I am not certain if my post on the Norvergence conspiracy theory has made any converts, but it certainly has generated feedback and comments, which is good. I would like to respond to these comments in one place, if I may. It is true that many lessors had a “We need to get some of that” attitude towards Norvergence business, so you could use the “if it is too good to be true…” argument here. There also were lapses in residual and operational diligence, and, as in any business (just think of your own industry) there are sleazy individuals. I still have a real difficult time, however, accepting the premise that there is collusion and willful deception going on in the mainstream leasing industry and that lessors are out “to get” lessees. As a case in point, I have been in industry meetings in which the concept of sharing data such as loss experience, etc., generated a genuine fear that such an exchange would be considered anti-competitive and a form of collusion subject to prosecution. As such, the idea never got off the ground.
Putting aside the emotions, ethics, etc., it just doesn’t make economic sense for lessors, or anyone else, to knowingly enter into transactions that will eventually collapse (Ponzi schemes) or in which they must rely on legal enforcement to collect. A lessor only generates about $2,500 of cash on a $50,000 transaction after paying taxes, which is not a whole lot. Why would someone say we are going to screw this lessee with a bad deal and if they complain, we will win in court? The profit is gone on such a deal after several hours of legal work, especially when you consider the internal costs to even get to that point. Such an attitude will kill your repeat business and decimate your industry. As Gerry Egan, a long time lessor, points out, customer retention and business longevity “… isn't about what I can get away with legally in the fine print, it's about what makes good business sense.” I would like to think that most lessors follow this good advice.
I am sorry that you have been taken advantage of, but the Norvergence debacle was not a conspiracy amongst lessors. So, why, you ask, did lessors not respond to lessee information and feedback on the problems? Most of it was bureaucracy and processes being followed at a low staff level. People had their job to do and were not aware, or interested, enough to see the big picture or, in some cases, as another reader pointed out, maybe “it is an individual buyer, a commissioned performance driven corporate drone who ignores obvious signs so he or she can make the quarterly number.” Finally, although of little consolation, because of issues like the Allserve and Norvergence frauds, the ELA has reviewed and revised its code of ethics and identified a list of practices that it would like to see reconsidered. Are you convinced yet?
You present a picture of leasing companies who, in the face of 2.5% average profit on a deal, saw a deal that gave them 5-10 times the profit, victims with great credit who would value their credit if anything went wrong, hell or high water leases that gave them ironclad protection, and the knowledge that these businesses were too small to have IT depts or lawyers. Furthermore, they did not count on duking it out in court becase their history showed that businesses of our size rolled over and paid when things went wrong. They just did not count on us banning together and fighting. So, maybe they just looked the other way and held their noses cause the deals stunk to high heaven. And maybe the rewards, compounded by hundreds of lessees were just too good. 25% profit margine is not small potatoes. They just didn't see how they could lose. Conspiracy? Maybe not. Innocence? Absolutely not.
Posted by: A Texas Victim | July 27, 2006 8:52 PM | Permalink to Comment