Market Flux Opens Doors for Independent Lessors

The playing field has started to even out in the leasing sector, as the captives that dominated the space for the past few decades curtail originations amid residual losses.

The pullback by captives like Chrysler Financial LLC, GMAC LLC, and BMW Financial Services has opened the door for independent firms like Putnam Leasing Co. to increase business.

“The market for sport utility vehicles has deteriorated to the point where [the captives] are losing a lot of money on every deal,” said Steven Posner, Putnam’s president and chief executive. “We’re getting calls from dealers saying, ‘Help us.’ ”

Historically, Putnam has specialized in the lease of exotic and classic cars. “We do the real high-end stuff,” Posner said. But the current auto market upheaval “gives us the opportunity to lease other kinds of cars,” he added. “It gives companies like mine the ability to lease different kind of cars that we couldn’t be competitive on for many, many years.”

Stamford, Conn.-based Putnam, which is celebrating its 25th anniversary this year, has thousands of cars in its lease portfolio. The average term is four to five years, and the average price tag is $150,000.

Posner, a 31-year industry veteran, spoke with Auto Finance News Senior Editor Marcie Belles about his outlook for the sector and how the current environment has affected his business and leasing in general. Following are excerpts:

AUTO FINANCE NEWS: How has Putnam avoided the problems of so many other leasing companies?
STEVEN POSNER: We offer open-end leases—which means the lessee guarantees the residual.

AFN: How do open-end leases differ from balloon financing?
SP: With an open-end lease, the title is in the name of the leasing company. With balloon financing, ownership is in the name of the person buying the vehicle.

Taxes are different for leases versus balloon loans. A lease is more advantageous in certain states. With balloon financing, you might pay 6% sales tax on a $75,000 vehicle as opposed to 6% sales tax on a $1,000-per-month payment with a lease.

AFN: Will the current industry turmoil spell the end of closed-end leasing?
SP: People are still going to lease cars. Back in the early 1980s, people were used to a certain price for certain cars. The captives were offering [deals] $200 less than what we’re putting it on the street for. People thought, “Why not take advantage?”

Now lessors are going to be very conservative on closed-end leases. There will be no more cheap deals, no more $500-a-month [payments] for a $50,000 car.

For a while, the leasing business will be off a little. It will come down to individuals who really have a purpose to lease a car or don’t want to pay sales tax upfront.

AFN: Have Putnam’s losses or delinquencies increased because of the current economic instability?
SP: Our default rate has spiked a little bit. Even really good people are starting to go bad, like developers and mortgage brokers — anything that touches the real estate market.

We finance “A” credits. But now we have to pay closer attention to people just becoming delinquent, as opposed to chronic poor payers.

AFN: What is the outlook for leasing going forward?
SP: Sixty percent of people don’t go to the end of their lease — that number is going to come down tremendously. To break a lease is expensive. People are doing to stay in their leases. Captive lessors are going to lose even more money. A lot of cars have taken such a tremendous hit.

AFN: What has been the most meaningful lesson you have learned during the past 25 years?
SP: Two things: (1) Never deviate into a market you don’t know. (2) Never think you’re smart enough to think that there is something you can’t learn. I learn new things every week.

AFN: What will be the biggest challenge heading into 2009?
SP: Trying to do more business in a challenging economy. Maintain the momentum we’ve had the past 20 years.