The Car and Truck Fleet and Leasing Management Magazine

"There's Trouble in River City..." Maybe...

February 2004, by Ed Bobit - Also by this author

 "There are people who are always anticipating trouble, and in this way they manage to enjoy many sorrows that never really happen to them."-Josh Billings

"The usual excuse of those who cause others trouble is that they wish them well."-Vauvenargues

"There is nothing so consoling as to find that one's neighbor's troubles are at least as great as one's own."-George Moore

 

Many of us vividly remember Robert Preston in The Music Man as he sang "76 Trombones" and warned of the crisis in River City. It remains a classic to this day (certainly with me).

If you're on top of what's happening in the automotive industry, you have to know that we continue to sell new cars and trucks at a very high rate year after year. Yes, 16 million-plus for near-record levels.

Now if you have any tenure at all in "fleet," you also know that fleet sales have propped up the domestic manufacturers over the years when retail sales plunged. The factory fleet department's assigned job was to keep the production lines going because dealers are independent business people and can only be pushed so hard.

It's now a paradox of sorts. While the overall automotive market is enjoying huge volume years, there is relatively less stress on the fleet departments to keep the numbers up. And this calls for some analysis.

To maintain retail momentum, the factories switched from subventing leasing deals to virtually no finance charges plus other cash incentives. They finally learned that making the leasing transactions so favorable in their efforts to sell a car actually made them choke when the car was returned three years later. The resulting residuals cost the companies dearly for years.

The retail leasing support and the millions leased also had a dramatic effect on the car's resale value, big time. This compelled the senior marketing management to declare that only a definitive number of vehicles could be allotted to the daily rental fleets, or the residual values would plummet even more. All this time, the "commercial fleet market" continued as a gem within the factory's constant evaluations. But, even here, the competition boiled, and incentives became greater (and factory margins smaller) and were soon nearly matching retail incentives.

Obviously good for the buyers. It also created a more difficult business atmosphere for the so-called "imports" who were intent on entering the commercial fleet market but were virtually prevented from doing so. The imports didn't have the obese incentives at retail and weren't about to get into fat subsidies for fleet business when their dealers continued to sell production.

If you read our weekly e-news report, you have to have noticed that many state, city, and other governmental units are cutting back on vehicle eligibility and reducing their fleet size. Their budgets are under heavy pressure.

The same phenomenon is occurring within the commercial sector, but no one makes announcements about downsizing anymore. What's happening is significant.

Just three years ago, commercial business fleets registered nearly a million new vehicles (981,000). That's a number that the factories fight for. Now they're scrapping for 25- to 30-percent fewer purchases with registrations coming in at about 700,000 for this last year, the lowest in five years.

It's a good time for each fleet manager to ask about how important residuals are to his or her company. We need to ask just how effective can any one factory be with increasing their residuals for fleet vehicles. Now is not the time to abandon your faith in lifecycle cost analysis.

Tack the old adage on your office wall: "Let the buyer beware."

 

 

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