This category covers establishments primarily engaged in extended-term leasing of passenger cars without drivers. Establishments primarily engaged in finance leasing of automobiles are classified in SIC 6159: Miscellaneous Business Credit Institutions.
Passenger Cars Leasing
The passenger car leasing industry is composed primarily of companies that provide corporate clients with a range of fleet management services in addition to automobile leasing. Fleet management services can be classified broadly as vehicle acquisition, maintenance management, fleet disposition, and fleet support services, which range from fuel credit cards to driver safety programs. The National Association of Fleet Administrators reported that the most popular services were vehicle ordering, delivery to individual drivers, insurance subrogation, and accident repairs. Most companies in the industry also leased light trucks and utility vehicles.
Leasing of cars to individuals boomed during the 1990s, and many automobile manufacturers coordinated more closely with their financing arms and dealer networks to capture a share of this growing market. The automakers' efforts lured some customers away from banks and independent finance companies. However, by the early 2000s, the automotive industry moved away from leasing in favor of offering very low interest rates for new car purchases as well as low-priced used cars. By the mid-2000s, leasing was back up again, offering attractive rates for shorter terms on nicer cars, with a large percentage of consumers qualifying for leases than ever before.
About 30 percent of all company cars in the United States are leased. One-third of all cars were leased in 1996 and one in four persons leased their new car. That figure represented an increase of 400 percent from 1984, and many industry analysts were optimistic that 50 percent of all vehicles would be leased during the early 2000s. However, after a record year in 1999, lease volumes quickly plummeted before going back up in the mid-2000s. There was a surge in new leases, particularly in 2006, amounting to 21 percent higher than 2005 levels. By 2006, the industry was valued at over $5 billion, compared to just $2 billion a few years earlier.
The automobile leasing industry developed in the 1940s as companies looked for affordable ways to provide their sales and service personnel with reliable transportation. Petrolager, a large pharmaceutical company in Chicago, was an early case in point. Petrolager began by paying part of the cost for employees to purchase their own cars, but that became a losing proposition when the employees left for other jobs and took the automobiles with them.
In 1939, Zollie Frank, a car dealer in Chicago, suggested that Petrolager lease five automobiles for its salesmen instead of purchasing them. The benefits were twofold. Petrolager would retain control of the vehicles and avoid large cash outlays. Petrolager agreed, and soon afterward Frank and his brother-in-law Armund Schoen founded the Four Wheels Co., which many in the industry identified as the first automobile leasing company. In 1954, the company became known as Wheels, Inc. It remained one of the largest fleet management companies in the United States in 1997 with more than 160,000 automobiles under lease.
The industry developed slowly, however, especially after the United States entered World War II and wartime restrictions made it almost impossible for leasing companies to purchase new automobiles or replacement parts. However, the industry began to grow in the late 1940s during the post-war economic expansion.
In 1946, three former servicemen—Duane L. Peterson, Harley W. Howell, and Richard M. Heather—formed a partnership in Baltimore, Maryland, to counsel companies on fleet management. By 1954, Peterson, Howell & Heather had incorporated and moved into the leasing business.
The company was credited with developing the industry's first "finance lease." Under the PHH Car Plan, Peterson, Howell & Heather would purchase automobiles and lease them to a client for a set monthly fee. When the lease ended, the company would sell the cars to pay off the balance on its original loan. Any surplus was returned to the client, but the client was billed if the resale failed to cover the loan. In a "closed" or "walk-away" lease, by contrast, the lessee had no financial obligation at the end of the lease period.
In 1981, a U.S. District Court ruled that finance leases were conditional sales contracts, which eliminated many of the tax benefits of "open-ended" leasing. However, although the percentage of closed or "operating" leases...