Control Over the Product Aftermarket Protects New Product Sales

The effect of a secondary (used) equipment market for products financed by third-party leasing companies is something often overlooked by a product vendor. Typically, as previously discussed, a leasing company makes its money primarily from its interest rate spread over its cost of money and operations, and later looks to generate additional profits from end-of-lease product re-leasing or sales, referred to as residual profits.

As most leasing companies have relatively small equipment re-marketing departments, they typically "dump" end-of-lease equipment quickly into the market, often through equipment brokers. This type of used aftermarket equipment fire sale can dramatically and adversely affect a vendor’s new product sales, particularly for products with a long useful life. But, by controlling the aftermarket sales through its own in-house financing operation, a product vendor can not only protect new product sales, but can also generate additional profits from the secondary market activity.

For those product vendors who decide to set up a product financing activity using a third-party financing company vendor program, rather than setting up an in-house financing operation, they can still achieve at least partial control over any aftermarket product risks. This is achieved by having a product re-marketing agreement with the third-party financing company that allows them to manage, to a greater extent, the sale of their equipment in the secondary market.