Packagers need to take action

Tuesday, October 2, 2007

Packagers are going to have to make some tough decisions in the near term in order to make sure their businesses will be able to withstand the outcome of falling business levels.With applications to packagers down by 35% in September, packagers need to make tough decisions on staffing levels sooner rather than later because by taking prudent action now, packagers will be in better shape to benefit from the upturn when it comes.

The market has taken a significant hit and at the moment there seems to be no easing of the pressure on funding. Packager business has seen significant falls since the credit squeeze started and we are now looking at a situation where we are unlikely to see any upturn before the start of next year at the earliest.

We would expect to see redundancies in the region of 20% to 30% in the weeks to come from firms planning far enough ahead to be in a position to both weather this crisis and take advantage of the upturn when it comes. On current projections, packager income could fall by up to 60% by Christmas and those companies that will come through are those who see that prudent action needs to be taken now to ensure survival.

Even allowing for the unique nature of the problem, lenders have not helped the situation. Conversion rates have been badly affected by the panicked way in which products have been pulled, totally impractical deadlines have been arbitrarily set which in turn have not been helped by the deliberate use of inflexible and unreasonable underwriting to ensure intermediaries and packagers had no chance of getting business in to meet those deadlines. And don’t get me started on lenders who simply exited the market and left clients and intermediaries high and dry.

Lenders who until recently have been so desperate to court intermediaries and packagers when they wanted to sell their products, have shown in many cases that their relationship with packagers and intermediaries are really only skin deep. When the market recovers, it will be interesting to see how intermediaries will respond to these lenders when they decide they want to do business again.