Mr. Sterling: The one company that pertains to leasing and rental that I follow is Ryder Systems. Ryder is seeing good demand in both their leasing and commercial rental business, and this is generally what happens when we enter a new cycle and come out of a downturn. The first segment of the truck population where we see an increase is commercial rental or the spot business. The reason being is that small businesses that operate a fleet of trucks start getting a little busier, but yet that small business owner is not willing to commit to purchasing a new truck or signing a long-term lease. Instead, the small operator will use spot capacity or commercial rental in case the demand is only temporary. That is what we have been seeing in the industry for the past nine months to a year. We have seen a really strong surge in commercial rental. Now we are beginning to see the commercial rental demand translate to more leasing activity. That is really how a cycle works as a small business owner, whose core competency is not trucking but has some trucks to move his product around, thinks about augmenting his fleet.
I find it encouraging that we are seeing an uptick in leasing because that tells me that the business community feels a little bit better about the environment and their long-term demand picture. Usually leases range in duration from five to seven years, which is a pretty big commitment by a small business owner. That is why a small business owner wants to make sure the demand is there.
Looking at Ryder specifically, some of their key metrics are improving. For instance, last quarter, Ryder saw the early terminations of leased vehicles decline by almost 650 units, or 22% year over year, to less than half what they were two years ago and the lowest level in the past decade. I believe the decrease in early terminations is a positive indicator of improved lease demand. Additionally, the number of lease extensions in the U.S. for the first nine months of 2011 declined versus the prior year, down 24%. The decline reflects an increase in new full-term lease contract sales instead of lease extensions by customers, and in my opinion, is a positive as more customers are willing to sign long-term leases instead of renewing for a short period of time.
Tickers included in this excerpt: F, PAG, R
For more information call (212) 952 7433. The Wall Street Transcript does not endorse any of the comments made by interviewees, and does not make stock recommendations.