The long-standing and united opposition among auto makers that has prevented Canada's banks from getting into the vehicle leasing business has crumbled, opening the door to regulatory changes that could allow the banks access to the last remaining major financial services market.
In a battle that goes back decades and is renewed every five years when the federal Bank Act comes up for review, auto makers and car dealers have stood shoulder-to-shoulder to oppose the banks.
Now, the country's largest vehicle producer, General Motors of Canada Ltd., along with Mazda Canada Inc., Nissan Canada Inc. and Mitsubishi Motor Sales of Canada Inc., are in favour of changing the Bank Act to let the banks in, restoring what was once the most popular method Canadians used to finance their vehicle purchases.
Among the auto makers that remain opposed to letting the banks in are Ford Motor Co. of Canada Ltd., Honda Canada Inc., Toyota Canada Inc. and luxury brands BMW Canada Inc. and Mercedes-Benz Canada Inc.
The car makers that support the change say consumers would benefit from more choice and potentially better pricing.
"Our consumers in Canada have less financial options because of the Bank Act, and because they have less options, we are less competitive," said Don Romano, president of Mazda Canada. "This is one of those areas where competition is good. It's going to help the consumer."
Chrysler Canada Inc. dealers said company president Reid Bigland expressed support for such a move at a dealer meeting in Florida last month. Chrysler spokeswoman Mary Gauthier said the company doesn't comment on discussions with dealers.
The battle is on again ahead of the 2011 review of the Bank Act, which comes after the recession, the credit crisis and the collapse of two of the Detroit Three auto makers into bankruptcy protection created turmoil in the automotive financing business that eliminated leasing as an option for many consumers.
Before the credit crisis hit and the recession, leasing was so popular that it hit a peak of 45 per cent of the new vehicle market in 2005 when more Canadians - attracted by lower monthly payments - leased their vehicles than paid for them through traditional loans.
But as Chrysler LLC and General Motors Corp. headed toward Chapter 11 bankruptcy protection, their finance arms halted leasing. Ford Motor Credit Co. ended an affiliation it had with Mazda through which the Canadian unit of the Japan-based auto maker was able to offer leases and Ford Credit's Primus Financial Services Inc. division stopped offering leases through smaller auto makers.
The question now is whether the division among the car companies and the plunge in the leasing market to just 7 per cent of the retail automotive financing give the banks enough ammunition to convince the federal government to change its mind and side with them for the first time on the issue.
The banks have long been pushing for change. In a letter to Finance Minister Jim Flaherty in 2009, the Canadian Bankers Association argued that such restrictions are bad for the car market, particularly as some auto makers struggle.
"Our position continues to be that restrictions on choice and competition are not in the best interests of consumers," the CBA said Monday in an e-mailed statement. "If the government did decide to ease the restrictions on financial institution involvement in auto leasing, it would be up to individual institutions to make their own decision on whether they would enter the market."
Bank of Montreal supported the auto dealers who have changed their stance.
"We believe the public interest is best served by cultivating a competitive sector that offers access and choice," said Robert Sadokierski, vice-president of dealership finance at Bank of Montreal. "Policy around leasing should be oriented towards removing impediments to competition rather than attempting to prescribe competitive outcomes."
A spokeswoman for Royal Bank of Canada, the country's largest bank, said it would look at the opportunity if it came up.
"As with any changes to the Bank Act and regulatory environment, we will review market opportunities to take advantage of those changes as they come into effect," RBC said.
Canadian Western Bank, which holds 20 per cent of the market in Canada for small-ticket leasing such as all-terrain vehicles and farm and landscaping equipment, also said it would be interested in getting involved in direct auto leasing if the government opened it up to the banks.
"Certainly we would have a look at it," said Kirby Hill, spokesman for Canadian Western. "I can confirm that is an area that we're exploring as a potential growth avenue."
The Edmonton-based bank is a significant player in leasing equipment to a variety or industries, including the oil patch, and recently hired an analyst to explore expansion opportunities in auto leasing.
Canadian Western plans to start first with indirect auto leasing, potentially working with auto companies to backstop their lending, as several of the Big Six banks do.
However, direct auto leasing would be an attractive area for banks to move into if it were available.
"We've hired a specific position to analyze [auto leasing]for us, and we'll see where that goes," Mr. Hill said.
Royal Bank of Canada, Toronto-Dominion Bank and others have a sizable presence in automotive financing areas, but mainly offer financing for car dealers or consumer loans on cars. They are not permitted to offer direct leasing.
The Canadian Automobile Dealers Association, which represents Canada's 3,000 new-car dealers, remains steadfast in its opposition to the banks.
"Leasing should be left to those who know what they're doing and have expertise in that particular field and that does not include the banks," said CADA president Rick Gauthier.
Permitting the banks to lease vehicles would mean they would be competing against dealers who borrow from those banks to finance their own leasing operations, Mr. Gauthier said. "Even just from a business perspective that doesn't make sense."
"There is no evidence that permitting banks to provide vehicle lease financing will reduce the cost to consumers," said Richard Jacobs, a spokesman for Honda Canada. "The U.S. experience shows that bank competition has not improved customer satisfaction, access to financing or overall affordability."