Canadian banks are lobbying intensely for the right to offer leases to consumers at car dealerships - a privilege banks in the United States have had since the 1960s.
Toronto-area auto dealer Gord Wilson is a leader among Canada's car dealers, in an equally aggressive lobbying campaign to keep the banks out. Two factory lobbying groups have joined the dealers in squaring off against the banking industry.
'It's just too good a business for us, and too important,' Wilson says.
If banks were allowed, Wilson could probably pocket a pretty penny by selling his independent leasing business to a bank. Instead of hoping for such a ruling, however, Wilson says selling out would not be 'good, long-term thinking.'
Billions of dollars are at stake. Total auto loan and lease financing in Canada amounted to $31.1 billion Canadian (U.S. $20.4 billion) in 1997. About $19 billion Canadian (U.S. $12.4 billion) of that was leasing, according to DesRosiers Automotive Consultants Inc. of Toronto.
Leasing represented a whopping 46 percent of Canadian vehicle sales of about 1.4 million in 1997, compared with just 4 percent in 1990. In 1990, the value of loans exceeded the value of leases by a 4-to-1 ratio. By 1997, the value of leases exceeded the value of loans by 2-to-1, according to the consulting firm.
Leasing is not as popular in the United States - no higher than 36 percent of vehicle sales in 1997, without counting fleet or business-use leases, according to estimates.
Keep it growing
Wilson's leasing company, Wilsand Leasing, is based at his Wilson-Niblett Chevrolet-Oldsmobile dealership, where he is general manager. Wilsand employs four people in the Toronto suburb of Richmond Hill, Ontario, and leases about 100 to 125 vehicles a year. But Wilson says it is profitable, and he wants to keep it growing.
Wilson and Canada's 3,500 new-car dealers want the banks kept out, in part because they think it is a conflict of interest for the same institutions that also finance dealer inventories, hold dealership mortgages, and handle operating lines of credit, to also be directly leasing vehicles.
Dealers also argue that since the government expanded bank powers, in an earlier series of financial-services reforms, banks have almost completely taken over brokerage firms and trust companies. Opponents of the banks do not want the same thing to happen to vehicle leasing.
Unlike the United States, Canada has strict regulations that have limited the size of foreign banks, so the six largest banks are national in scope, and account for 80 percent of all deposit-taking. In the United States, the corresponding number is just 15 percent, in part because most U.S. banks serve local or regional markets.
The banks counter that they have no plans to offer leasing in their branches; they simply want to provide another financial service at the dealership, and make leasing more competitive, which would be good for consumers.
'We think that the evidence shows that consumers would benefit from more competition,' says Alan Young, vice president of policy for the Canadian Bankers Association, a lobby group for Canada's big banks.
'Having a dealer being able to offer a bank leasing product is another arrow in the quiver of the car dealer,' Young says.
80% by captives
The banks argue that leasing in Canada is quite uncompetitive, because 80 percent of the market is held by the automakers' captive finance companies. Dealer leasing companies have about 8 to 12 percent, and independent leasing companies hold the rest.
In the United States in 1996, captive finance companies held 43 percent of the leasing market, banks had 32 percent, independent leasing companies 14 percent and dealers, credit unions and others about 12 percent, according to a study done for the Canadian Bankers Association.
A study commissioned by the Canadian banks says the banks' presence in leasing in the United States reduces interest rates for consumers. A survey of U.S. and Canadian Chevrolet, Dodge and Ford dealerships found that interest rates on three-year leases were 1.2 percentage points lower in the United States than they were in Canada, at a time when Canadian mortgage rates and treasury bill rates were higher than U.S. rates.
The study also says U.S. banks introduced such innovative products as long-term leasing, full-disclosure leases and used-car leasing.
The automakers' lobby groups, the Canadian Vehicle Manufacturers Association and the Association of International Automobile Manufacturers of Canada, countered that the interest-rate study was flawed because it measured leases that were not subvented, which is just a small percentage of all leases. The debate over that study alone demonstrated the vitriol of the debate between carmakers and the banking industry.
A lot to lose
Another issue is what the parent companies Chrysler Canada Ltd., Ford Motor Co. of Canada Ltd. and General Motors of Canada Ltd. have to lose if the Canadian banks are allowed to lease directly.
Reports filed with Canadian securities regulators show that profits soared for the finance arms of those companies - which are wholly owned by their parents in the United States - as leasing exploded in the 1990s.
GMAC Canada's profits surged to U.S. $85.2 mil- lion in 1997 (the latest full year for which results are available) from $13.8 million in 1993. Ford Credit Canada's profits jumped to $49.2 million from $24.9 million in the same period, while Chrysler Credit Canada profit soared to $34.1 million from $5.5 million.
The Canadian government is wading through a series of studies on the issue, starting with an independent task force report that recommended last fall that the banks be allowed to compete.
That was followed by two studies by politicians arguing that the status quo be maintained, and three other reports on the issue, some of which fell down the middle. A decision is expected by spring.
Canadian analyst Dennis DesRosiers, president of DesRosiers Automotive Consultants, says if the decision is made on the basis of politics, the government probably will side with the car dealers and the automakers, because car dealers are highly visible people in the constituencies of Canadian politicians.
Issues such as the threat of layoffs and potential lost business, he says, scare the politicians.
Greg Keenan is a free-lance reporter based in Toronto.