Academic journal article ABA Banking Journal

Will Success Spoil Auto Leasing?

Academic journal article ABA Banking Journal

Will Success Spoil Auto Leasing?

Article excerpt

Bank lessors could see the cycles through and maybe even prosper--that is, if a debacle doesn't come in 1997. Happy days are here for now, but will they stick around?

In Horsham, Pa., about 25 miles out of Philadelphia, is a used-car lot. Nothing terribly unusual about that. But this is different from most in one important respect--it's owned by a bank. The lot is one way CoreStates Bank, N.A., Philadelphia, moves cars its lending and leasing staffs get back in the course of business. It also maintains connections with major auto auctions all over the country, seeking out the best prices it can obtain for cars.

"We have an excellent back-end remarketing approach," notes CoreStates' Robert L. Hall, senior vice-president in charge of both leasing and indirect lending.

While Hall exhibits obvious pride in the disposal operation, its excellence could well be tested a year or so from now, in circumstances that were being predicted by some of the more-pessimistic members of the small auto-leasing community. Circumstances that, somewhat paradoxically, may be the offspring of current boom times in auto leasing.

Banner year for bank lessors

Measurements of the trend differ from one source to another, but it is widely acknowledged that auto leasing represents a growing portion of the consumer-auto-financing pie.

In 1995, 3.38 million automobiles were newly leased (personal leases), representing 22.8% of the total 14.8 million vehicles sold, leased, or otherwise acquired during the year, and an even higher share (30.9%) of retail acquisitions, according to figures compiled by CNW Marketing/Research. By contrast, the Bandor, Ore., firm reports, just five years earlier, leasing accounted for only 7.6% of the total auto transactions made in 1990.

And the growth continues. Art Spinella, CNW vice-president and general manager, says his firm projects that 3.78 million of the estimated 15.1 million autos to be sold in 1996--25%--will be leased. That's 34.9% if you compute the leases as a portion of retail acquisitions alone.

Leasing is typically used for financing new, higher-end cars, trucks, and sports/utility vehicles, according to the Consumer Bankers Association 1995 Automobile Finance Study. It has been comparatively rare for lessors to get involved in used-car leasing, with only about 5% of leases being tapped for used vehicles, according to CBA, though interest seems to be growing.

No matter which bank you talk to, 1995 was a banner year for bank-related auto lessors. This despite competition from captive auto leasing companies (those owned by automakers).

At Wachovia Auto Leasing Co. of Georgia and its sister firm, Wachovia Auto Leasing of North Carolina, the number of new leases booked rose 51% from 1994 to 1995. Barnett Banks, Inc., Jacksonville, which was returning to auto leasing in 1995 after a hiatus, booked more than $65 million in new autos leased in less than a year, says Garry Marquiss, corporate leasing manager.

Most lessors interviewed say they expect 1996 to produce rising or at least steady leasing volume, both for their own operations as well as versus conventional auto financing.

At Wachovia, "we expect to improve on the 1995 numbers," says Arnold Pernell, senior vice-president. "we don't expect to be able to do that indefinitely, but for 1996 we do." He noted January results were ahead of the 1995 pace.

At CoreStates, which saw a down-turn in the fourth quarter of 1995, Robert Hall notes January demonstrated a slight uptick, although he acknowledges he isn't sure if January is firm proof that 1996 will show continued growth.

The longer-term outlook for auto leasing is enthusiastic, to say the least.

Richard T. Schliesmann, executive vice-president of Wells Fargo Bank, N.A., Walnut Creek, Calif., is among those who expect auto leasing to continue growing to the point where it accounts for 40% of auto financing within a few years. …

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