What If?

The biggest new to hit our industry this month is the recently announced Grand Jury investigation into the issue of fleet allowances and subsidies by the federal government. In an effort to discover just what the scope of that investigation will be and to gouge the reactions of the various manufacturers, AF contacted both the Cleveland office of the Justice Dept. (the office handling the case) and the top fleet men of the auto companies.

What we learned was precious little. It seems that investigations of this type are wrapped in heavy secrecy, with all parties (Including the presiding judge, the jury and even the court reporter) under court order to remain silent on the matter. So other than confirming that certain automakers have been subpoenaed and that the question of fleet subsidies is involved, none of the parties is able no comment further on the investigation.

Checking further, however, we learned that the National Auto Dealers Association (NADA) may also be involved. There seems to be some question of possible involvement between NADA and certain of the manufacturers regarding establishment of subsidy programs. Whether or not the recent charges made by Chrysler in its counter-suit against NADA had anything to do with this is, of course, a matter of conjecture. But it is interesting to note that the Grand Jury investigation follows hard on the heels of the imbroglio between Chrysler and NADA regarding subsidies and allowances.

With respect to Grand Jury investigations of the type we further learned that they often involve quite lengthy hearings and sometimes extend over many months. Consequently, it may be as long as a year before anything comes of the matter.

Still, we are plagued with the nagging question, "What if...?" that is, what will happen if the government decides that fleet allowances and programs must be eliminated? How will this affect the costs and procedures of fleet buying in commercial fleets, leasing, and daily rental? Would such a ruling tend to further erode the profits of those auto makers already disadvantaged by cars with lower resale value -perhaps even to the point of putting them out of the fleet market? And lastly, how will this affect the various manufacturers' fleet departments and their dealers?

First, most of those contacted thought that although the outlawing of allowance programs would raise purchasing and leasing raters considerably, it would not mean the demise of either leasing or fleet purchasing and leasing rates considerably, it would not mean the demise of either leasing or fleet purchasing. Most felt that those companies having cars with the lowest retail value would be hurt the most. But none were of the opinion that such a ruling would take these companies completely out of the fleet market.

As one fleet administrator stated, "In our particular industry (hard wares sales), the choice of the car within certain parameters is up to the driver. If you try to limit him to only one specific car, you're in trouble." This substantiated what the executive of a large independent leasing firm told us recently: "We have our recommended cars from which the driver can make his choice. But if you limit his choice to only one car, he will go out of his way to prove that it isn't as good a car as the one be wanted."

Of course there would be, initially, a noticeable swing to those cars with the highest resale value. Such swings have already taken place in thrift-oriented government fleets (as with the State of Wisconsin's recent purchase of American Motors cars-see Hotline). But the consensus is that eventually the whole thing will even out and that manufacturers with cars bringing low resale prices will come up with different incentives to capture their share of the market.

One way that dealers may retaliate and recoup lost sales is through dealer-supported buy-back or guaranteed resale programs. One large Ford dealer on the West Coast has already begun such a program; (see Dec. '70, AF) and the chances are a number of others will follow his lead.

Another result might be a dealer-based price war on make-ready. Some dealers are already refusing orders for $75 "over." But if the dropping of subsidies heightens the dealer competition they may be forced to lower their prepping rates or drop out of the fleet business.

Such a price-was eventually reduce the number of fleet-mined dealers in the country. Though some feel that the dropping of allowances would increase the number of dealers so involved (Since they would be able to handle a fleet sale on the some profit-base as a retail sale), most experts think that the number of fleet-minded dealers would remain about the same or drop drastically. As one fleet salesman advised AF, "A lot of the dealers are into fleet sales in a half-baked way at the present time. If the allowances are dropped and the going really gets tough, they won't have the sophistication and expertise to remain competitive." And a leasing company executive arguing along similar lines advised, "If there is a big increase in new fleet dealers we probably wouldn't take our orders away from the guys we've been doing business with over the years. After all, these men have the staff, the training, and the know-how to handle fleet supply. Why should we change to another dealer just because he happens to be located down the street from us?

An interesting development that one industry spokesman mentioned was that drop-shipments may play an ever-in-creasing role in fleet supply. He cited the fact that many of the larger leasing companies with dealer connections are already involved in this method of delivery. "It will be only a matter of time before the large independents like Hertz and Avis get into the drop-shipment act-assuming the allowances are dropped-and if they are prevented from doing so, then we'll see some real fireworks!"

With regard to the fleet departments of the various manufacturers, most experts feel as does AF: that the dropping of subsidies will not affect them to any great extent. Of course there will be some cut-backs-especially in the ranks of those men whose primary responsibility is handling rental buy-back programs. But the automakers will still need experts to handle their fleet accounts. The name of the game will still be service; and with the increased competition that an end of allowances would bring. The manufacturers could not afford to stint on making a maximum of service available to their buyers.

So when you add it all up, the answer to our question, "What if...?, is that except for minor changes in certain areas of the industry, business will go on pretty much the same as in the past Competition and prices will increase, suppliers may dwindle slightly, but fleet business will continue its steady upward trend.