Talking Finance interview with Nathan Murray, Managing Director of Morris Finance
Like many industries, COVID-19 has dramatically impacted the demand for new heavy vehicles and equipment. Truck sales data, showed April 2020 sales at 2016 levels and data released by the ARTSA Institute recently showed new trailer registrations were also weak.
Manufacturers are reporting a tightening of business finance as a prime factor impacting new orders and many have reported orders being scaled back or cancelled as business confidence drops and operators are understandably anxious about the cashflow implications for their business.
With this context in mind and against the backdrop of one of the most generous stimulus packages announced, HVIA CEO Todd Hacking sat down and talked finance with Nathan Murray, Managing Director of Morris Finance.
Hi Nathan, thanks for joining me. I’m wondering if you can provide me your insights about COVID-19 and the impact it has had on commercial finance?
There is no doubt commercial finance has tightened.
We must remember, there was already a tightening in lending as the results of the Banking Royal Commission were implemented. However, as the pandemic hit, the banks – backed by swift action by the Reserve Bank of Australia (RBA) – mobilised quickly to offer protection in the form of loan deferrals.
This has no doubt helped people with business loans or mortgages. The Australian Banking Association highlights that over 720,000 loans have been deferred at a cost of just over $200bn.
So, whilst lending has continued, it has been at contracted levels as the focus of the banking sector has been on survival. Once the economy re-opens, the banks will find it easier to lend.
The good news is we are starting to see green shoots ahead in terms of the financial markets.
The ASX is up to its highest level since early March – all up it looks as though the financial markets took a 40% cut or about $830 billion, but this will come back quickly once things stabilise.
So whilst it is true, the economic shock of COVID-19 has been immense, there is a feeling in financial terms that this is temporary and will rebound quickly as confidence in the ability to respond to any ongoing health challenges increases.
Morris Finance has been around for over 20 years; has the industry faced anything as disruptive as this in the past, and if so, how did you navigate through those challenges?
There has been other financial challenges that have impacted the market since we have been in business, in fact as we set up Morris Finance the GST was being implemented and businesses were confused and confidence was low.
Those kinds of structural reforms always tend to linger for a bit longer than say a pandemic, which has a more intense but temporary shock.
These shorter-term ripples that have dented confidence and the market, can be political in nature – such as at election time, or I hate to say it, confidence always gets affected by natural disasters or terrorism events.
We have obviously had bad droughts and more recently bushfires, so 2019/20 has been a tough year.
There has been other pandemics such as Bird Flu and SARS, but they were more confined to particularly regions and Australia was fairly immune from the economic fallout with those types of international events.
The obvious downturn was the Global Financial Crisis of 2008, which impacted global financial markets.
Despite our terms of trade and the financial markets rebounding, we have struggled structurally ever since with increased Government debt and no surpluses.
The Government was predicting a surplus in 2020 but that is well and truly gone.
The shockwave of COVID-19 is like nothing I’ve ever seen, but there is a feeling it is an intense but short term shock. As we get back to normality and businesses reopen, that injection of cashflow will increase confidence and job levels will rebound rather quickly.
Whilst the stimulus spending was unprecedented, the difference between COVID-19 and the GFC is the stimulus measures are temporary and have an end date.
We were in a relatively good space to access that liquidity; so whilst that will need to be repaid and will take some time to fully recover, I’ll tell you one thing for free: I’d rather be in Australia than any other country on earth!
Despite the Transport sector being deemed an essential service, there is no doubt contracts have been delayed and equipment purchases have been put on hold. What would be your crystal ball view on how we are likely to come out of this?
We have serviced the transport industry for many years and more recently took a decision to invest further in this space. We know that the freight task is aligned with population growth and history shows that it has almost doubled in a 20 year period and will continue to grow as our consumer behaviour changes.
The growth of internet shopping and grocery home deliveries are examples of how the freight task will continue to increase strongly.
The need for trucks and trailers and the associated supply chain activity will continue to be strong, so I do believe normal activity will rebound strongly in the second half of 2020.
The key to this will be the lifting of the current restrictions and this will see freight volumes return to more normal levels; this will ensure confidence returns and there will be some pent up demand for industry suppliers to fill once this happens.
I think too, there is a confidence in the Australian community with our health response and preparedness to respond to any future outbreaks.
Whilst this ‘new normal’ is a change in societal behaviour, this should provide some level of community comfort until a vaccine arrives.
The difficulty I see for 2020 is with global trade and global markets but we are over the worst of it and its only up from here.
The government stimulus measures were designed to stimulate the economy in general, why do you think it has not hit the mark with the transport industry?
Governments and Industry associations have done a great job in creating the stimulus initiative, however different sectors will take advantage of it at different times.
Unfortunately, when it comes to the Instant Asset Write Off and the Backing Business Investment, these measures got lost as the pandemic really hit the economy and the community.
I think there was something like 10 days before the hardest of the restrictions hit.
No business was able to mobilise quick enough or could access available capital to take advantage of this unbelievable incentives.
Obviously now we are coming through the restrictions, there will be some desire to insulate and hang on to cashflow but as confidence returns, so to will orders.
I’m watching closely as I’m told HVIA and others have sought an extension of the IAWO. I think that would be an amazing stimulus measure now, but irrespective, being able to write off up to 65% of a truck or trailer in Year 1 through the Backing Business Investment measure is an incredible policy.
For business it is all about confidence and I think we are not far away from that being realised and will see a distinct focus shift towards assets age & R&M cost increases.
It will be then that we believe operators will explore what assistance is available and how they can best take advantage of it before 30 June 2021.
What else can HVIA members do to maximise the effectiveness of the stimulus package
It’s all about communication. Even now, I’m finding some cases where there is little understanding of the tax incentives available to them by purchasing equipment.
It is understandable, as many businesses have been focused on survival and leave these financial measures to their Accountant, particularly at the smaller level.
The ability to clearly articulate the advantage of purchasing equipment now and explaining the benefit is one thing, but then prompting a conversation with the pros and cons with their tax professional is absolutely worth doing.
At Morris, we have tried to simplify the government fact sheets with our messaging, and I have noticed more and more manufacturers doing the same, which is a great outcome.
HVIA has also tried to get information out there but nothing will beat a personal phone call from a trusted source to cut through all the detail and then hopefully prompt specific tax or professional advice.
There is no doubt any extension to the program would certainly help the effectiveness of the stimulus initiatives particularly given the slow start the industry has experienced.
For further HVIA updates and industry information please head to hvia.asn.au.