The following remarks on the problems and future of the fleet industry were made by Stanley Chason, chairman of Gelco Fleet & Management Services Division at AFLA's September Midyear Meeting at the Drake Hotel in Chicago.
"I had the very shocking experience of going through my 29th consecutive new car showing this year, but you reach a point where you want to stop telling the number. Prior to coming to the leasing industry in 1962, I spent 12 years in the retail side of it, but I still have the ability to wear both hats. Both of them can be tough to wear at various times, but the general effect is very good.
"Our industry today is a great industry. When I say our industry, I'm talking about every class; the automobile business, the fleets and the leasing industry are all essentially the same thing. We're probably in one of the greatest growth situations I've seen in many, many years. We're also probably in the greatest state of confusion I've ever seen.
"There is tremendous confusion on the part of the buying public. A guy who walks into the door at a showroom asks what to buy. The unfortunate facet of that situation is that that's the same individual who walks into the office of a corporate fleet and has to make a decision on what to buy for the company. He really doesn't know what he's doing.
"The manufacturers, unfortunately, are on the other end of the spectrum. They're trying to guess two, three and five years ahead what the public wants and they, along with the rest of us, make some tremendous guesses - the Vegas and the Pintos, for example. I meant it when I said confusion.
"This confusion, as bad as it may sound when I say it, is probably one of the best things that could happen to our industry. There is created an awareness on the part of corporate managers of the higher cost of vehicles and higher operating costs. This awareness creates the business that we're also trying to pursue.
"It's a type of situation where confusion - minor little things like oil embargoes and so on - creates different opportunities that would not otherwise exist. Relating this to the owners, to the operators and to the fleet managers such as ourselves, to the fleets and fleet administrators, the net effect is creating an entirely different way of operating. We, from our point of view - and I'm talking about Gelco right now - see the future in this as a totally different situation from what we have today. Three to five years from now you won't recognize the way dealerships, auctions and leasing companies are run.
"We're going into a highly electronic and sophisticated method of doing business. Computers are expensive and the people who write for computers speak of foreign language. You take any estimate they give you, multiply it by two and a half, and they're probably half right. They have the ability to do tremendous things or to create the most monsterous goofs in the world, but we see this aspect of our corporate existence as the keynote of most of the things that happen today.
"I'm not here as an advertiser for computers, I'm here to give a point of view on something that's not very far off. We today are ordering about 90-percent of our vehicles under direct input from our terminals to the manufacturer's terminals. Some of the manufacturers are using our programs for extensions to deal, which means that the dealers in the not-too-distant future will be inputting orders on terminals in their offices which will transmit directly to zone offices or to the manufacturers' production banks. The computer would take care of entire orders. From the dealers' point of view - and I know, having been in the seat for a long time - that would be a tremendous relief. For instance, if the bookkeeper doesn't come in, the dealer's not going to lose the orders he has today.
"It leads into another area, that of drop shipping. 'Drop shipping' is a name I hate. 'Courtesy delivery' sounds so much better. It's something that some dealers are fighting against today, but it will be very common in the future. It's a very simple thing to place all orders through a simple source and have them delivered across the country.
From the dealer's point of view (and I have self-motivation here because the easier it is to work with dealers, the easier my life is), learning the system and learning how to make money around the system are going to be the wave of the future. In this respect, I'm talking about the not-too-distant future. It is a 'now' kind of thing. The quicker the dealer industry learns how to work within the framework of this [drop shipping] system, the happier and easier everybody's life is going to be.
"From the dealer's point of view, the requirements of fleets are becoming more sophisticated. The fleet industry is becoming more sophisticated. The market our people are selling into today is a totally different market than it was five or six years ago. In those days, you sent out a guy with a big expense account and a lot of personality, and he'd have all kinds of business. Today, a big expense account still exists (I haven't figured a way out of that one yet) but the salesman needs a calculator and he needs to be able to talk about discount and cash flow. We have a couple of other goodies in the business, such as how to deal with operating leases and capital leases and so on. So, from the fleet end of it, we're dealing with a much more sophisticated group of people.
"One of the biggest breakdowns in the fleet industry today is the fact that many of the dealers need a higher level of service and sophistication within the operation. I'm not here to pick on dealers - the better we work with dealers, the happier everyone is. The biggest single complaint that we get from fleets is about what happens when the driver gets to the dealer to pick up his car. And that's irrespective of how the car is bought.
Generally, the back end of the business, the guy running the service shop, has no idea what kind of markup or what kind of goods he's going to give the fleet customer. That end, the service end, is an area that needs tremendous improvement. Having said that, I know the problems of hiring good people and I know the problems of keeping good people. Service is one of the areas within our business that creates an ongoing problem that tend to downgrade the other dealers. We're dealing with a commodity that is the highest-priced good the individual buys other than his house, and it's an area that's the greatest single source of complaint. So if there's going to be an upgrading there, it's not necessarily by choice. Something's going to have to happen. From a dealer's point of view, fleet business requires a tremendous involvement in the daily market.
"The fleet business is a good business. The big source of business for companies like Gelco is the company-owned fleet. The biggest single untapped source is the driver-owned fleet and firms using that system have been changing to company ownership in recent times. This is something we didn't realize until August of 1974. The average driver-owned fleet has a life of three to three and a half years. Where the drivers are reimbursed for business use of personal cars, the driver generally is not sophisticated enough to bank the money for a new car. So he goes through the normal agony of downpayments and monthly payments, and never has the money at aside for a new car. As a result you get a longer vehicle life.
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"When the driver-owned fleet becomes a company-owned fleet, you're suddenly dealing with a controlled program. You're dealing with a totally different source of funds and now you're dealing with a fleet life of two to three and a half years. That throws many more cars into the new car market and into the used car market. That's the major trend today and it's a tremendous source of dividends for the dealers, the wholesalers and the auctions. I'm not saying everybody here should go out and start talking about fleets going into leasing, but it wouldn't hurt. However, I didn't come here for that purpose.
"So much for the dealers. The auction is one of my favorite parts of the business. It's the logical market for fleet business. The auction is the one structured marketplace in the entire used car business. This is not in any way degrading the wholesaler because that's another phase of the business. Wholesale is a limited service, predicated on your location, your ability to pick up vehicles and, very critically, on the wholesaler's ability to take the vehicles. The auctions are a commodity market.
"The auctions will benefit as well by the expansion of the fleet market, because most fleet vehicles end one way or the other by running through auction sales. We're dealing with an auction market today that is more sophisticated than it was 20 to 25 years ago when I was running sales. Running sales means buying at one auction and selling at another auction. In today's sophisticated terminology, they call it 'arbitrage.' It's a totally different market, but one that has not quite caught up to the requirements of fleet owners or companies like ourselves.
"It's an area where the sophisticated auctioneer or auction owner has got to spend some time and money on computerized operations. He must create the necessary inventory controls to do the kinds of things that will upgrade his inventory.
"There was a period of time, and it still exists to a degree today, when, if you were selling a program and made the mistake of saying that you did most of your business with auctions, you generally didn't get the deal. It was purely a case of public image - public relations. We and companies like ourselves have spent a lot of time upgrading the image of auctions, because, as I said before, it's a very logical marketplace. However, it's one in which you've got to spend some time and money to be able to provide the services that match the sophistication on the other end of the deal.
"The market is going to be a computer-controlled market. Factors other than electronics also affect all of us in the fleet industry. Competition in our business is an ongoing thing. There are periods when there are many competitors in the marketplace who have what I think is an advantage in that they don't know their own costs. They're out in the market quoting prices that nobody can do business at.
"This has a very unfortunate effect in that this particular group is selling the deal so cheaply that they're creating tremendous price competition and pressure on the dealer markups. When somebody goes out and sells a deal where they guarantee a bargain, that puts a lot of pressure on the dealer. Will there be capitalized costs today that will be lower than 20 years ago? There's a slight difference in overhead operating costs. This is one area of confusion that hopefully will go away. We went through periods where there were a lot of smaller companies that would come out, muddy up the waters and then fade away. The important part of this is that a lot of mud stays on everybody around.
"The future of our business, however, is good. A future area for dealers - and factories are encouraging their dealers in this direction - is getting into the leasing business. It's a tremendous market for dealers, but not necessarily the fleet end of it. When dealers try to provide the same kind of services that companies like ourselves provide, they can't get enough money or create a market large enough to pay for the service level we provide.
"We're running into the situation where we find local dealers trying to compete in fleet markets and God bless them if they can sell a fleet and make it work. The problem is that the dealer will sell the fleet on the golf course or whatever the case may be, but not be able to provide the level of sophistication they buyer needs. The fleet gets disenchanted and cancels the deal. The important part is that the dealer doesn't recognize the fact that he went into it in a relatively unsophisticated manner and as a result he walks away with a bad taste for leasing and fleet management in certain areas. I hope I'm not offending any dealers; it's a point of view that we see from our side and from the type of services we're trying to provide. It's one of the problem areas and one that should be dealt with by dealers intelligently.
"The demand for services, professional fleet management and professional dealer handling is ever increasing. One of the best things to happen in our entire history is the fact that upper management is becoming aware of the importance of fleet management. Upper management sees that the little company that they are running which manufactures widgets suddenly has 1,000 cars. Those 1,000 cars cost a fortune to operate. They are also becoming aware that the 1,000 very rational and logical employees driving those vehicles become somewhat less than rational and logical when they get behind the wheel of a company car. This effectively creates a greater need for fleet managers, and without the dealer groups and without the auctions, the fleet manager wouldn't be able to function.
"What is critical in all of this and the thing that is going to make it work well for all of us is the level of communication between all the facets of the operation. As long as we are improving that communication through this type of group or whatever means of communication we can establish, we have a good thing going. I guess I can't say much more than let's keep this thing working and working hard."
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