An increasing appetite for investment, coupled with a growing confidence in vehicle leasing, makes private equity the most likely destination for GE Capital.
General Electric announced it was selling its global fleet management and leasing businesses because it was becoming increasingly difficult to generate a profit.
Industry expert John Lindsay, the former head of asset management at Investec Asset Finance, suggests GE’s loss could be private equity’s gain.
“GE has struggled to scale the business up while maintaining a return that is acceptable to their parent and, given the current state of the market, it has decided now is a good time to exit the fleet business,” Lindsay told Fleet News.
“Private equity could be the most likely home for GE which could mean the business will have to see some accelerated growth over the next four or five years.”
The company operates a risk fleet of 47,000 vehicles in the UK – 39,000 cars and 8,000 light commercials – making it the ninth largest leasing company according to the FN50. But its risk fleet has remained fairly static over the past five years while rumours of a potential sale have persisted.
Globally, GE Capital funds and fleet manages more than 1.4 million vehicles, funding 500,000 in the US alone. Industry insiders believe the leasing business may be too big for one buyer and might have to be split up into regions.
News agency Reuters last week reported that GE Capital was discussing the sale of all or part of its finance business to Wells Fargo and Co.
Lindsay, who recently launched JLSR, offering consultancy services to the asset finance, leasing, automotive and transport sectors, said: “GE has historically had the aim of being number one or two in every market it has operated in, which it hasn’t been able to achieve in the fleet industry.”
GE has announced the decision to sell prior to any residual values dip, which would impact on profit, although it has given itself a three-year window to exit.
Lindsay said: “There is evidence that since last October the market has started to soften and the additional volume of used vehicles, which will come into the market over the next four-year cycle due to strong new vehicle registrations, will see the market return to something like normality. In GE’s case this would make any case to exit more compelling.”
The company is remaining tight-lipped about potential suitors, but it is promising fleets it will be business as usual.
A GE statement said: “We anticipate being able to sell our businesses to buyers who are fully committed to, and invested in, the financial services industry and who can offer a good environment for growth.”