Sales Make it Happen --- Jeffrey Taylor, CLP
"Excerpts from his new book"
Jeff Taylor, CLP, Executive Caliber - Global Lease Training, is well-known in the equipment leasing industry. His second book, " The Future of Equipment Leasing " will be published in September, 2006.
Here are some excerpts, taken from various chapters:
For fifty years, no one paid attention to the huge profits earned by the largest leasing companies and banks. Enron would bring to light the underlying problems of the convoluted accounting and tax rules that allowed leasing companies to earn ROIs in excess of 18% per year on a consistent basis.
On September 8, 2005 the Equipment Leasing Association met with the Securities & Exchange Commission (SEC) to educate them on the positive aspects of equipment leasing throughout the world.
They stated that the global equipment leasing market is approximately $600 - $700 billion annually with the U.S. accounting for one-third of the global market (est. $220 billion in 2004).
They pointed out that Corporate America leases for the following reasons:
- Access to capital
- Lower cost of capital
- 100% financing
- Asset risk management
- Tax planning and minimization
- Off-balance sheet financing
- Regulatory capital and asset constraints
They also said that 77% of their member's volume was in the form of direct finance leases and conditional sales, which most experts acknowledge as alternative forms of loans. Only 9% were classified as true operating leases.
So the questions, logically, that I have to ask are:
If only 9% of the world's major companies volume is in the form of loan financing and not true operating leases, does that mean that equipment leasing companies:
My predictions for public leasing companies are as follows:
- Are afraid of offering true leases?
- Cannot afford to offer true leases?
- Will no longer take residual risk?
- No longer exist and no one notices?
Small Ticket - will abandon true leases and all residual risk and support direct finance leases and loans to consumers. Captive companies including IBM, HP, John Deere, J & J will dominate. All transactions will be credit scored and audited for compliance.
Middle Market - will lean towards direct finance leases and loans, yet create true operating leases in which they feel they can make money in re-leasing used equipment. They will abandon consumers and focus on business markets. They will use brokers to acquire business and jettison full-time sales people.
Large Ticket - They will continue to leave the U.S. and find a home in Europe and Asia where the tax laws are more equitable and capital is abundant.
Equipment leasing volume in the U.S. has been steadily declining since 1999 when the dot com boom hit the market. Ironically, volume in Europe, emerging Europe and Asia continue to rise.
Given the overbearing rules and regulations governing fair market value, disclosures and present value computations promoted by FASB and the increasing reduction in tax benefits to those who take tax risk, it is no wonder to see this phenomenon occurring here in the U.S., while our International competitors grab an ever increasing lion's share of the marketplace.
While FASB/SEC focuses on taking down large public leasing companies, the true leasing marketplace has started to migrate back to the small local lessor who existed before he sold out to large corporations with deep pockets.
If the FASB gets their way, they will require that all public leasing companies and public users of leases report all material long-term leases on the balance sheet using a rights and obligations approach based on fair value estimates derived principally from analytical models.
The only company that would not be affected by this ruling would be a private company, one that is not in the limelight of public reporting. So, if you work for a large public leasing company and want to sell equipment leasing over the next 5-10 years, you may want to consider becoming a broker or start your own private leasing company.
Jeff has spent the last year building a commercial real estate practice in Phoenix, Arizona. At the same time, he has been working on his new equipment leasing book which he says has taken him four years to complete. To read more excerpts, before the final draft is completed, please contact Jeff Taylor directly:
4844 East Andora Drive
Scottsdale, AZ 85254
(602) 708-4981 (cell)
(602) 867-9382 (home)
(602) 867-9385 (fax)
S. J. Fowler/GMAC Real Estate
5060 N. 40th St #120
Phoenix, AZ 85018
(602) 264-8400 (Main)
(602) 264-8408 (Fax)