The Car and Truck Fleet and Leasing Management Magazine

Factories Aren't Dumb!! Are We?

June 2004, by Ed Bobit - Also by this author

Idealism is the noble toga that political gentlemen drape over their will power.-Aldous Huxley

If I were running the world, I would have it rain only between 2 and 5 a.m. Anyone who was out then ought to get wet.-William Lyon Phelps

Beware the man who rises to power from one suspender.-Edgar Lee Masters

 

Way back in 1962, Chrysler had their own leasing department and was doing fairly well with being a fleet lessor. It took a few years but eventually the national fleet leasing companies kept growing, and there was a short period of intense acquisition.

Suddenly the remaining lessors were very prominent and Chrysler felt the better part of wisdom was to disband their leasing effort (in 1968) and focus on letting the dozen majors to their own field.

Another anomaly occurred following that drama when Ford decided that they had a special kinship with Hewlett-Packard and broke the mold (so to speak) by leasing directly with HP. It was a unique pact that permitted HP to gain the bulk of their new cars each year with a pre-agreed-upon residual so their budgeted costs were solid. The drivers also loved a new one each year.

Ford then "experimented" with a similar agreement with Consolidated Freightways and a couple of other minor accounts. Interestingly, there was not the expected hue and cry from the nation's lessors (oh, they registered their concerns privately, to be sure), but it has continued for years without serious protest. And, other manufacturers regularly bid when the HP renewal contract came up, but Ford held on fast.

In spite of the foregoing and even with the creation of full remarketing departments (mainly for daily rental program vehicles) being implemented by the factories, the liaison between the lessors and the factories has never been closer. Of course, the lessors are now "fleet management companies" and their software capabilities so sophisticated, the factories might think twice about challenging that mountain.

Additionally, the manufacturers (prompted by the so-called imports attempting to penetrate the fleet business) have finally agreed (after forever saying never) to certain incentive plans. Alice, all's well in "Wonderland."

HP, at one time, operated more than 7,500 cars. That's "big-time" and probably called for special consideration. Now there is another similar-sized account requesting a similar HP-type agreement. They are serious and worldwide (which the factories now can accommodate after some years of evolution). Other accounts are likely to see the value and pursue the same course.

In the '90s, I wrote editorials suggesting that the nation's major fleet lessors assume the responsibility and risk for the depreciation since they were the "experts." Except for Mike Albert Leasing and minor attention by some other national lessors, the closed-end lease is non-existent today. No one wants to be guessing (or be exposed to the risk as corporate America is today) about residuals three years from now.

Woefully, the bulk of the fleet managers in place today are ill-equipped to manage this task (evaluating now what the company can expect in residuals 36 - or whatever - months from now) by themselves.

Two important points here. Automotive Lease Guide (ALG) has developed a new Five-Star future fleet residual resource based on actual incentivized capitalized cost (not MSRP) with flexibility in building a proper model for true eventual worth. ALG is highly respected nationally and this new professional service is a "godsend" for remarketing lifecycle costing people. You can get the details through our Web site, Fleet-Central.com.

My final thought, and it's a doozy...if the factories assume the remarketing/residual risk (when the major fleet lessors refuse), it begs the question of how vital is the fleet manager in that scene. If a factory is going to take most of the depreciation risk out of the transaction, you can bet they're going to tell you what kind of vehicles you're going to be ordering for your driver folks. (It would also alter the factory's balance sheet.)

 

It's still a "what if" scenario, but a real viable one. If purchasing and remarketing are taken from one's shoulders, and outsourcers are already managing the administration, where should tomorrow's fleet manager focus for his/her company?

 

Let me know how you feel.

 

 

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