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"What Lessors Are Saying About... The
Retail/Wholesale Leasing Market"
ELA Magazine, Aug 9, 2004 -
Remarketing
off-lease equipment is an area of significant concern for lessors. ELA
asked members for a sense of how the retail/wholesale market in
equipment leasing is performing. Overall, the use of third party sources
continues to play a critical role in remarketing.
Roy Teel, Charter Adjustments Corporation, said
he's seeing better-educated lessors more diligent about looking at
deals, using remarketers to get their equipment out, and increasing
their use of third party sources at the outset of leases for more
accurate appraisals and residual values. He said in terms of retail and
wholesale pricing, the market is at high orderly liquidation value, or
"mid-market value," somewhere between fair market and orderly
liquidation value.
"Lessors are realizing time is on their side,
and have been taking more time to remarket their equipment," Teel said.
"They're leveraging a third party's ability to get the equipment out
into the market globally." He believes most lenders have gotten away
from the auction mindset and are using third party sources to bring
global buyers to the table. "By exercising their rights to sell at
private sale and through the private sale bid process, lessors are
realizing more money for their collateral," Teel added. "We're seeing
that leasing is on an upturn and stronger today than in the past since
lessors are more intelligently leasing."
John Gougeon, US Express Leasing, Inc., provided
some observations, first noting that micro-ticket and small-ticket
lessors continue to utilize outsourced relationships to remarket
off-lease equipment. "The costs of maintaining a physical warehouse,
technical staff and full-service sales and support personnel are
prohibitive to the lessor's bottom line," says Gougeon.
Gougeon has seen a commoditization of used
equipment in the IT sector and copier markets. He also says that the use
of broad-scope online auctions, such as eBay and Yahoo, have driven
prices to artificially low values, which in turn is forcing the lessor
community to look to foreign shores for developing markets. He believes
the ability to "de-acquire" equipment, test, refurbish and report on
off-lease assets in a timely fashion drives outsourcing partnerships,
not the end sale price of the equipment. He also noted, "As lessors
continue to wrestle with lower market values for their off-lease assets,
they are being forced to enforce stricter return provisions, including
over-usage penalties and damage charges, to offset their residual
positions."
Jay Mudrick, Delta Collateral Management Inc.,
advised that retail and wholesale are both vague, relative numbers that
lead many to use terms like "high wholesale." He said his firm talks to
lessors everyday about how their remarketing processes work and where
they think their realized residuals come in.
"Some will tell you that they're remarketing at
retail, but is it really retail if you're paying a 12% auction
commission or are storing and carrying a unit for 90 days prior to
resale?" Mudrick asks. He said that other than a rental company, an
auction house or a remanufacturer, no third party can resell at true
retail. "It's all about trying to minimize the discount from retail that
a lessor is taking. That's where the service providers add value," he
said.
Mudrick said that the bigger the remarketing
staff and the more proactive their processes, the closer a lessor can
get to retail, and there's a cost associated with that. "As leasing
becomes more commoditized and as accounting rules and market realities
encourage movement towards a true residual based product, prudent
lessors will examine every alternative available to maximize the net
realized returns of their overall portfolio remarketing efforts,"
Mudrick said.
Steve Trollope, Arrow Capital Corporation, said
that at this time, his firm has experienced minimal equipment
repossessions on its portfolio of leases. In instances where Arrow has
had to repossess equipment or had remarketed equipment that reached
end-of-term, they've achieved their expected residual values in most
cases.
"The primary reason for this is that Arrow
relies on and works closely with its strategic vendor partners to
remarket off-lease equipment through their established marketing
channels," says Trollope. "This strategy usually maximizes the
re-marketing value Arrow receives on the disposal of off-lease assets."
He also noted that in general, he's seen that
equipment resale values are holding up well, because supplies of quality
used equipment have declined in our key equipment sectors. He expects
this trend to continue for the short term.
About Arrow Capital
Arrow Capital Corporation provides
outsource vendor lease and rental programs for manufacturers and distributors of
capital equipment and software. Since its founding in 1988, Arrow’s leasing
programs have enabled vendors to sell more than $850 million in equipment and
software throughout North America and Western Europe. Arrow clients span a
range of industries and frequently rely on Arrow to design and manage their
entire range of customer financing programs.
http://www.arrowcapital.net
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Copyright © 2004 Arrow Capital Corporation
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