I thank you so much.

Ivan Franklin   25:20
 Awesome. Thanks, Charlie. Appreciate it.

Johnnie Martinez   25:23
 Yep.