2019 marks the tenth year I have contributed to the Monitor 100 publication. Indulge me, if you will, by allowing me to look back over the past decade to reminisce over what I have written about for the past ten Monitor 100 issues, taking another look at the road we traveled together.
2019 marks the tenth year I have contributed to the Monitor 100 publication. Over the course of the past ten years, I have written for the Monitor under the pen-name Dexter Van Dango more than 40 times, addressing issues that impact our industry delivered from the frontlines. It is more difficult than you might think to remain anonymous for ten years while oftentimes soliciting input, comments and feedback from a variety of esteemed colleagues. Indulge me, if you will, by allowing me to look back over the past decade and reminisce about the topics I’ve covered for the past ten Monitor 100 issues. Let’s take a look at the road we’ve traveled together.
The U.S. economy has been in a state of recovery for the entire decade during which I have been writing for Monitor. My first Monitor 100 article in 2010 addressed change and innovation. I complained throughout the article that while the recovery was well underway, there wasn’t enough change or innovation in our industry. While citing inspiration and necessity as the drivers of innovation, in particular new products and services for the financial services industry, we weren’t seeing any new innovations in 2010. Instead, funding sources were being careful and cautious as they licked their wounds following the Great Recession. Interestingly, I wrote something similar two months ago in the May/June Vendor Finance issue. Some things never change.
One short year later in the 2011 Monitor 100 issue, I questioned what had happened to the new reality? All the cautious, careful behavior exhibited by lenders large and small had been thrown to the wind as there was the classic battle for assets – too much capital with too few places to deploy it. Despite a slow job recovery and a lack of business confidence, banks were fiercely competing for deals on the street. It wasn’t a return to the lunacy of 2007, but it was far more aggressive than the competitive landscape of the previous two years. Again, this could be written about the conditions that exist today.
By 2012, the effects of consolidation were being felt by the equipment leasing and finance industry. I wrote about the imposing growth of JPMorgan Chase & Company, Wells Fargo and Bank of America. And, I addressed the near disappearance of CIT and the restructuring of Citicorp and its sale of most of CitiCapital. It was at this point that we saw the first glimpses of the disassembling of GE Capital that would ultimately be the beginning of the end for the house that Jack built.
In 2013, I focused on how the more things change, the more they stay the same. At the time, there were rampant complaints about increased taxes, regulatory oversight, headwinds to growth, pricing competition, volume softness and fiscal consolidation that was expected to adversely impact consumer and government spending. What was written six years ago could easily apply to many lessors today. I wrapped up that issue by explaining the price to value equation. People will pay a higher price if they believe they are receiving greater value. If you are not the low-cost producer you cannot compete on price. Hence, you must add value to justify your higher price. This equation applies as much today as it did back then. Again, the more things change, the more they stay the same.
The following year in 2014, I took an unconventional approach to my Monitor 100 submission. I chose to rant about some of the things that bug me about our business, Andy Rooney-style, with the required degree of whininess and cantankerousness. My gripes ranged from topics like lessors accepting substandard documentation to a general disgust for the lack of common courtesy among businesspeople in general. And much like I did in 2013, I complained about the shortage of differentiation among competitors in our business. Without differentiation you cannot add value, you can only sell on price. I closed by reviewing the rogue behavior of some industry players, whose lack of transparency in dealing with obligors contributed to a soiled reputation for the entire industry. My 2014 article was my favorite of all time.
When I asked former Monitor publisher Jerry Parrotto for story ideas for the 2015 Monitor 100, he said “It’s a no-brainer. You’ve got to write about the break-up of GE Capital.” Taking Jerry’s advice, I wrote about the demise of the industry giant and the piecemeal auctioning of the various business platforms – Equipment Finance, Commercial Distribution Finance, Sponsor Finance, Franchise Finance, etc. I attributed the root cause of the decline of GECC to its classification as a non-bank Systemically Important Financial Institution by the Financial Stability Oversight Council, a Federal government organization established under the Dodd-Frank Wall Street Reform and Consumer Protection Act. That SIFI classification made it implausible for General Electric to justify retaining ownership of GECC. Its future was doomed.
Once again, it was Jerry Parrotto who provided the topic for my 2016 Monitor 100 article. He noted that the announced sale of a large portion of GE Capital to Wells Fargo Equipment Finance was going to result in the disappearance of the last remaining U.S. industrial affiliate leasing company. When the Monitor 100 list was first published in 1992 there were 17 companies included among the U.S. industrial affiliate segment. The post-sale remaining portions of GE Capital were to be reclassified as captives starting in 2017. With a great deal of research, I was able to determine the fates of each of the original 17 industrial affiliate leasing companies. Some were impacted by consolidation, some by strategic decisions to exit the business and run off their portfolios. Others fell to poor business decisions and eventual failure. “Where Have All the Giants Gone” was one of my most popular articles ever published.
For my 2017 Monitor 100 submission, I took a quote from Hamlet to force the equipment leasing and finance industry to take an introspective look at how and why we get duped by fraudsters and crooks who mislead and steal from mostly-innocent obligors. Through my “Caveat Emptor” piece, I poked and prodded and asked the difficult questions about how fraudulent vendors get through the controls and safeguards most reputable organizations have in place and why standard underwriting practices are evaded or ignored, allowing unscrupulous players to take advantage of unwitting lessors. I chalked it up to competition – the driving need to win, ego – one’s self esteem and sense of self-importance, and greed – the excessive desire for wealth or possessions. We have seen fraudulent vendors come and go. And we will surely see them again.
A year ago, I wrote about “Waiting for the Next Shoe to Drop,” where I received a series of predictions from several notable industry executives about when they expected the next recession to occur and what they thought would be its root cause. Most responses indicated an expected downturn in 2020 or 2021. The most pessimistic view came from current ELFA Chairman Jud Snyder, President at BMO Harris Equipment Finance, who predicted 12 to 18 months. The most optimistic view came from Dr. James Johnson, Presidential Teaching Professor of Finance at Northern Illinois University, who estimated a downturn in three to four years. As I write this piece in mid-June 2019 there is talk of a half point cut in interest rates from the Federal Reserve when they meet next week. Speculators insist that the combination of a weaker jobs report, an inverted yield curve and tensions related to tariffs imposed against China and threatened against Mexico are the leading reasons for the required cut. Following ten years of slow growth after the Great Recession, it is reasonable to expect another economic cycle. If not now, when?
It seems that each new year brings with it new changes to the equipment leasing and finance industry, creating new challenges for its participants. Some of the most common changes are tax, accounting, regulatory and other external forces. However, changing customer needs also bring about new challenges. The demand for usage or consumption-based products, versus customary equipment ownership, can cause angst among lessors and create revenue recognition issues for their vendor partners. And technological advances can bring disruption to an otherwise staid and stodgy industry. The imposing threat of fintechs, blockchain, cryptocurrencies, artificial intelligence, the internet of things (IoT), and the digital revolution tend to bring out the conservative nature shared by our peer group, insisting that someone else should try it first, then the rest of us can follow – in due course.
One of the many things I have learned in my decade as Dexter is that we’re living in a dynamic period where change is constant, while concurrently we continue to deal with some of the same issues, challenges and concerns as we did ten years ago. For the most part, we lack innovation in developing new products and services. Frequently, we fail to bring adequate value to a relationship to justify a higher price. Oftentimes, we compete recklessly, leading to shameful examples of funders being fleeced by fraudulent players. And we’re slow to adopt new technologies, even when we know instinctively that they represent a better future. Despite all our shortcomings, our business is lively, rewarding and fun. I wouldn’t want to be anywhere else.
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