"You can see the signs of recession all around us. Production is falling off. All business now is operating at 82-percent capacity. Retail sales have been going down. Personal income is down. Exports to foreign countries have declined. Everywhere you look, the economy today is worse than I anticipated."
A bleak economic forecast for 1980? Hardly, because the speaker went on to say, "the best estimates I have for the automobile industry is that we will be lucky is 1958 is even as good as 1957. The inventories are going to become troublesome. I look for some very drastic cuts in production," predicted Dr. Earle L. Rauber, vice president and director of research for the Federal Reserve Bank of Atlanta. The date was December 5, 1957 and his comments were made before the young American Automotive Leasing Association (AALA) at the Eden Roc Hotel in Miami, Florida.
Over 20 years have passed since that speech, and while the economic picture may not be much brighter than that outlined by Dr. Rauber, AALA again has met in Florida, this time to mark a major milestone, the organization's 25th Anniversary. Through economic ups and downs, one thing has remained constant - AALA's dedication to serving the interests of America's automotive lessors.
While AALA was officially founded in 1955, the impetus behind early organization efforts was provided by the Internal Revenue Service which, in 1953, issued Revenue Ruling 108 that sought to deny leasing companies capital gain treatment on the sale of their used leased vehicles. A meeting was organized by Zollie Frank of Four Wheels, Inc. and the late John B. White of Business Fleets, Inc. to determine an industry response to the rule and it attracted representatives from 24 leasing companies.
Among the list of those attending that first meeting on September 15, 1953 were the names Jess Raban, Armund Schoen, David Brockman, Ken Glaser, Michael Silver, Paul Minnich, Hubert Ryan, Milton Weiner, P.J. Deasy and others. These persons would prove to be the driving force behind the move to establish AALA. As a result of that meeting, two attorneys and a tax accountant were retained to present the yet unnamed group's case in Washington. In addition, a committee consisting of Zollie Frank, Paul Minnich and David Brockman was appointed to formulate plans to organize an association dedicated to all companies engaged in auto leasing.
Many small committee meetings, letters and telephone calls later, another general meeting was convened on October 21, 1955 and it was decided that a national association was needed to represent the interests of lessors if the leasing business were to survive. A month later, on November 17, the first Auto Leasing Conference was held, and chairman John White appointed an executive committee comprised of Kenneth Glaser, Milton Weiner and Armund Schoen to finalize recommendations by the group for the organization. At that time, the law firm of Perlman, Baldridge, Lyons and Browning was retained to represent the organization before the IRS and those present voted tentatively to name the organization the American Automotive Leasing Association.
The group met again on December 9 and it was agreed that the association's first general meeting would be held the following July 9 and 10 in Hershey, Pennsylvania and the group's first officers would be elected at that meeting. Schoen, who chaired the December 9 meeting, was elected the association's first president; Kenneth Glaser was named treasurer and Jess Raban secretary at the Hershey meeting. The name AALA was approved by the 19 firms represented at the meeting and Ellis Lyons, the group's new counsel in Washington, D.C., discussed the IRS Regulation on depreciation which was issued on June 12. Kenneth Glaser and Michael Silver also lead a discussion on operating costs of long-term leasing companies which was based on operating cost figures submitted by seven member companies, a study that is still conducted and discussed annually by the AALA.
The group's second general meeting was scheduled for six months later, February 15 and 16 in New Orleans and at that time, Schoen was re-elected president, Glaser and Arno Neuber were named vice presidents. David Brockman was elected treasurer and Jess Raban was re-elected as secretary, a position he held until his death in 1968.
By early 1957, a pattern was emerging for the organization's meeting which is basically followed today. The annual meeting is held in January or February, the cost analysis study is made an important segment of each meeting, a look at the economic picture of the country as a whole is presented by a prominent economist, and Ellis Lyons updates the membership on the Washington scene.
While much work was being done to set up the mechanics of the organization, equally important work was being carried on in behalf of the organization in Washington, D.C. The early successes of AALA's legal staff on tax matters before the IRS and the court system lead to the establishment of AALA as the auto leasing industry's voice during the organization's formative years.
After AALA's presentation before the IRS during 1955, the service adopted a final version on Revenue Ruling 108, the regulation that started the move to organize AALA. All features of the proposals to which the association objected to had been removed. Looking back at that victory at the AALA's 20th Anniversary meeting in Palm Springs in 1975, AALA's general counsel, Ellis Lyons said, "AALA could well have come to an end at that time. The immediate goals seemed to have been achieved. The association had only a tiny membership, it had little or no money, and with the crisis apparently abated, there appeared to be little basis or incentive for existence, let alone growth. But the determination and perseverance and actual hard work of the founding members assured AALA's continuance. The association grew both in strength and in membership."
That strength and membership was again quickly tested as the IRS began disallowing the capital gains declared by leasing companies in selling their used units on the basis that their depreciation rates were wrong.
The new organization again came to bat for members and non-members alike recommending that a survey by an impartial organization of economists on depreciation rates be undertaken and the information used by the membership in backing up depreciation rates when questioned. As a result of that recommendation, AALA retained the prominent economic consulting firm of Robert R. Nathan Associates to make a comprehensive basic economic study analyzing the factors entering into the price of used cars.
"Based on that document, together with more refined materials later on, the members were provided with annual prognostications of what the most commonly used lease car models would be worth at the end of the various periods of time after being placed in service," Lyons said. The reports "were one of the most helpful and impressive undertakings of this association and that many companies informed us that revenue agents, upon being shown these studies, very readily gave up their contesting a company's salvage estimates."
While Nathan reports were successful in their own right, yet another challenge to capital gains treatment of income by lessors was being made in U.S. Tax Court during 1959. Again the AALA responded to the challenge, called the Charlie Hillard case. Lyons said the court "decided that an automotive leasing company held its cars primarily for sale to customers, rather than for use in the leasing business. This meant that all gains were taxable at ordinary income rates, rather than at capital gains rates. And, of course, the overflow effect was that depreciation would probably not be allowable because the cars were deemed to be inventory. It was believed by most observers at the time that that decision constituted a threat to the very existence of the automotive leasing industry."
While the facts of the case were difficult since the company in question was reporting large losses in the leasing operation and large gains on the sale of the used car, AALA decided it should become involved in the appeal on behalf of the membership to protect their interests. "In view of the difficult fact situation," Lyons said at the 20th Anniversary, "we felt that we would be lucky to get just one sentence in the court of appeals' opinion stating that not all cases of leasing vehicles for relatively short periods of time followed by a sale constituted a holding primarily for sale, with the consequent disallowance of all capital gains and depreciation. If we could accomplish just this, it was believed that an argument could then be made to preserve capital gains for most of our members, whose depreciation rates were more reasonable."
It was an interesting victory for the AALA, for after the organization filed its brief, the government filed a supplemental document departing from its main brief and conceded most of the arguments made in the AALA document.
An even more interesting development took place as there were two automotive leasing cases pending before the Supreme Court, involving the meaning of "useful life" and "salvage value." While the AALA was not involved in these cases, the Solicitor General's office requested copies of the AALA brief in the Hillard case to attach to their cases before the Supreme Court. "This was most unusual," Lyons said, "because here we had the government in the Supreme Court supporting a brief filed against it in another Federal Court in a case not yet decided. Then to complete the picture, the Supreme Court in its opinion referred to our brief, quoted from it with approval and referred to this association as the legitimate industry spokesman."
Not only had AALA been given recognition by the highest court in the land, but the Fifth Circuit reversed the Tax Court in the Hillard case and adopted every point AALA made in its brief. "Leasing was held to be a legitimate enterprise, independent from selling," Lyons said.
The final chapter in the case of capital gain treatment of used vehicle sale income was to be written after Congress eliminated capital gains for depreciable property. In rendering its decision on the two cases at the time of the Hillard Case, the Supreme Court said in passing, "To further insure a correct depreciation base in the years after a mistake has been discovered, adjustments may be made when it appears that a miscalculation has been made." As a result, IRS agents took the position that every time a gain was realized, a "mistake" had been made requiring an "adjustment" to the depreciation rate to eliminate the gain. One case was selected to represent the industry's position, the Motorlease Case, and it was litigated all the way to the Supreme Court where a final victory was won in March of 1996.
Lyons said it was gratifying to have the Supreme Court consider the case even though the case had little continuing importance and the adverse ruling by the lower court would have been the rule for cases not settled in light of congressional action to eliminate the capital gains provision in the tax law. "I have always been satisfied that it was the existence and vitality of AALA which turned the tide. In our petition to the Supreme Court, we were able to show, as industry spokesman, that Motorlease was not an isolated case, that many cases all over the country were still pending involving tremendous sums of money and that the issue was worthy of attention of the Supreme Court."
While the legal staff, assisted by volunteers from the Association, went about representing the interests of the members, AALA was growing. By 1959 the association had grown to more than 60 member firms, more than three times the 19 firms that were represented at the group's first official meeting in Hershey, Pennsylvania, three years earlier. That growth was continued through the Sixties and by the 1965 meeting, AALA's 10th Anniversary, the membership roster stood at 75 firms.
In 1968, the position of executive secretary was filled by Sidney Rose following the death of Jess Raban, who held the position as secretary since AALA's inception. Rose, who worked with industry pioneers such as Zollie Frank at Wheels, and earlier helped establish a leasing operation for J.R. "Bud" Selig in Milwaukee, had been Raban's assistant since 1957.
The late Sixties saw the membership's interest turn towards odometer and warranty legislation and the burgeoning electronic data processing industry.
The Seventies dawned with AALA's 13th Annual Meeting. Prior to the official opening of the meeting, AALA's executive committee met with members of CATRALA to discuss mutual problems, promote membership in both organizations and plan ways to solve problems that arose on the state legislative level. The meeting was a sign of future cooperation that lead to an eventual realignment of leasing and rental associations as the decade came to a close.
The early Seventies also marked the beginning of the end of the big car, as the Arab oil embargo followed by a deep recession left the new and used car markets in a shambles. The tight and tough economic situation let to the theme of AALA's 20th Anniversary meeting in Palm Springs, as "Survive in '75." John C. Sawhill was a featured speaker and he remarked, "Simple survival is precisely what most businessmen will be focusing on over the next 12 months as the country descends into the worst recession since the end of World War II." Sawhill added that the used car market would continue to strengthen, but the future of the large car was less certain.
While members learned to survive in '75 and went on to have better years, a group of volunteers headed by John Blessing of McCullagh Leasing and John Bennett of Bennett Leasing met with other renting and leasing associations to discuss mutual problems. The discussions sought a means to align the renting and leasing associations so that each group represented the individual needs of their membership while at the same time, matters that affected all leasing and renting associations could be dealt with by a cohesive, unified voice.
As a result, in 1978, the national Car and Truck Renting and Leasing Association (CATRALA) was dissolved and the American Car Rental Association (ACRA) and the Truck Renting and Leasing Association (TRALA) were formed, while AALA went on to represent the interests of the automotive leasing companies in America. The state CATRALAs were left intact and their efforts coordinated with the national groups under the Conference of American Renting and Leasing Associations.
As the new decade begins, AALA enters its second quarter century of service to an industry that has grown dramatically in its first 25 years. Despite uncertain economic times ahead and under the new alignment of renting and leasing associations, AALA will continue to speak and work effectively in representing the interests of its membership.
Past Presidents of the The AALA
Four Wheels, Inc.
Lend-Lease Transportation Co.
Feld Operating Service, Inc.
Rollins Leasing Corp.
Fleet Leasing of America
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