Banks could penetrate the market auto leases

A clause in the federal budget could allow banks to enter the market leases car rental.

Proponents of this idea, this decision could be beneficial to consumers as it would put an end to the "oligopoly" existing in the automotive sector. The Consumers' Association of Canada (ACC) estimates that if the banks got that right, the lease would be easier to obtain and the rate would likely be lower.

The auto analyst Dennis DesRosiers, believes that more competition in the market leases rental car would be welcome because in Canada, 94 percent of the properties are financed by the financial arms of automakers. Car companies have long fought to exclude banks walking leases since it would allow consumers to bypass auto dealers landlords.

Huw Williams, of the Corporation of associations of auto dealers (CADA), has said that banks had already accused the corporation that they had no interest in entering this market.

Because the value of a lease car rental depends on the value that self could reach on the market for vehicle use when the lease expires, it is very difficult to make a profit on these leases, has DesRosiers says. "Historically, all banks that are risky in this market have lost money," he adds.

The Canadian Bankers Association has said that the industry had not yet taken a position on this matter but generally opposed to any restrictions that prevent competition and choice in the market.

The Bank of Nova Scotia (TSX: BNS) and Royal Bank of Canada (TSX: RY), however, says they assessed the opportunities to penetrate the market if the chance was given to them.

Under the Bank Act, Canadian banks can not detain titles on depreciable assets since the 80s, including automobiles. The federal budget unveiled this week includes a clause to reopen the debate to amend the Bank Act and potentially allow them to rent cars.