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Leasing company executives weigh in on the latest trends and opportunities.
Above: left to right top row: Buysse, Capparelli; Bottom row, left to right: D’Errico, Fisher, McGaughey
In the latest installment of our virtual panel series, we connect with six leasing company executives to learn about end-of-lease returns, the competitive leasing landscape and its effect on dealers, the impact of A4, and advice for dealers heading into 2022. Each executive was sent six questions and had the option of answering a minimum of four questions and a maximum of six.
Phil Buysse, SVP, general manager, office equipment vendor services, U.S. Bank
CR: What impact are you seeing on end-of-lease returns?
Buysse: Demand for used equipment is the strongest it has been in several years. Prices for used gear had fallen about 20% in the past few years and have come back up about 15% this year.
CR: Has the pandemic made the leasing environment more competitive or less competitive during the past two years? Why or why not?
Buysse: With so many employees working remotely throughout the pandemic, many office equipment upgrades have been significantly delayed. As a result, the leasing environment is more competitive as we are all chasing fewer transactions in the market. The market has proven to be amazingly resilient, however, given the pandemic, one would expect new business volume to be much less than it is and credit quality remains very strong.
CR: What trends that impacted your business in 2020 continued through the first nine months of 2021?
Buysse: For one, the greater utilization of electronic documents and signatures to facilitate transactions in a fully electronic, touchless environment has continued. In addition, we are continuing to have many internal and customer meetings through video calls. While not ideal, there have been some benefits, like the ability to introduce more team members to clients where travel would otherwise not be feasible. Client training has also been easier to conduct due to the flexibility of video services.
CR: We’ve been writing and talking a lot about A4 at The Cannata Report. Do these devices have any end of lease value?
Buysse: Used A4s have little to no wholesale value due to the difference in engines between A3 and A4. Leasing companies and dealers need to be extra careful to make sure pricing and residual values are realistic to avoid very difficult situations. For example, when leasing companies have residual challenges, customers might experience inflexibility on returns and surprise fees as they try to recoup those dollars.
CR: What new product categories are dealers inquiring about when it comes to expanding their leasing options?
Buysse: As you might expect we introduced a product that helps facilitate leasing equipment in a home office environment. This addresses the unique aspects of equipment located in a household like property taxes, delivery and returns. In addition, other demand involves dealing with equipment shortages. Deferral and Delivery Guarantee programs are popular requests, as well as more used equipment financing. Further, bundling of the lease with maintenance in addition to other pass-through services is becoming much more common.
CR: If you have one message to leave dealers with for the rest of 2021 and into 2022, what would that be?
Buysse: They have done an amazing job through all of this. They have been incredibly agile through the pandemic and we’ve been proud to partner with them on developing new solutions to help meet customer needs. As the market continues to evolve, we’ll be right there with them to deliver products and services to allow businesses to operate most efficiently in this new environment.
Nick Capparelli, managing director, LEAF Commercial Capital
CR: What trends from 2020 that impacted your business continued through the first nine months of 2021?
Capparelli: The pandemic has continued longer than some expected, and we’re likely to be dealing with it at some level for the foreseeable future. During 2020, many companies began working remotely to protect the health of their employees. Given the uncertainty, we can expect to see through the end of the year and beyond, remote work and hybrid offices aren’t going anywhere. This will continue to weigh on office technology needs across the country. We’re seeing dealers respond to these challenges by expanding their offerings, partnering with other providers, and developing their human resources to continue meeting the needs of a changing marketplace.
CR: Has the pandemic made the leasing environment more competitive or less competitive during the past two years? Why or why not?
Capparelli: The leasing environment has definitely become more competitive during the past two years with new finance providers entering the already highly competitive office technology space. In order to differentiate themselves from the competition, providers must offer value beyond customer financing to become strategic partners for their dealers. Finance providers that can demonstrate their value by supporting the growth of their dealers through creativity, differentiation, and execution will win in the marketplace.
CR: We’ve been writing and talking a lot about A4 at The Cannata Report. Do these devices have any end-of-lease value?
Capparelli: At the higher end, yes. We find A4 devices work well for downsized office environments, and demand in this area is actually increasing, so there is some end-of-lease value for customers who want advanced functionality at a reduced cost.
CR: What new product categories are dealers inquiring about when it comes to expanding their leasing options?
Capparelli: We’ve seen a lot of interest in leasing for as-a-service offerings, which was a hot topic even before the pandemic. As businesses shift to hybrid, demand is even greater. We’re also talking to dealer after dealer about options for bundling for first- and third-party solutions to support needs across the hybrid workplace. Other needs include fleet repurchase and leasing options for redeployment amid persistent supply chain slowdowns, chip shortages, and other issues affecting new equipment availability and cost.
Michael D’Errico, director, equipment finance, office imaging unit, CIT Group Inc.
CR: Has the pandemic made the leasing environment more competitive or less competitive during the past two years? Why or why not?
D’Errico: The leasing environment has absolutely become more competitive over the last couple of years. Hardware sales have declined and there’s less traditional office imaging equipment to lease – all of which forces leasing companies to provide a more competitive offering. And it’s not really about rates. Instead, there’s a tremendous amount of focus on operational efficiencies. Using technology to better integrate the leasing process into existing ERP and CRM systems can drive incremental revenue by increasing operational efficiencies and improving the customer journey.
CR: What trends from 2020 that had an impact on your business have continued through the first seven months of 2021? What impact are you seeing on end-of-lease returns? (Combined response)
D’Errico: The whole work-from-home phenomenon remains an important element in today’s office imaging industry. For a while, it looked like the pandemic was receding to where back to the office was coming in Q3 and Q4. But the spread of the Delta variant has introduced more uncertainty to the market. As a result, some end-customers are delaying decisions on equipment upgrades because they’re still not sure what the return to office will look like and when. Because many people are continuing to work from home, that means current office imaging machines are staying in place as customers hold on to their existing systems until they have a better sense of when a more normal office environment will resume. In addition, supply chain issues are also contributing to existing equipment staying in place longer.
CR: What new product categories are dealers inquiring about when it comes to expanding their leasing options?
D’Errico: Dealers are increasingly focused on providing software and services as a way of supplementing their customer support options. This includes software that increases operational efficiencies and also help desk services that can alleviate the support burden on clients. This is being driven in part by renewed focus on what part of the overall dealer value proposition is funded up-front at the time of contract versus being billed monthly or quarterly thereafter.
Jennie Fisher, SVP, general manager, office equipment group, GreatAmerica Financial Services
CR: What impact are you seeing on end-of-lease returns?
Fisher: There has been a slowdown in overall dispositions, including returns, during this timeframe impacted first by the pandemic and then by supply chain issues. We are seeing higher resale values for off-lease equipment that has reached the end of term. This is a product of backorder issues on new equipment in production. Some of our resale partners estimate this could continue for another year before things return to normal.
With the high demand for devices, our customers are paying more for older equipment that is available, which creates pressure on margins and their bottom lines. Because it is so difficult to get new equipment, the need to purchase used equipment has become greater.
In response, we are being more flexible with our equipment returns and allowing our customers more time so they can continue to book their deals. End-customers are supplied with a working off-lease machine while they wait for the new device to arrive, which helps our dealers capture an opportunity to upgrade them. We will continue to provide added flexibility in the timing of equipment being received to our remarketers, understanding that current circumstances may pose challenges in the logistics of shipping.
CR: Has the pandemic made the leasing environment more competitive or less competitive during the past two years? Why or why not?
Fisher: With leasing players entering and exiting the space, everyone feels pressure to claim newly available opportunities and protect existing relationships. But the way we rallied around the needs of dealers differentiated us. As an independent, we’ve identified unique solutions to help dealers secure opportunities, even amidst supply chain challenges, while minimizing the impact felt on margins and cash flow. Our flexible programs provide economic assistance and protect monthly pass-thru revenues for dealers. We’re focused on solutions that empower dealers to ease stressors their end-users face around payments. Though we are careful to refer end-customers to the dealer to negotiate relief, our programs provide a vehicle for dealers to extend flexibility to their customers.
The challenges our customers experience evolve daily, and we embrace that. We brought the right education at the right time. As the pandemic hit, we provided CARES Act and Paycheck Protection Program resources via our website, webinars, and blogs. We even began financing personal protective equipment as dealers pivoted to remain relevant. We’ll continue meeting challenges with solutions to help our customers close and fund transactions.
Our support and partnership have earned us a position as a value-added resource to technology providers navigating through this.
CR: What trends from 2020 that impacted your business continued through the first nine months of 2021?
Fisher: Diversification beyond output! Dealers are offering more solutions and services like VoIP, marketing, IT, etc. Our billing capabilities allow bundling of various financing options into a single invoice (1nVOICE).
Dealers that didn’t bundle are realizing it could have helped sustain pass-thru revenues during the pandemic; those who did appreciated how their monthly service and supplies portion continued uninterrupted. Looking ahead, the need to finance and invoice for service is becoming more prevalent, as is increased invoice transparency. The question is what will bundling look like moving forward? Billing all services and solutions on one invoice will remain valuable to end-users. As preferences evolve, we’re prepared to adapt.
Additionally, our Hardware-as-a-Rental solution is an increasingly valuable tool when selling Managed IT and ancillary offerings like security, VoIP, and workflow solutions because it makes it easy to layer in new technologies as dealers grow, scale, and evolve.
Finally, we’re exploring e-commerce within the channel. More consumers are making purchases online as buying habits evolve. We are ready to support this shift, and even contemplated developing our own solution. However, understanding our customers do not want to be tied to an individual finance company or manufacturer, we’ve focused on integrating with available options.
CR: We’ve been writing and talking a lot about A4 at The Cannata Report. Do these devices have any end-of-lease value?
Fisher: Historically, A4s tend to be of lower value at the end of the lease, however that’s not to say they don’t have any value. Some models still perform well at the end of their lease, but there is a higher number that have a significant decline in value. With supply chain challenges, we are finding we are recycling less A4s. We have not seen a drastic change in price, but they’re of more value today due to the high demand caused by backorder issues.
CR: What new product categories are dealers inquiring about when it comes to expanding their leasing options?
Fisher: IT service providers are more essential than ever. Reliance on them grew in the work-from-home world to keep businesses up and running. While that world is fluid, there is reason to believe the office dynamic has changed for the long term. We are fortunate to be working with some very progressive office technology providers who have evolved their solutions into IT, telephony, and services, which has helped to offset some, if not all, of the decline in print volume. To that end, many of the leasing needs are driven by this diversification. There has been increased interest in the GreatAmerica Hardware-as-a-Rental (HaaR) financing program, for those selling Managed IT Services and ancillary offerings like security, VoIP, and workflow solutions.
CR: If you have one message to leave dealers with for the rest of 2021 and into 2022, what would that be?
Fisher: Invest in strategies for expanding your services and solutions for your current base and get creative in closing net new! Lean on your partners to develop programs and solutions that support these strategies and hold them accountable to the results.
Jeff McGaughey, SVP, office technology leasing division, Wells Fargo Vendor Financial Services
CR: Has the pandemic made the leasing environment more competitive or less competitive during the past two years? Why or why not?
McGaughey: The effects of the pandemic have made the leasing environment more competitive, primarily because of an even more challenging environment faced by our dealer partners. Customer needs are changing at an accelerated pace, copy counts continue to decline, and the standard upgrade cycle has been disrupted. All of these factors have combined to alter the needs of our dealers. There’s more focus on efficiencies, meaning a greater need for integration, more seamless interactions, and easier transmission of transaction data. There are also more pass-through services and more requests to finance new types of products.
CR: What trends from 2020 that impacted on your business continued through the first nine months of 2021?
McGaughey: Over the past 18 months, we’ve seen an increase in customers looking to refinance their equipment to lower their payment while extending the term. We’ve been able to support this need and have also successfully worked through tens of thousands of COVID-related contract modifications to assist customers. Interestingly, customers with contract modifications have performed similarly to our overall portfolio in terms of delinquency and losses, so beginning in late 2020, we pivoted back to our pre-COVID underwriting approach. Our approval rates are now higher than they were in Q4 2019. One key trend that has continued to accelerate is the use of e-signature. We have expanded our eligibility for e-signature, recognizing that some in-person interactions are now more likely to take place electronically.
CR: What impact are you seeing on end-of-lease returns?
McGaughey: We are seeing decreased utilization of assets across multiple segments. Meanwhile, economic uncertainty and supply chain constraints have contributed to an increase in the amount of time that machines are staying in place with customers. We recognize the increased value that used equipment has right now and have temporarily given more pricing flexibility to our dealers.
CR: We’ve been writing and talking a lot about A4 at The Cannata Report. Do these devices have any end-of-lease value?
McGaughey: If the equipment that was originally sold to a customer was appropriate for the intended use, and if it was maintained throughout the term of the contract, then it usually has some value at the end of the contract. We are starting to see secondary markets for the A4 products, although they aren’t necessarily the traditional export markets.
CR: What new product categories are dealers inquiring about when it comes to expanding their leasing options?
McGaughey: We have seen increased interest in several products and services, including complex security systems, networking solutions, work-from-home bundles, VoIP solutions, and document management software. We continue to work with our dealer partners to design products/financing approaches that meet the needs of all parties – the dealer, the end-user customer, and the finance partner.
CR: If you have one message to leave dealers with for the rest of 2021 and into 2022, what would that be?
McGaughey: We know that it’s been a challenging 18 months, and Wells Fargo is here to help the dealer community execute on their growth strategies. It’s the personal mission of our team to continue simplifying our internal processes and to keep investing in technology that makes it easier to do business with Wells Fargo. During the pandemic, we collaborated with our dealers on a host of new challenges. It’s during these challenging environments when you really see whether a business is committed for the long term. As we head into 2022, the environment is certain to change again. Wells Fargo is well-positioned for both future challenges and new opportunities in the office technology market.
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