Challenges for Equipment Manufacturers (OEMs) during the Covid-19 crisis …and a possible way out

Corona heavily impacts the Equipment Manufacturing Industries on a global scale. While the crisis made it difficult to process already ordered equipment due to interruptions of supply chains and travel limitations it is the demand side which deteriorated in only a couple of weeks. In a survey conducted by the VDMA early May, 85% of its member companies reported significant or even severe drops in their order books. Major reasons for that are the following: 

• Sharply reduced short-term demand puts customers' investment decisions in question  
• Customers are focusing on liquidity and short-term business continuity management 
• New business development efforts at customers are almost completely on hold 
• Customers are waiting for better visibility before investing in new capacities 

But there is more than one way how customers could acquire new equipment they would have ordered now, had there been no pandemic. 

Source: Findustrial 

While there is already a significant number of companies acquiring their equipment via operating lease financing models, rent and as-a-service business models are still very rare in the different industries.  

This also has to do with the major implications of running such a business model. It puts a heavy burden on the OEMs balance sheets due to the fact that they exchange short term sales with long term stable revenues. Only a few OEMs could really afford to switch to an as-a-service business model on a bigger scale without major financial headaches.  

Providers of operating leases significantly suffered over the last couple of months due to the fact that according to the new IFRS16 accounting regulations customers/operators have to put their lease obligations on their balance sheets with negative effects to financial KPIs.  

In addition to that it negatively affects liquidity when monthly lease instalments have to be paid, even when the equipment is running at near zero productivity during the time of the Corona shutdown. 

Our solution

We at Findustrial know that there is also another possibility of acquiring assets without immediately putting a major burden on OEMs balance sheets and at the same time supporting the liquidity challenges on customers' side. 

We call it "Smart Financing", smart in a way that it automatically adjusts repayment rates according to usage of the equipment. All we need is an IoT connection of the equipment which constantly delivers the usage data to the Findustrial Platform. Very often, this is a very important first step for OEMs to "test the waters" on their journey to a new as-a-service business model.  

We are convinced that those companies who invest now in a smart way will be the winners coming out of the crisis. It certainly requires a lot of courage from the decision makers but it definitely will pay off in the long run.