Personally, I see these two themes as very connected and am surprised that no one has addressed this correlation. Is it not politically correct, does it throw water on trendy topics, or is it just uncomfortable to discuss? (I almost feel like the little boy and the Emperor’s new clothes here.) Regarding the margin compression, what does everyone expect to happen when they more actively compete in a commodity market like standard financing? Come on, this is not rocket science, folks. We all know that true leasing is more profitable and provides us with key product differentiation. Yet, we plug blithely along increasing our share of the low volume business and even celebrate the fact with a name change!
We, as an industry, our doing business in a way that offers our customer very little product differentiation and value add. Granted, competition is tight and margins are being squeezed everywhere, but each time we write a conditional sales contract, or even an EBO, we give up the ability to sell additional margin and the value that true leasing offers our customers. You would think that we would have learned by now that you can’t compete on price, which is about all you have with buck outs and loans. Where is the differentiation that defines an Outperformer?
Yes, but the key aspect of our business, off balance sheet financing, is going away! Oh, boo hoo. How much do you think is going to change for those companies that file audited statements? The rating agencies and credit analysts already restate the financial statements to include operating leases, so how much difference will there be when the rules are changed? Even after restating for operating leases, FitchRatings recently reported that changes to coverage and leverage ratios were significant for only half of their industrial customers. And, if FAS 13 is revised in the way I think it will be, residuals will still be off the balance sheet.
Remember, there are other reasons for the popularity of leasing beyond financial reporting consequences. What about the increased lessee cash flow that comes from true leases? Cash is consistently ranked the number one reason to lease by our customers. Flexibility, service, obsolescence? Don’t make me open up a can of “Reasons to Lease” on you!
We all would like more profits and fatter margins, along with industry sustainability and growth, wouldn’t we? Well, maybe it’s time to get back to the real business of leasing – real leasing!
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