Focus on Leasing: Leveraging the OEM Lease Program
Posted on Mon, Apr 05, 2010 @ 03:42 PM
Technology OEMs (Original Equipment Manufacturers) know that product price is a very important factor when earning your business. What you might not have considered is how OEM leasing programs can help you reduce your costs even further.
It is common in many industries that an OEM/manufacturer will maintain a strong leasing program. It has been proven that leasing, especially in the IT space, leads to more product sales. Leasing from an OEM essentially gives you, the IT decision maker, access to more discount dollars.
In my experience as an IT consultant, I have seen OEMs win multimillion-dollar lease bids against large banks. This happens for a couple of reasons. One, the OEM is very familiar with the products being leased, hence an aggressive residual position. And two, the OEM can remarket the products after the lease term, hence an aggressive money factor. As the IT decision maker, it is important to review this option before selecting a lease partner. However, keep in mind that choosing a leasing partner is long-term decision. Picking an OEM based on your current project requirements may or may not be a good long-term strategy.
OEM Leasing Programs
Because of the positive impact on hitting sales targets, today almost all large technology OEMs have a finance or leasing department/division of the company. The OEMs creatively use their leasing and financing capabilities to earn your business through a programmatic approach. OEM leasing programs can basically be summed up into three categories.
- Special Offers & Promotions - Apply to a small number of products
- Standard Lease Programs - Apply to a large number of products and services
- Custom Lease Programs - Apply to a large number of products and services
Special Offers & Promotions
Special offers and promotions fall into their own category because they are typically focused on either a specific product or a specific leasing structure.
An OEM may, for example, create a special lease offer on a specific model laptop if that laptop is in great supply or is going to be end of life in the near future. Your money factor on this sale will be lower than the money factor used to price standard lease deals, and you may not be able to use this aggressive money factor for other products.
An OEM may also offer you the opportunity to buy any product you want within a specific lease structure. For example, spend $25,000 or more on the OEM's Website and take advantage of 0% interest on a 12-month, $1 out lease. This smells like a capital lease with 0% interest, a potentially wise use of your money. This arrangement is similar to a retail store "same-as-cash" offer/promotion.
This type of promotion is targeted toward small and medium-sized businesses.
Standard Lease Programs
OEMs often offer FMV (future market value) lease programs, which typically work like the diagram below suggests. Keep in mind that the OEM is playing a numbers game - giving up some of the product profit in exchange for interest rate profit and the ability to resell the refurbished products after you return them.
Remember, your money factor depends on the residual value of the products and services that you intend to lease. Who understands a product's residual value better than its manufacturer? The OEM is raising the residual (lowering the money factor) based on what they believe is the refurbished aftermarket value of the product. OEMs typically publish a rack-rate money factor schedule that can be used to calculate your lease payment.
Custom Lease Programs
Custom lease programs operate similarly to standard lease programs, however they are typically used for large-ticket sales. For example, if your company is considering leasing $250,000 or more in products and services, there is a good chance that an OEM will put together a special money factor just for you.
Keep in mind that special money factors may have other provisions, such as quarterly takedowns and interim rent payments. As the IT decision maker, what you may find most interesting is how aggressive an OEM's lease rate will become when it comes to selling you a large quantity of products. If you work for a large organization, prefer leasing, and have frequent technology refresh projects, a custom lease program is likely a great option for you.
So, which option is right for you: working with an OEM or an independent lease partner?
Focus on Leasing Topics:
- Leasing Vocabulary
- Financing Decisions
- Advantages of Leasing
- Capital vs. Operating Leases
- Understanding My Payment
- Picking a Lease Partner
- The OEM Lease
- Interest-Free Leasing
- Managing Lease Schedules
- Managing the End of Lease Process
Jeffrey Goldstein is Senior Consultant at MCPc and is responsible for the delivery of hardcopy and value added services within the Lifecycle Management Group. Jeff earned his BS in Management of Information Systems and Supply Chain Management from The University of Akron and his MBA from the Weatherhead School of Management, Case Western Reserve University. Connect with Jeff on LinkedIn.