debate
I’m not sure whether there was ever a Golden Age for the UK vehicle
leasing industry but if there was one it was certainly before I
joined in 1980. I have never known the market to be anything other
than tough; legislation, regulation and competition have all
conspired to take reduce the fun.
It must have been great in the Old Days when there were fewer
contract hire companies, you could get bucket-loads of capital
allowances on company cars and accounting standards were less
prescriptive than they are now. Was it ever the case that a
contract hire salesman needed to do little more than issue a quote
and the customer fell at his feet in delight and gratitude? OK,
maybe that’s taking the rose-tinted spectacles bit too far.
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There’s no question about it though, leasing today is tougher
than it once was. Take finance leasing for example. I remember the
uproar when SSAP21 put finance leases on lessors’ balance sheets.
The accounting standard setters argued that a balance sheet should
record the risks a company undertook rather than the assets it
owned, so if you had residual value risk the asset had to be on
your balance sheet. All very sad.
Standards tightening
It seems the International Accounting Standards Board may soon to
reduce the fun still further. One of the basic mantras a contract
hire salesman learns on his or her first day in the industry is
“contract hire is off balance sheet”. However, IASB meetings are
taking place now that will almost definitely reverse this. We can
get a flavour of the direction they’re heading in from this recent
quote by Professor Sir David Tweedie, chairman of the IASB, “Most
leases are liabilities: you can’t get out of it, so most will go
back on the balance sheet”.
If contract hire is on balance sheet will it make a
difference to the attractiveness of the product? For many lessees
the answer is probably no. They choose contract hire because it
confers so many price and service advantages that anything else
would be inferior. However, such a change would cause problems for
some of the mega-fleets run by quoted companies and is likely to
create demand for a new type of product that would remove cars from
the balance sheet.
Some lessors will be tempted to produce such a product and as far
as we can tell now it is likely to be some variant of short term
leasing – a far riskier product for leasing companies than
conventional contract hire.
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By GlobalData The industry has a history of solving client’s problems by
assuming extra risks; the development of contract purchase nearly
20 years ago solved clients’ VAT problems by giving them a
heads-you-win, tails-we-lose product that has cost the industry
millions. I hope lessors will not take on extra risks to keep
assets off clients’ balance sheets. These can only cause further
losses. Which would reduce the fun of being in this industry even
further.
