Christopher Menkin

Cash for Clunkers May Cost Up to $45,354 Per Vehicle

The point as noted by many readers is the assumption of 200,000 old mileage cars
being traded in---that may have been in better
times, and how many of the numbers include
25 year old cars is a good question, but the
fact is it is a stimulus, raising consumer confidence,
getting more money into circulation to not only
the owners of car dealerships, but the entire
employees of the dealership and those also
involved in the process of making, delivery, and
even floor financing. It is "encouragement"
of the economy.

The $650 Billion Leasing Industry Has Dramatically Changed

Many Leasing News readers missed the point, therefore I wrote a follow-up article, not submitted to Alpha, as I didn't know how many would really be interested;

Back to the Future
by Christopher Menkin


I feel like the guy in the old joke of getting the elephant to move, as several readers thought I was being "overdramatic" in the conclusion of my article in Wednesday's edition,"$650 billion Leasing Industry has dramatically changed:

"2009 will see more leasing companies folding and more leasing brokers leaving the marketplace. The good old days of leasing being 'easy money' will soon be a memory.

Remember me?

The preface was longer than I wanted and perhaps appeared to be a quick history of leasing that ran from the 1960's, showing the changes in the industry until today. The crux was that securitization of portfolio's is not only is it drying up, it has dried up. The DZ Bank exit was a very good example. Those who grew their marketing companies based on this will not be around in 2010, maybe sooner.

You need equity and banks loans again to be a lessor. Back to the future!

Banks are NOT looking for portfolios. It is the opportunistic unregulated companies that are seeking those out. Most portfolios sales now come with a significant (or at least a portion) of delinquent or defaulted accounts. This is not an area where banks excel. Banks are selling to raise cash in order to keep or get their ratios at the required levels (loan to deposit, etc). The securitization market (where banks provided most of the funds as a pure lender) has dried up as banks simply don’t have the liquidity to lend into these environments and the credit quality of the typical end lessee and the guarantors have deteriorated to the point where the risk associated with the portfolio credit quality doesn’t meet bank lending criteria.

You need to keep in mind that banks loaned at low costs into these structures as there was little perceived risk as the loans were primarily GUARANTEED by a high quality insurance company. (AIG, AMBAC, etc). With these guarantors out of the market or simply becoming a risky credit themselves there is nothing to keep new securitization portfolios bankable from a credit perspective. Companies that are now purchasing existing portfolios do indeed make money off the late charge provisions in the leases as lessees are slower to pay now. This is mitigated of course with the losses from contracts that default in the portfolio which surely will happen.

There is surely money available if you have a good track record and you want to pay for it.

The trick today is to purchase a portfolio at a big enough discount so as to be able to absorb the 'sure to come losses' and enjoy the late fees and high yields which come from purchasing the portfolio well under par.

Those with the cash, who have investor partners, who have the gold to make the rules, they will not only survive in this environment, they will win the deals with profitable margin and great success.

Now is the time to really get serious, read more, attend conferences, even take some college courses, learn, as the next few years will not be easy in the leasing and finance industry.