Part 1: A proposed path forward
A three-phase proposal for accelerating post-pandemic recovery
It’s natural for those who’ve been in the business world for 12 years or more to compare the current coronavirus-driven economic struggles with those of the 2008 financial crisis. Some things feel the same. The cumulative GDP of major global economic fell about 4% in 2008-09 when that crisis took hold. Global stocks endured a 17-month bear market; including a one-day record drop in the Dow Jones industrial average of nearly 778 points. As Covid-19 spreads around the world, we’ve experienced similar impacts. Economic forecasts call for major global economies to experience GDP losses of 2.4-3.0% in 2020 and early 2021 as the coronavirus pandemic continues its spread. Global GDP reached $86T in 2019, so even a 2.5% loss over 12-18 months would result in nearly a $2.2T drop. Earlier in 2020, the Dow Jones industrial average index suffered a one-day drop of nearly 3,000 points, making the one-day record drop from the 2008 crisis seem like a small dip.
While many of the headlines and economic impacts feel the same, this pandemic-induced crisis is different in some important ways. One key difference is government response. During the 2008-09 crisis, governments, for the most part, waited to provide stimulus packages and, even then, we’re a bit reserved in their actions. For example, for the 2008-09 crisis the German government’s stimulus package equaled 3.5% of the country’s annual GDP; for the 2019-20 pandemic, that number has reached 33% of GDP. In the U.S., stimulus packages totaled 4.9% of GDP in 2008-09 compared to 12.1% in 2020. The U.K. delivered stimulus in 2008-09 that equaled 1.5% of GDP, versus 14.5% for the recent pandemic.
“The current recession – that is, economic decline – is already be behind us. But there is still much uncertainty around how long it might take to recover what we’ve lost. The best-case scenarios for a full recovery will still take several years, with some industries leading the charge. Accelerating that post-recession recovery is what’s critical now.“-Dr. Elliot Eisenberg a.k.a. “The Bowtie Economist”
The Banking Industry’s role
Banks are also playing a different role in this crisis. In 2008-09, some banks were viewed as culprits because of their role in the mortgage crisis and a general failure to plan for massive defaults. During the Covid-19 pandemic, banks have been viewed as proactive, strategic and a source of support for organizations in need of cash. The U.S. Federal reserve, for example, slashed borrowing rates for banks to 0.0-1.25% early in 2020. Banks around the world have also prepared by setting aside enough cash reserves to withstand widespread defaults. Banks appear to be a source of strength this time around.
During the earlier financial crisis, there was no magic pill that could cure the world’s financial troubles. This time, there literally may be an antidote. More than 140 vaccines are in development worldwide, with 13 in expanded phase II safety trials, four in phase III large-scale efficacy tests and one already approved for limited human use (as of the date of this blog being published). There are also a number of therapeutic drugs being explored or tested — most notably Remdesivir, which has showed some efficacy, but has not yet received any government approvals.
The path to recovery
So, how does all of this macro-level news regarding the pandemic affect asset finance organizations? While no one can accurately predict what a recovery might look like, the elements for an upturn appear to be in place. Strategic and persistent government stimulus, active support from banks and the potential for a vaccine in the near future point to a more expedient recovery than we finally experienced in 2012 after four years of prolonged economic pain.
In a survey of nearly 150 industry professionals, 63% predicted “business as usual” for equipment finance would happen in one year or less. But a rapid rebound like that won’t happen without changes.
In terms of market opportunities and plans for post-pandemic growth, the current crisis has been long, intrusive and disruptive enough that organizational and individual buying behaviors have changed. So have brand loyalties. Over the course of 2020, businesses and other organizations have become proficient in remote work, mobile banking, online shopping and leveraging cloud-based apps to run their operations. Because of these newly learned behaviors, the way in which many organizations evaluate business partners — such as asset finance providers — has changed. For example, the simple act of staying in business and being ever-ready to serve customers (the art of always-on business continuity) has become an enormous differentiator. Some businesses shut down, some paused and most offered diminished capabilities as the virus spread. For some, interruption of revenue or workforce availability (remote work was a challenge for some) drove changes in service levels. For others, it was a matter of technology. Some businesses simply didn’t have the modern infrastructure in place to ensure the kind of business continuity customers were expecting.
During these first months of the pandemic, another interesting buyer behavior evolved. Attributes normally ascribed to individuals — such as altruism, generosity, honestly, agility, environmental awareness and persistence – have become defining factors for modern buying decisions and brand loyalty. While all of us strive to demonstrate those attributes personally, the only way a business can bring them to life is through service levels enabled by the right policies and underlying infrastructure.
Obstacle or opportunity?
Make no mistake. We are in the midst of financially punishing times. But opportunities abound for asset finance companies in the coming months — especially those able deliver business continuity and innovate in ways that align with changing buyer beliefs and behaviors. One view this path to recovery is a phased approach. Phase I (which many businesses have already found their way through) centers on business continuity, employee enablement and a strategic focus on ROI. Phase II targets operational resilience, strategic investment and a focus on innovation to drive growth in the last phase. And Phase III is all about leveraging the infrastructure and resilience that was put in place to bring innovative new ideas to the market and grow. Think of this last phase as becoming a growth leader in what’s being called the Next Normal.
Here is a graphic representation of our three-phase approach. Our next three blog posts will drive into each phase individually — and we will close out the five-part series with a summary of our top strategies for emerging from the pandemic and capitalizing on the growth we know is on the other side.
Leverage technology to transition to the next normal
- Part 1: A proposed path forward — A three-phase proposal
- Part 2: What we’ve learned & done so far — Emerging from phase 1
- Part 3: Checkmark or full V recovery? — Imperatives for phase 2
- Part 4: Leading in the next normal — Innovation fuels phase 3
- Part 5: Keys to recovery — Solid strategies in uncertain times