It was a heavyweight battle, but in the end, the Canadian Automobile Dealers Association scored a late round victory that will keep Canada’s banks out of the business of leasing automobiles — at least until the Bank Act is opened up again for discussion.
Rick Gauthier, CADA President & CEO
With solid support from dealers and with an active team lobbying in Ottawa behind him, CADA President and CEO Rick Gauthier has waged a cross-Canada battle to keep Canada’s banks out of leasing. On the other side of the ring were Canadian banks, consumer associations, the C.D. Howe Institute, some industry analysts and even some automotive OEMs.
“We know that banks are an important part of the industry,” said Gauthier in an interview with Canadian auto dealer. “We know they are a valuable partner and that they play a valuable role in the success of the automotive industry and the dealer network. We just think that when it comes to leasing, that’s just too much.”
Gauthier says that after 41 years in the business, he knows that dealers have very few options when it comes to their financial partners. Giving banks more control over leasing poses risks for dealers, just as some are ramping up successful leasing operations, he says. “Giving those same institutions the power to compete against those people they are providing funding to, in order to run those leasing businesses, is a recipe for disaster,” says Gauthier.
Gauthier says the banks have been seeking access to leasing since 1980 and CADA and dealers have consistently fought the idea. “We have been able to convince government that at the end of the day, giving the banks the leasing powers, additional powers, is just not in the best interest of the economy nor is it in the best interest of the consumers,” said Gauthier. “One government after another has seen the reality and the truthfulness of that.”
Gauthier says he’s met with the Prime Minister, the finance minister, and other government officials on the topic. Gauthier also credits Huw Williams, CADA’s director of public affairs, for helping ensure that the government clearly heard the views of dealers.
Ottawa backs away
Ottawa revealed its intentions in a July 22 letter to Gauthier from Finance Minister James Flaherty.
“Our Government held consultations as part of Budget 2009 on the potential merits of changing the legislative and regulatory regime governing leasing activities by federally regulated financial institutions. There were a wide range of views expressed in these consultations by stakeholders about the potential impacts of changing the framework,” Flaherty writes. “Our Government continues to monitor developments in the financial leasing market. However, at this time, we are not contemplating lifting this restriction on auto leasing.”
Ottawa reviews the Bank Act every five years. For banks, the restriction on leasing is set out in section 417 of the Bank Act.
Powerful lobby effort
The Canadian Bankers Association (CBA) had been lobbying Ottawa to allow them into auto leasing. In a May 8, 2009 submission to Flaherty, the CBA spoke out in favour of “competition and choice” in all financial markets.
“As we have said on previous occasions, it is clear that the current restrictions limit the ability of consumers to access a wider range of suppliers of lease financing, and limit entry into the market by new players which would otherwise bring additional competition to the marketplace,” wrote Nancy Hughes Anthony, then President and CEO of the CBA. “Fears that there would be a conflict of interest with auto dealers, whom banks finance and with whom banks might compete as lessors, are unfounded.”
The CBA is the industry association that works on behalf of 51 domestic banks, foreign bank subsidiaries and foreign bank branches operating in Canada.
More pressure
The pressure for reform wasn’t only coming from the banks. In an interview with Canadian Press in 2009, Bruce Cran of the Consumers’ Association of Canada, spoke out in favour of banks getting involved in automotive leasing. “We’re aware the car manufacturers have run themselves into such a dastardly financial situation that they’re no longer easily providing leases, cheap or otherwise, in enough quantity to satisfy the market,” Cran told Canadian Press. “We say let the banks in.”
In the same Canadian Press article, respected auto industry analyst Dennis DesRosiers also said more competition would be welcome. “And from a consumer’s perspective, in most respects it’s actually a monopoly because if you go into a Toyota dealer, the only lease you can get is a Toyota lease. There’s no shopping around,” DesRosiers was quoted as saying.
In its brief to Ottawa on the topic, the C.D. Howe Institute also said clearly that: “Restrictions on regulated financial institutions with regard to lease financing should be waived, as was recommended by the Task Force… We believe that the lease financing market should be more open, to all federally regulated financial institutions, to provide benefits to consumers through increased price competition and improved stability of the Canadian financial system.”
This topic won’t likely surface again until the Bank Act is opened up for review in another five years.
