Thoughts from the ELFA

I recently read an ELFA presentation (Equipment Leasing and Finance Association) titled, “As the drum turns….The World of used Copiers.” Can you picture 300 – 400 leasing company representatives in a large room listening to this stimulating presentation? The world of used copiers—where was I for this one!

IDC’s research was referenced throughout the presentation—and along with InfoTrends and Gartner—I consider IDC a reputable research firm. Clearly the point of the presentation was to highlight changes in the used copier space. That aspect of the presentation was eye opening for me simply from the perspective that used color MFDs from the same vintage as mono MFDs actually sell for less on the used market.

The presentation had numerous examples but I’ll simply take one that is representative: A Canon iR5570 with a list price of $17,100 had a “remarketer sale price” of $1,350, or 8% of the original equipment price (OEP) and a Canon iRC5870U, with a list price of $19,100 had a remarketer sale price of $300, 2% of OEP. With the lower lease approval rate driving increased rental of lease end devices I assume the remarketer sale price will continue to decrease, forcing leasing rates higher since residual value is part of the equation to determine lease rate.

Increasing lease rates won’t be any fun for those companies that still rely 100% on the “bigger better faster same price” model of moving your year on year aftermarket price increases over to the funding side of the lease to sell a new box and take care of the buyout, reducing your aftermarket revenue and generating a commission for a rep. But for those companies that still work on this zero sum game the good news is that according to IDC, as reported by the ELFA in this presentation, average unit sales prices (AUSP) have dropped precipitously. That drop will allow you to continue to fund the buyout of the swap and maintain the “bigger better faster new price” suicide march [not the point of this post but think about it….you are selling a MFD at a lower price than you did four years earlier, reducing the aftermarket rate to below what the current placement started at four years earlier (and far below the current rate with three years of compounded increases) and probably paying your sales rep the same amount as you did four years ago to place the other unit since it probably has about the same amount of “GP” in the deal….how’s that work financially?).

Just how big is that AUSP decrease? Let’s first talk about mono-connected boxes and use the seven year look that ELFA used in their analysis; this is an absolute seven year decrease and not a compounded annual decrease—in other words, it is the decrease from seven years back until 2009. Segment 2 (43%), segment 3 (30%), segment 4 (24%), segment 5 (27%) and segment 6 (12%). Even scarier was color, using the same methodology, segment 1 (49%), segment 2 (54%), segment 3 (55%), segment 4 (25%) and segment 5 (61%).

Strategy Development has spoken about using environmental information in your planning and in previous posts on this blog we have already highlighted some of the year on year unit placement decreases. Now you have information on unit placement decreases, there is indication that lease rates will rise (interest rates can’t stay at zero forever and used equipment pricing isn’t holding), and AUSP is decreasing. Juxtapose those issues against more and more non-contract devices moving to contracts (MPS) and your ability to reduce your general and administrative expense and increase your service margins and you have some great environmental issues on which to build a solid business plan.

We will be running our BTA Business Planning Workshop in October in the Miami area—hope to see you there so that you can seize the future!