Equipment Rental and Leasing, NEC

SIC 7359

Companies in this industry

Industry report:

This category covers establishments primarily engaged in renting or leasing (except finance leasing) equipment, not elsewhere classified. Establishments primarily engaged in finance leasing are classified in SIC 6159: Miscellaneous Business Credit Institutions. Establishments renting and leasing automobiles and trucks without drivers are classified in SIC 7514: Passenger Car Rental; those renting automobiles with drivers are classified in SIC 4119: Local Passenger Transportation, Not Elsewhere Classified; those renting trucks with drivers are classified in SIC 4212: Local Trucking Without Storage;those renting personal items such as lockers (other than refrigerated), clothes, and pillows are classified in SIC 7299: Miscellaneous Personal Services, Not Elsewhere Classified; those renting amusement and recreation items, such as bicycles, canoes, and beach chairs and accessories are classified in SIC 7999: Amusement and Recreation Services, Not Elsewhere Classified; and those renting commercial boats are classified in SIC 4499: Water Transportation Services, Not Elsewhere Classified. Establishments producing machinery and equipment (including computers and other data processing equipment) which lease or sell their products are classified in the manufacturing industries. Manufacturers' sales branches or offices leasing or selling the machinery and equipment of their manufacturing plant are classified in the wholesale trade industries. Establishments primarily engaged in leasing computer time, including time sharing services, are classified in SIC 7374: Computer Processing and Data Preparation and Processing Services; and those renting or leasing computers or data processing equipment are classified in SIC 7377: Computer Rental and Leasing.

Industry Snapshot

Companies in the miscellaneous equipment rental and leasing industry made short-term equipment loans to their customers for a fee. The industry, in general, garnered sales of $34.6 billion in 2009, according to Dun & Bradstreet. There were 44,313 establishments in the industry, about 70 percent of which were small, employing fewer than five people. However, approximately 75 percent of industry revenues came from establishments that employed more than 10 workers.

Organization and Structure

The miscellaneous equipment leasing industry encompassed the rental of numerous specialty products, including everything from portable toilets and video recorders to tools, pianos, and party supplies. The major product segments were airplanes, business and electronic machines (except computers), and furniture. Aircraft rental accounted for the largest percentage of revenues, with $6.6 billion in 2009. According to the Equipment Leasing Association (later renamed the Equipment Leasing and Finance Association [ELFA]), a trade organization, almost 80 percent of companies leased some or all of their business equipment in 2005. Approximately 6 percent of all office furniture was leased, and a growing number of individuals rented their home furnishings.

Leasing offered numerous advantages for both lessors and lessees. Many companies that leased equipment believed higher productivity and profits were derived from product use, rather than equipment ownership. An airline company, for example, might benefit from investing its limited resources in marketing or ticketing operations, rather than in jets. In turn, companies that leased equipment to others believed that they could do a better job of buying, financing, servicing, and selling equipment than could their customers.

Numerous financial and tax motivations were behind leasing. Companies that leased equipment avoided the risk of investing in an office machine, for example, that might soon become technologically obsolete. Or they might need the equipment for only a short time. In any case, the company was able to deduct its lease payments from its taxable income, rather than having to deduct equipment depreciation. In addition, companies could reduce their apparent debt burden by leasing. Finally, many individuals leased goods, like furniture, simply because they could not afford to buy it or could not obtain credit.

Companies that leased equipment also benefited in several ways. Compared to their lessees, they were often able to acquire equipment at a low cost, liquidate it efficiently, and obtain acceptable financing terms. Lessors were also better positioned to take advantage of some tax laws, like depreciation allowances and investment tax credits.

Lease Types.
The two primary types of leases were operating and finance (capital). Finance leasing companies, the lessors, which are excluded from this industry, essentially sold equipment to their customers, the lessees. The lessee typically rented the item for its entire useful life or agreed to eventually pay for and own the item through a lease-to-own arrangement. About 80 percent of all equipment leased in the United States is finance leased.

Operating leases encompassed in this industry constituted short-term equipment loans. Lessors usually rented an item more than once during its useful life, and lessees did not commit to purchase the equipment in the lease. However, several types of operating leases were actually hybrids of finance and operating leases. The dollar-out lease and the bargain lease, for example, both allowed the user to acquire the equipment for a negligible or undetermined amount at the end of the lease. Under a sale-leaseback arrangement, a company sold its own assets and then leased them back from the buyer. Each type of lease combined different financial and tax advantages.

Background and Development

Phoenician traders rented ships from the Egyptians around 500 B.C., but it was not until the latter half of the twentieth century that a recognizable leasing industry emerged. The introduction of numerous office machines contributed significantly to industry growth during the 1960s and 1970s. Plus, entirely new specialty leasing sectors emerged, such as airplanes, portable toilet rentals, refrigerated freight trailers, and cargo containers.

During the 1980s, the industry flourished in the wake of new tax laws implemented early in the decade. Lessors were able to take advantage of hefty new investment tax credits and higher depreciation allowances. Likewise, lessees benefited by writing off lease payments and, in many cases, reducing their effective tax burden. As a result, leasing of all types of equipment surged. Office equipment rentals, for instance, grew more than twice as fast as overall business investment in new equipment during the 1980s. By the late 1990s, equipment leasing was estimated to be a $207 billion industry.

The industry was hammered in the late 1980s. Many of the tax advantages that boosted industry profits were quashed by the Tax Reform Act of 1986. Furthermore, a U.S. recession during the late 1980s and early 1990s thwarted demand. Importantly, the sizable aircraft leasing business suffered from airline industry infirmity, as airline traffic decreased, and some major carriers filed for bankruptcy. Airline leasing rebounded between 1992, when 2,155 aircraft were under lease, and 1994, when 4,500 aircraft were under lease. By 1996, 58 percent of all domestic operating aircraft were under lease while, worldwide, 44 percent of all global operating aircraft were under lease.

Despite major setbacks, some companies benefited from declining interest rates, which allowed them to purchase new equipment at a lower cost. In addition, a lack of investment capital forced a number of firms to lease rather than buy. Nevertheless, overall U.S. leasing industry revenues declined more than 4 percent between 1989 and 1991 and rose only slightly in 1992. According to the American Rental Association's 1997 "Cost of Doing Business Report," operating revenues rebounded 8.2 percent from 1994 to 1995 for firms within the SIC 7359: Equipment Rental and Leasing, Not Elsewhere Classified industry.
Miscellaneous equipment rental and leasing companies profited from a moderate U.S. economic upswing in 1993 and 1994. Office machine rentals increased an estimated 6 percent, and airline-operating leases continued to rebound from depressed 1990 levels. Relatively low interest rates, a greater general acceptance of leasing options, and the increased risk of equipment obsolescence all appeared likely to contribute to heightened leasing activity.

An industry bright spot in the early 1990s was the furniture rental business. The furniture rent-to-own business experienced rampant growth during the 1980s and early 1990s, culminating in a $3.9 billion business with over 3.6 million customers by 1994. Many of these companies achieved huge profits by charging finance rates of between 40 and 400 percent compared to the 1993 national average rate of 111 percent.

Although most rent-to-own furniture rentals were classified as finance leases, they closely resembled operating leases. In fact, the majority of customers, unable to meet the terms of the lease, never took ownership of the furniture. As a result, federal initiatives in 1993 and 1994 were aimed at reclassifying the leases as operating. At least two federal court decisions in the early 1990s corroborated those efforts.

Although rentals of some products slumped in the late 1980s and early 1990s, economic recovery and strong growth in selected segments, such as furniture, gradually revived the industry as the last decade of the twentieth century came to a close. Demographic and financial trends generally boded well for long-term growth, but the business was strongly influenced by unpredictable tax laws and other legislation.

According to the ELFA, in 2004 the leasing industry provided $220 billion in equipment investment through lease products. In addition, a study by Global Insight determined that from 1997 to 2002, equipment leasing produced between $100 billion and $300 billion additional real GDP in the United States. The study also found that the industry created between 3 million to 5 million additional jobs.

ELFA's monthly leasing index showed that respondents to their survey reported $7.7 billion in new business volume in December 2005, up significantly from the previous month's figure of $3.9 billion. The industry was expected to at least maintain current levels of income and penetration. According to the U.S. Department of Commerce, the penetration level for the equipment leasing industry was 31 percent in 2005, a figure that had held fairly steady since 2000. The Commerce Department also estimated that equipment leasing rose in volume from $247 billion in 2000 to $248 billion in 2005.

The industry received a boost from new leasing innovations at the start of the twenty-first century. Some office equipment lessors, for example, offered one-stop-shopping programs for corporate customers, whereby a single master lease was arranged to cover equipment and furniture for an entire office facility. In addition, Trans Leasing International of Illinois offered the LeaseCard, a credit card that allowed business owners to effectively purchase and finance goods at below-market interest rates.

Current Conditions

Although the miscellaneous equipment renting and leasing industry experienced a slowdown during the economic recession of the late 2000s, industry experts saw signs of recovery in 2010. According to the ELFA's Monthly Leasing and Finance Index for November 2010, overall new business volume was $4.5 billion, up 13 percent compared to the same period in 2009. While ELFA president William G. Sutton observed that "the data continue to show an uneven recovery for the equipment finance business," Kenneth A. Turner of Arizona-based SunTrust Equipment Finance & Leasing Corp. commented: "We are beginning to see signs of growing pipelines and a strengthening in fourth quarter bookings that combine to foster increased optimism heading into 2011. New business volume appears to be most robust in the areas of trucking, technology and healthcare."

In the long term, industry growth was largely influenced by the economic growth rate; interest rates and the supply of financing for new equipment; the stability of the credit environment, which affected the breadth of the market that lessors served; and federal legislation, which could easily bolster or deflate industry profits.

Industry Leaders

One of the largest companies in the equipment rental and leasing industry (not elsewhere classified) in 2010 was Rent-A-Center Inc. of Plano, Texas, with $2.7 billion in sales and 17,400 employees. Rent-A-Center was the largest rent-to-own chain in the United States, having purchased former rival Rent-Way Inc. in 2006 for approximately $600 million. By 2010 the firm had more than 3,000 stores in North America and Puerto Rico. Products available for lease included home electronics, furniture, accessories, and appliances, among a host of other items.

The second largest company in the industry in 2010 was Aaron's Inc. of Atlanta, Georgia. With 10,000 employees, Aaron's operated about 1,675 stores in the United States, Puerto Rico, and Canada. Total sales for the company were $1.7 billion in 2009.

CORT Business Services Corp. of Fairfax, Virginia, was the largest furniture renter in the United States in 2010. A subsidiary of Wesco Financial, the firm leased both home and office furniture through 100 U.S. locations and online.

Workforce

Approximately 245,695 people were employed by this industry in 2010, according to Dun & Bradstreet. California was home to about 12 percent of employees, Texas 10 percent, and Florida 7 percent. Other top employing states were Illinois (5 percent) New York (4 percent).

© COPYRIGHT 2018 The Gale Group, Inc. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. For permission to reuse this article, contact the Copyright Clearance Center.

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