Magazine article American Banker

Auto Lenders Foresee a Bumpy Ride for Crowded Leasing Bandwagon

Magazine article American Banker

Auto Lenders Foresee a Bumpy Ride for Crowded Leasing Bandwagon

Article excerpt

To lease or not to lease?

That was a question much on the minds of auto lenders gathered at a convention this week in the Tennessee capital. The growing popularity of leasing made it the dominant topic at the Consumer Bankers Association's 1995 Automobile Conference and Trade Show.

"Everybody in this room is thinking about leasing," said Wells Fargo Bank executive vice president Richard T. Schliesmann. "And the reason we are is there's a lot of money involved in this business."

But Mr. Schliesmann and other speakers also warned of pitfalls ahead in the leasing game, including heightened competition, thinning margins, a growing glut of used cars, and excessive "residual" or end-of-term values for leased cars.

"We believe you can take this too far," said Larry M. Raney, manager of retail leasing for General Motors Corp.'s Chevrolet division. "At some point, the cost of marketing vehicles through retail leasing will outweigh the benefits that you gain from it."

Many bankers attending the sessions at Nashville's Opryland Hotel clearly felt the same way.

Two were overheard chatting during a presentation on residual value risk.

"Man, a lot of people are getting into this business," one man said. "Yeah," said the other. "It's scary, isn't it?"

The growing popularity of leasing as an auto financing technique was confirmed by results of the trade group's 1995 Automobile Finance Study, which was released at the convention on Tuesday. The dollar volume of leases among the association's sample of 48 banks and finance companies soared 58% last year, after a 39% increase in 1993.

More traditional indirect auto lending, by contrast, decreased nearly 2% in 1994, according to the study, which tracks only sales handled by dealers.

Leasing now accounts for one fourth of new-car sales. Several experts at the convention predicted leasing would achieve a 35% to 40% market share within three to four years. …

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