Ed Bobit's Publisher's Page

Any change in whatever direction for whatever reason is strongly to be deprecated.-Anonymous: credited to "a Duke of Cambridge," quoted, by Adlai Stevenson, Harper's Magazine, February 1956.

The art of progress is to preserve order amid change and to preserve change amid, order.-Alfred North Whitehead

Progress is a nice word. But change is its motivator and, change has its enemies.-Robert F. Kennedy

Man has a, limited biological capacity for change. When this capacity is overwhelmed, the, capacity is in future shock.-Alvin Toffler

During a week's period in late November, two branches of the U.S. government individually dealt our industry cataclysmic blows that will surely change your business lifestyle and delivered a specific shock to fleet and consumer lessors that will reverberate for months to come.

It all came quite unexpectedly. Our associations, our management leaders, the Washington attorneys, all failed to identify the impending decisions. Leasing companies were collectively enjoying either record or near-record years with new car prices remaining steady, interest rates continuing their fall to workable levels and the used car market as strong as the Merrill- Lynch bull. Then, almost simultaneously, the Ninth Circuit Court reversed a lower court's decision, in the now-infamous Swift Dodge case, ruling in essence that a consumer open-end lease was nothing more than a conditional sales contract. And, in a separate action influenced by the Swift Dodge Ruling, the Internal Revenue Service ruled that Section 210 of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) would disallow any investment tax credits on finance (open-end) leases for business and commercial usage.

Most industry veterans had felt that a "true" (finance) lease had been successfully defended some two decades ago in the Motorlease case. These new implications are sure to produce a major restructuring in almost every lessor's financial and operating procedure for national fleet lessors as well as local retail leasing departments (the exception being a small group currently in closed end leasing). Two nights ago, Bill Nurnberg, WVLA's manager, told his membership to tear up every open-end leasing application in their office and not to write another one. AALA officers and the nation's leading lessors are having "summit" meetings to determine both new direction and to assess the best possible method to change what has happened.

What it may mean is a total switch to closed-end leases. Corporate lessees must virtually forget about removing the vehicles from their financial statement (just after all fleet lessors made the adjustment to "operating leases" during the past year) and get used to earning the ITC and the depreciation. Lessors will have to be very innovative to be more than a "management" lessor performing buying and selling functions. And lessors will have to totally readjust their own service fee and profit packages. Some lessors, like Dresser and CC/McCullagh who have huge tax appetites, may fare much better than those who depend heavily on huge deferred tax credits. Cashflush companies like General Electric may move into both fleet and consumer leasing as never before. Large and small consumer lessors ask what they can do when it is the individual lessee who gets the ITC; what can that individual actually do with the accelerated cost depreciation? How much will the IRS really gain when they shift the tax credits to the lessee but, on the other hand, lose the Use and Rental taxes in many states? It's all devastating and diametrically opposed to the intent of TEFRA.

Although there is one more appeals court to review the Swift Dodge case, there will be intense all-out efforts to change this with the IRS before January 24th (their date for comments). You can help by contacting your own leasing organization.

Do it now; it may be your last chance to view an industry as we know it today. It won't be that way tomorrow.