Rush to Rent

In Los Angeles last week a young mother walked into the newly opened Rollins Charge-A-Car Co., put down $12 and rented a baby buggy for three months. In San Francisco a businessman was negotiating to rent two four-engined planes, worth $4,500,000, through Commercial-Pacific Corp. In Pittsburgh a shipper was dickering with National Equipment Leasing Corp. to rent a 15-tanker fleet costing $126 million. On land, sea and air there is a nationwide boom in equipment leasing, and rental companies are sprouting across the U.S. to supply everything from oil barges to a fleet of diesel engines, a complete rolling mill or a city power plant.

Cars & Planes. The rental rush started with car leasing. Almost overnight, 2,000 companies grew up to rent cars and trucks, and fees now total $350 million a year. Soon these firms were leasing a wide range of light and heavy gear. Rollins Leasing Corp., for example, now has wine presses, printing presses and hundreds of other items on lease in 47 states and Canada. In the past year alone Rollins has fattened earnings by 500%.

Pittsburgh's National Equipment Leasing Corp. has gone after its business so aggressively that it claims to be the biggest diversified lessor of all. Since it first branched out of car rentals in 1954, National Equipment has leased about $35 million worth of equipment. Volume this year alone may come close to $100 million, although the company still works out of a six-man, one-room office.

Typical deal: a foreign airline wants seven Boeing 707 jets at a cost of $36 million. Rather than tie up its own working capital or dilute its lines of credit, it is dickering for a lease. National Equipment plans to borrow the money from institutional investors, buy the planes and lease them. National Equipment's client will rent each plane for eight years, and pay off the full purchase price in rental installments. The lessee will also pay interest on the loans and a fee (usually 1/4% to 2%, although some go as high as 6%) to the leasing company. Says National Equipment President R. L. Boothman: "We engineer the lease, we own the property, and we depreciate the property. Leasing is not cheaper than ownership--but it can be far more profitable."

Capital & Taxes. The big reason why leasing can be more profitable is that it frees working capital to bring in more earnings. Pennsylvania's Anchor Sanitary Co., for example, found it could make more money by leasing its delivery fleet and using the cash, which it formerly tied up in truck ownership, to buy inventory (plumbing supplies). The bigger inventory turned over seven times yearly and brought a 35% return. Anchor Sanitary paid out about one-seventh of these new profits to lease forklift trucks, salesmen's cars, even office equipment.

Leasing can also conserve capital by cutting taxes, especially in states that levy corporate taxes based on a company's physical assets. Since the leased equipment is not counted as an asset, whereas purchased equipment is, taxes are less. For federal taxes, rental payments can be deducted as operating expenses. This, in effect, amounts to a fast write-off, since the rent is often greater than the depreciation that would be allowed on purchased equipment. By leasing, small companies can get the industrial machinery they need for expansion or modernization without a staggering down payment. With money tight, big companies are leasing. Among National Equipment's list of blue-chip lessees: Republic Steel Corp. (locomotives and mill equipment) and Koppers Co., Inc. (a tanker barge, air conditioners).

Cash & Cars. Railroads, which used to buy all rolling stock, are now beginning to lease locomotives, boxcars, flatcars, tank cars, gondolas, hoppers. Among the active lessees: Baltimore & Ohio, New Haven, Rock Island. One major railroad recently needed $13.9 million worth of diesel engines, found it better to lease them for 15 years than to buy them through a conventional equipment trust issue, which would require a 10% to 30% down payment.

Chicago's Hyman-Michaels Co. now has $40 million worth of rolling stock on lease to the roads. Explains Leasing Boss Sheldon Kaplan: "Many railroads have 30-year-old cars, with little money to repair or replace them. We buy the old cars, repair them, lease them back for any term. The railroad gets both the cash and the cars."

Despite the fast growth, most lessors feel that the boom is just beginning. One big reason: the new $100 billion highway program will require far more equipment than contractors can afford to buy.

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