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.
532210 (Consumer Electronics and Appliances Rental)
532310 (General Rental Centers)
532299 (All Other Consumer Goods Rental)
532412 (Construction, Mining and Forestry Machinery and Equipment Rental and Leasing)
532411 (Commercial Air, Rail, and Water Transportation Equipment Rental and Leasing)
562991 (Septic Tank and Related Services)
532420 (Office Machinery and Equipment Rental and Leasing)
532490 (Other Commercial and Industrial Machinery and Equipment Rental and Leasing)
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 annual sales of approximately $21 billion in 1992. According to the U.S. Census Bureau, 18,182 companies employed a work force of 143,741 in 1997. That same year industry sales were estimated to be $14.7 billion.
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.
The miscellaneous equipment leasing industry encompassed the rental of numerous specialty products, such as portable toilets, video recorders, tools, pianos, and party supplies. The major product segments were airplanes, business machines (except computers), and furniture. Airplanes constituted about 16 percent of all equipment leased under nonfinance arrangements in 1991. An estimated 17 percent of all business machines in use in the United States were leased in the early 1990s, and office machines accounted for over 5 percent of all equipment rented. According to the Equipment Leasing Association, a trade organization, almost 80 percent of companies leased some or all of their business equipment in 1995. Approximately 6 percent of all office furniture was leased, and a growing number of individuals rented their home furnishings in the mid to late 1990s.
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 obtain credit or buy.
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 were 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 during the early 1990s were 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.
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—2,155 aircraft under lease—and 1994—4,500 aircraft 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. Furthermore, economic and demographic trends suggested at least modest growth through the mid 1990s, barring unforeseen federal entanglement. 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, most of which was not classified in this industry as of 1994. Indeed, 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, which could add billions of dollars to this industry group. At least two federal court decisions in the early 1990s corroborated those efforts.
The industry received a boost from new leasing innovations that gained favor in the mid 1990s. 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.
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. In 1996, 30 percent of the estimated $563 billion spent on productive assets was acquired through leasing, with an estimated 80 percent of all U.S. companies leasing some or all of their equipment. In December of 1999, the Equipment Leasing Association stated that the industry had an overall growth of 12 percent since the same time in 1998.
In the mid 1990s, 18,182 companies competed in the miscellaneous equipment rental and leasing industry. According to the County Business Patterns from the U.S. Census Bureau, most were extremely small enterprises. Only 6 companies had more than 500 employees, 12 had between 250 and 500 employees, 60 had 100 to 249 employees, 201 had 50 to 99 employees, 1,081 had 20 to 49, 2,235 had 10 to 19, 5,577 had 5 to 9 and 9,010 companies had under four employees. The largest company in 1999 was Rent-A-Center Inc. with $809 million in sales, with Rent-Way, Inc. at number two with $494 million in sales. Other industry leaders included Aaron Rents, Inc. ($370 million), CORT Business Services ($319 million), Globe Business Resources, Inc. ($147 million), Connell Equipment Leasing ($125 million) and PLM International, Inc. ($59 million).
Approximately 30,000 workers served this industry going into the 1990s. According to the U.S. Census, this number rose to 143,741 by the late 1990s. Counter and rental clerks comprised 12 percent of the work force, as did employees in sales and related positions. Truck drivers accounted for 10 percent of employment, and general managers and executives represented 8 percent of the work force. Long-term employment prospects were generally positive for this sector. In fact, opportunities in most occupations should escalate more than 50 percent between 1990 and 2005, according to the Bureau of Labor Statistics. Positions for clerks and sales workers, for example, appeared likely to rise between 60 and 70 percent.
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