Banks, Direct Leasing Rapped By AALA

Banks entering leasing, capital gains by lessors and direct leasing by automakers were the major top­ics of discussion at the pre-model year meeting of the American Automotive Leasing Assn. in Chi­cago.

The capital gains discussion was spurred by a report that the federal government will appeal a Hartford (Conn.) U.S. District Court ruling concerning the tax treatment of proceeds of depreciated cars sold by leasing companies. The AALA had entered the case as a friend of the court.

The Internal Revenue Service had sought to disallow deprecia­tion taken the year of the sale to the extent that the sale price to the cars exceeded their depreciated basis. The IRS based its conten­tion in part on the fact that the sale price of the cars was greater than the estimate of salvage value made at the time the cars were ac­quired.

The U.S. District Court ruled that the IRS did not have the right to disallow year-of-sale depreciation in the case, involving Motorlease Corp.

Ellis Lyons, counsel of the AALA, said that no decision on the IRS appeal, scheduled to be heard in New York, could be ex­pected before late winter or early spring.

On the subject of national banks entering the leasing field, Lyons-said that the AALA feels that it is "inherent in its position as an action group to take all possible steps to put the situation before proper legislative groups in the boldest: possible perspective.

National banks were given au­thority to enter the equipment leasing field by Comptroller of the Currency James J. Saxon. Thus far, only two national banks-the giant-Bank of America and the LaSalle National Bank of Chicago-have entered the leasing field. Both banks are concentrating on equip­ment leasing and have made no effort to lease vehicles.

Lyons said that he expects some congressional action concerning Saxon's ruling allowing national banks to enter leasing, but added that legislation currently is "in lim­bo and no changes are expected to come out of the current session of Congress."

Possibly one of the hottest sub­jects at the meeting involved di­rect leasing by auto manufacturers. Chrysler Corp. has been in the di­rect leasing field for more than a year and Studebaker Corp. just an­nounced that it intends to lease vehicles direct.

It was brought out at the meet­ing that while most leasing com­panies have not yet lost any cus­tomers as the result of direct leas­ing, many leasing companies have been "touched" by the rates being offered by Chrysler Corp. Forty-seven out of 70 AALA members answering a questionnaire reported that they have felt some effects from the Chrysler program. Most were reactions from present cus­tomers on the rate question.