Few users, finance directors or stockbrokers’ analysts like to admit that they really don’t have a clue about the computer leasing business or how it works. Janice McGinn meets two former leasing luminaries ready to spill the beans and to mark users’ cards.
A new consultancy company called Leaseguard, based in Henley-on-Thames, Oxfordshire has been set up to provide training and advice on computer leasing, and how to avoid its associated pitfalls. It was established in April by Peter Mullin and Stuart Jeffcoate, both of whom worked within the leasing industry for a number of years. Jeffcoate, ex-Amdahl and Meridian, and Mullin, ex-ICL, Xerox, United Leasing and Meridian, believe that an understanding of leasing and all that goes with it is sadly missing amongst users. Mullin claims that while there is copious press coverage of the industry as a whole, users suffer from a lack of specific information, and an implicit attitude within the leasing industry that says only those in the know have a right to know. He believes it is important that users have access to an informed independent body that can advise them on an individual basis, and also take a stance on controversial issues affecting both users and suppliers. Consequently, for around UKP500, this poacher turned gamekeeper promises to provide an intensive one-day course on how to negotiate the terms of a leasing contract.
Tricks of the trade
The course is primarily aimed at managers who don’t have the skills necessary for making a leasing decision. It kicks off by discussing the merits of different agreements, such as finance versus operating leases, and goes on to explain how leasing companies make money, often at the user’s expense. Mullin claims that many agreements are ambiguous and leave the user open to exploitation, particularly at the point of upgrade. The course also advises on how to negotiate a better deal, and Mullin stresses the need to balance contractual terms and clauses against the price. He believes in a team approach, whereby legal and finance departments work from a basis of knowledge of what the agreement means to the leasing company, and how it can use the agreement in the future. Finally, the course examines various tricks of the trade, which include add-on costs, notice periods, and sub-lease restrictions. In addition to the course, Leaseguard provides a consultancy service which consists of portfolio evaluation, lease analysis, planning and implementation, and on-going support. The company will evaluate a client’s existing equipment and obligations, and advise on portfolio management. Secondly, it will analyse proposed agreements and outline any potential pitfalls. It will then plan a strategy for future acquisitions, something Mullin believes to be particularly important. He says that users tend to leave too little time to make correct decisions, and that they should plan their approach to leasing companies way in advance of an agreement. Finally, Leaseguard will provide future ad hoc advice, and if necessary, negotiate on the client’s behalf. The company has six major clients so far, including Dun & Bradstreet Europe, and according to Mullin, there are two types of user. The first, generally large experienced users, recognises the need for guidance and advice on the complexities of leasing. The second group, the AS/400 users, seem to have some sort of machismo problem. Until they have actually suffered at the hands of a leasing company, they either don’t know, or won’t recognise that professional guidance would prove invaluable. Apart from Leaseguard’s commercial services, Mullin wants to see the company established as an independent authoritative voice on leasing issues, and he voiced some of his thoughts on the current state of play. He believes that IBM’s reputation for offering the cheapest products in the leasing market may be an indication of its concern over its quarterly figures. But more likely, it is an attempt to undermine second and third party companies, and regain its position of dominance with users. However, as regards IB
M’s long-awaited 3390 disk drives, Mullin is in no doubt that lessors are loving the delay. Uncertainty is a lessor’s greatest asset. So long as the 3390 drives are unavailable, users have no choice but to extend their 3380K leases, which means more money for the lessor. The combined leasing experience of Mullin and Jeffcoate has led them to the conclusion that the industry will have to restructure in order to provide genuine products and services.
Disarray
They claim that it is in disarray largely because the men at the top of leasing companies are not tried and tested lessors. They haven’t come up through leasing and don’t know the industry. Mullin believes that financial backers put pressure on lessors to generate greater profits, which leads to discounts and subsidies that eventually have to be compensated for. This is usually done at the user’s expense when an agreement is modified or terminated, and Mullin claims that the original cost of of an agreement is often unrelated to reality. His opinion of Atlantic’s FlexLease and its various clones is equally damning. Superficially very attractive, FlexLease, according to Mullin, is untenable both from a commercial standpoint and that of the user. It is eventually unprofitable for one, and restrictive for the other. Mullin concluded by commenting on the need for a body to police the leasing companies. He seems to go along with the rather irreverent view that the European Computer Leasers & Traders Association is something akin to a cocktail party. It should represent and discipline the industry, and if necessary, expel members found guilty of sharp practice. However, since the Association declined to merge with the US Computer Dealers & Leasers Association, he has little hope that it will ever be anything other than a talking shop.
