Leasing - "It is the use of equipment, not the ownership, that generates profit"

FH Stralsund

Leasing
"It is the use of equipment,
not the ownership, that generates profit."

by

Beate Pehlchen

Table of contents

1. Introduction

2. History

3. Forms of the leasing

3.1 Operate – Leasing
3.2 Finance – Leasing
3.3 Difference between Operate – Leasing and Finance – Leasing

4. Why Leasing ?

4.1 The Advantages of Leasing
4.2 Leasing in the compares with Loan and Cash
4.3 Disadvantages
4.4 In the tourism industry

5. Summary

6. Index

1. Introduction

“To lease or not to lease – a financing decision”

Companies and experts in special literature often discuss the question whether it is cheaper for a company to buy certain goods on credit or with its own capital. When buying a certain good we moreover have to differentiate between goods that are purchased on lease or bought on credit. This paper does not deal with the fundamental question whether to buy on credit or to lease as it has been proved the advantages and risks of leasing.

The question now is why do companies nevertheless discuss about buying or leasing? Why do companies decide on leasing a wide range of goods from typewriters to cars, trucks and even complete industrial plants? About 11 % of all goods are leased in Germany at the moment. 53 % of which are leasing transactions involving cars. First of all there are considerable differences with regard to the drawing up of a balance sheet. Goods that are bought have to be capitalized with their initial costs while goods that are leased do not have to be shown in the balance sheet of the leaseholder.¹ Companies do follow completely different strategies regarding this subject. HENKEL (chemical industry) and RTL (broadcasting company) on the one hand have leased all of their cars explaining that this is the cheapest alternative for them.² Bayer and 3M Deutschland on the other hand use the same explanation but they buy their cars. Car policies are even different between various subsidiaries of one company.

2. History

Leasing, the rental of commodities, is not so sensationally new than it seems like. The main idea, the proprietary-loose use of commodities, is applied in the economic activity already since hundred and millennia year.

Already approximately 350 before Christi determined Aristotle: "The wealth rather consists of the use as in the property", and other authors go even farther back by trying to give the proof that leasing-similar businesses were transacted millennia before Christi, in the second stream valley of the Sumerians.

The year 1877 is the real beginning of the leasing, however, as the “Bell Telephone Company” decided in the USA to rent their telephones instead of selling. Soon, wide companies joined. The United Shoe Machinery Cooperation offered their machines to the shoemakers only equipped with few cash resources to the rent and not to the purchase at. In the twenties of the last century, further companies then followed this example; ”so mainly IBM and the Remington – Rent – Company expelled their punch cards machines, also the United Shoe Machinery expelled their leather processing machines as well as Pitney – Bowes their postage meter (franking machine) on the basis of leasing".³ This entire volumes however still remained very low over decades, since leasing was applied only by some few manufacturers, and for those it was normally a sales-political instrument.

The leasing industry got the crucial impulse through the foundation by particular leasing companies, for which leasing was not only a "means of the sale politics" but "business object" at itself. These companies took the rental and funding of the commodities and the risks interconnected with it from the manufacturers. The first kind of leasing company on the world was “the United States Leasing Corporation” in San Francisco/USA established in 1952; on the German market, it was “the German Leasing GmbH” established in 1962 in Düsseldorf, that later amalgamated with the other companies and transferred their seat as “the German Leasing AG” to Homburg.

The illustration 1. shows the development of leasing in the comparison to the entire economic development between 1971 and 2001. The illustration 2. documents this series of numbers optically. How the institute for economy research determined, they added up again acquisition value it from leasing companies in the year 2000, installations rent on over 46 billion and in 2001 more than 48 billion .

[...]

1 Prof. Dr. K. D. Däumler,

2 Auto Zeitung Nr. 24

3 Vgl. Marek, M.