by Frank Cannata on Monday, December 15, 2008
In today's competitive environment, one more troublesome factor has been added to the mix: leasing companies who claim they own the customer. It is hard to believe the rationale that a few of these financial institutions have promulgated to justify some of the most horrendous practices being reported by dealers.
On the one hand we have dealers putting pressure on their leasing partners to provide extremely low or aggressive rates. To gain or retain the business, some, and I repeat some, have elected to satisfy that demand. Other financial institutions have wisely said, "Not from us."
The leasing companies who provide these "low rates" have to inflate the residuals in order to make it work. With the transition from analog to digital, it became painfully obvious that the residual values on the leased inventory were inordinately high and totally unsupportable.
The problem arises at the end of the lease when the dealer elects to go with another leasing provider. That is when the fun begins. It starts with fuzzy or vague end-of-lease requirements. The term "evergreen" is used when the customer has passed the period that allows him or her to terminate the lease. They often are extended without the consent or even knowledge of the customer. But that is only half of the story.
The dealer, knowing full well when the lease is to expire, replaces the old machine with the latest MFP model. The transaction is written with a new leasing provider. The dealer picks up the old machine and prepares it for replacement. Unfortunately the customer continues to receive invoices for ìevergreenî payments. Dealers, in order to save the customer, do battle with the former leasing provider. In some cases they continue to make payments (on behalf of their customer) or reach some sort of settlement.
Another tactic employed by these unscrupulous leasing companies is with the returned inventory. The machines are scrutinized for defects and bills are sent for some very suspicious damages. Dealers have taken to bench testing the products they return to some leasing companies. They go so far as to take digital photographs (360 degrees) of the machine. One dealer said, "We take the pictures with copies in the exit tray and then enclose those copies with the machine to show that the product was in working order." There in a nutshell is the problem.
The leasing company who caved in to market pressure (to buy market share) has to engage in this type of behavior to recapture their investment. It is a poor business practice and they fail to understand that there is a downside to taking those kinds of risks. There is a larger downside, a dealer community that excels in communication.
If a dealer elects to sell a machine at a low price, he/she does not attempt to go to that same customer and look for ways to extract additional revenue. What they try to do is service the customer and provide a level of support that will ensure customer retention and an upgrade at a more profitable margin.
Leasing companies cannot do that. They buy the business and scream foul when the dealer elects to go elsewhere with the upgrades. They then rely on the law of caveat emptor to stake claim on the customer in order to receive sufficient added revenue to make the transaction profitable. Thus they claim they own the customer, at least until they make money.
We talked to some dealers and asked them to express their views on the situation that we have outlined. Here, in their own words, are the experiences and responses of one of those dealers on the activities we described.
A Dealer Adds His Opinion
The first dealer we spoke to was Leon Mordoh, HPS in Indianapolis. Mordoh is a long-time copier dealer who currently represents Savin and Toshiba in his market area.
"I have heard about all of these problems. They (leasing companies) do not own the customer; HPS owns the customer," he said. "There is one exception and that is when you use private label leasing. Our arrangement is that if our customer elects to keep the machine, we share in that revenue."
We asked Mordoh if he had problems with returning product to a leasing company. "Yes we have! We bench test the product and make sure it works and then take digital photos to make sure that we can prove there were no damages when we put the machine in the box."
We inquired if bench testing is really necessary or perhaps an extreme step. "What happens is the customer continues to get billed and if we did not do that we would not have a way to combat the charge that the product was defective."
I also asked him about his current leasing partner. "My present leasing partner (GreatAmerica Financial Services - "GreatAmerica") has never done anything like that. I have experienced these problems first hand and have taken steps to ensure that it does not happen to us again," he responded. "I will say that negative experience has only been with one leasing company." Mordoh was also quick to add, "There are dealers who will engage in some unethical practices in regard to their leasing company. It would be unfair to say every dealer who complains about a leasing provider is 100 percent correct. What I will say is that the complaints, from dealers that I know, are absolutely legitimate."
Mordoh likes doing business with GreatAmerica and believes it is a great company to partner with. "They are quick to get back to their customers, just the way that I instruct my people to respond." Mordoh also commented that GreatAmerica will help him and they are great people to work with. ìRight now they are the best as far as we are concerned," he added.
I asked Mordoh if he could give us some examples about the things that GreatAmerica does to help his business. "If there is a billing issue, they resolve it quickly. Sometimes we get their checks and they will get ours because of our private label leasing arrangement. They wire transfer the money the next day and that helps our cash flow."
This is part one of a two part series entitled "WHO OWNS THE CUSTOMER?" In our next article, we interview a couple of copier dealers to see if their experiences have mirrored Leon Mordoh's.