Leasing: mature industry, new wrinkles; Equipment leasing offers time-honored arguments for risk avoidance, balance sheet management and outsourcing-type servicing. Interest rates and concerns over accounting treatment are making an impact in 2005.

• Author: Marshall, Jeffrey
• Position: Leasing

Sometimes it seems that just about anything that could be leased already is--trains, planes and automobiles. Computer hardware and software. Power plant equipment, assembly line manufacturing gear. Ice cream makers, ovens for bakers.

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Then there have been some oddities that Shawn Halladay, managing principal of the Professional Development Division at the Alta Group, a lease consulting firm, has seen in recent years: cattle, retreaded tires, the global positioning system (GPS) devices on trucks. "Some strange things get leased," he says.

But leasing is certainly ingrained in corporate America, especially for items like heavy equipment, transportation vehicles and computer hardware. With such a mature industry, a few predictable things have come to pass. Consolidation has risen, just as it has in banking, and specialization has brought strong industry focus to specific vertical niches.

Statistically, leasing appears to have plateaued in terms of its overall penetration of the capital goods financing market. Statistics from the Equipment Leasing Association (ELA) bear this out: leasing's estimated 2005 penetration rate, or share, of 31 percent is the same as it was in 2000-1, and down slightly from its peak of 32.3 percent in 1992 (see table).

"The penetration rate is pretty constant at 30 to 32 percent," says Halladay. "In some [industry] sectors, it's much higher--Xerox probably leases 85 percent of their equipment." In certain areas of the world, he adds, there is room for growth in equipment leasing, and European companies, he believes, need to show more willingness to take some risks and invest in leasing expertise.

Changes in accounting that have bedeviled many areas of finance haven't convulsed leasing, either. The basic rules governing lease financing haven't changed since the 1970s--though some experts see some changes in the wind as international accounting convergence draws closer.

What has evolved, then, is a mature industry in which specialization and time-honored claims of advantages to customers rule the day. The basic economic reasons for leasing remain, says Ralph Petta, vice president of Industry Services for the ELA: avoiding equipment obsolescence, balance sheet management, putting the credit risk to the lessor and not having to deal with issues like remarketing used equipment.

"There are risks in owning the equipment," Petta says. "There are budgetary limits at corporate level, the issue of large...