Positive Attitude Towards Business Opportunities Prevail at ELA Executive Committee meeting
Companies are thinking Offense and External rather than Defense and Internal.
The Equipment Leasing Association Executive Committee held its annual planning meeting in Colorado August 18–20, 2003. ELA Chairman Ed Dahlka convened the meeting of thirteen officers and directors for an initial discussion of the state of market segments, products and companies. The executive committee represents a cross section of companies and markets in the association. The discussion was the most positive discussion in two years. The most frequent general comment was that “business is good, not strong, and things are going in the right direction now”.
The following are general observations from the discussions.
- While business is back, it is not as profitable. There still is a lack of pricing power in the markets because there are “ten dogs on every bone”.
- Capacity is somewhat constrained by credit and concentration considerations.
- Funding is available for good deals and / or companies.
- The middle market is dominated by strong balance sheet companies. There are more barriers to entry as the market can only afford “so many mouths at the table”.
- The economic downturn squeezed out the marginal business and poor business models.
- 2003 losses will be much lower than in 2002.
- Noticeable entry of small and smaller regional banks into the business – small ticket and low end middle market.
- Lessors have not capitalized on the poor economy. They became used to a robust economy through 2000 and were not prepared to do a pure leasing business. The FMV business is not being pushed enough. It is easy to do a “debt oriented” business, but that is not a good business. The “debt oriented” product takes away the upward profit potential and the leasing differentiated and visibility.
- Banks demand a huge “tax bang” from their leasing subsidiaries and loans won’t do the job.
- If ever there was a time for expansion of a FMV product, now is the time.
- The funded domestic Large Ticket market is weak but the QTE, lease to service contract and cross border markets are good.
- Accounting regulations, federal and state tax legislation and Basel II are biggest challenges to leasing companies today.
Woven through this discussion is the concern that equipment leasing could lose its edge. Over and over the question was raised, “is there entrepreneurial ship in the business today?” When a question is asked this often, doubt is the obvious answer. The pure leasing product has important attributes that are creative and entrepreneurial, however, leasing companies and ELA may not be doing enough to promote the value of these attributes and differentiate them from loans. There was discussion that certain accounting standards and federal tax initiative may not only push, but require lessors to move towards a more pure leasing oriented business.
With all of these discussions as background, the executive committee went on to plan a proposed 2004 Strategic Program of Work for ELA. The ELA will act on the proposed plan and budget on October 11. The Highlights include:
- Additional resources for two program areas of highest importance – Advocacy and Business Development. Expansion to include:
- Greater grassroots participation by members in legislative and political efforts of ELA.
- Greater use of external issue analysis consultants and legislative action personnel at both the federal and state levels.
- External market opinion research into companies’ attitudes towards the leasing product and its attributes.
- An Equipment Leasing advertising supplement, an advertorial, to be included in most likely a spring edition of Fortune.
- Expanded research into the various business and market impacts of proposed accounting standards changes.
- Strengthen the level of responsibility of the Business Council Steering Committees so that distinct needs of various industry segments can be better articulated and value provided. Improve the quality of customizing programs and services.
- Confirmed ELA’s opposition to federal and state initiatives to codify what constitutes Economic Substance in an activity or transaction because it could result in unintended consequences such as narrowing business or causing confusion. However, the Executive Committee did direct that ELA resources should be used to influence the definition of economic substance if law makers do indeed proceed with legislation.
- Add a Bank Leasing Conference.
- Through the use of technology, expand current conferences or segments of current conferences to more people deeper into member companies.
- Continue the market strategy of focusing on increasing the value of ELA programs to existing members through wider participation in and interaction with the services of the association.
- Approve a 2004 budget of $8.55 million in revenue and $8.5 in expenses.