Leasing companies should be able to salvage something out of the costly excise tax reductions. While leasing companies are going to lose money because of lower used car prices, they are going to gain something that money cannot buy-clear evidence of the value of leasing, Leasing companies are not the only ones in the fleet business who will lose money because of the excise tax reductions. Company-owned fleets also could suffer because used car prices could drop proportionately more than the excise tax reduction. Leasing companies should be quick to point out that in most cases, such losses could have been avoided if the company had been leasing cars. As we have stated many times before, there are both advantages and disadvantages to leasing and it is up to the individual company to decide whether a leasing arrangement fits its particular needs. The potential loss from a sharp drop in used car prices is something that has to be considered.

Leasing companies should be thankful that the excise tax reductions were not sharper. There had been a move afoot to eliminate the entire 10 per cent tax in a single swoop. This would have been disastrous. Such a reduction probably would have forced some under-capitalized leasing companies out of business. We believe that excise tax reductions, as passed, will inflict a temporary hardship on some leasing companies but probably will not force anyone out of business. As Jess Raban noted, the reductions are something the industry can live with.
We feel that trade groups such as the American Automobile leasing Association, deserve a lot of credit for making it clear that a flat 10 per cent reduction would have disastrous effects on the industry. AALA officials met with Treasury officials and Congressional leaders to get their point across. And they faced stiff opposition from lobbying groups that wanted the full 10 per cent.

It will be interesting to see what effect the excise tax reduction will have on new car sales. Experts seem to be mixed in their conclusions. Some feel the reductions will greatly stimulate sales while others feel that new car sales will remain fairly constant.

Actually, there is no way of knowing what effect the excise tax reduction will have on used car prices. However, if past performance is any indication, used car prices should drop proportionately more than the 3% excise tax reduction, and later stabilize at about the same price decrease as new cars.

In England, for instance, where taxes on new cars were recently reduced by 12.5% this is exactly what happened. A survey taken by Glass's Trade Guide indicated that after a short period or fluctuation used car prices leveled off at almost exactly 12.5% less than before the tax was reduced.

Thus the fleet operator who trades cars immediately probably will suffer a greater loss than the fleet which waits out the stabilizing period.

Following are typical reductions in new car prices. A Chevrolet Impala, 2-door hard top with standard V-S engine, automatic transmission, power steering and brakes, and radio, will be reduced $67.30. A Mercury Comet, 2-door hard top with similar equipment will be reduced $62.86. A 2 door Rambler American without optional equipment, will drop $37.00

Fleet operators should make certain that they get any refunds due them under the excise tax program. On cars sold between May 15 and June 21, the 3 per cent reduction will be refunded by the auto manufacturers. After June 21, it is up to the auto dealer in pass along the savings in the form of lower suggested retail prices. While most dealers will do so, there is always the fast-buck artist to watch out for.