The Car and Truck Fleet and Leasing Management Magazine

"I'd Rather Be Lucky Than Smart!"

December 2004, by Ed Bobit - Also by this author

 Loyalty to a petrified opinion never yet broke a chain or freed a human soul.-Mark Twain

When I say "everybody says so," I mean I say so.-Ed Howe

No one can have a higher opinion of him than I have --- and I think he is a dirty little beast.-W.S. Gilbert

If three people say you are an ass, put on a bridle.-Spanish proverb

 

My headline is, in my opinion, probably older than I am (if that's possible), and, also in my opinion, probably not accurate.

I'm scribing this on the eve of Election Day and for those of us who are entrenched in believing and fighting for free enterprise, free speech, and a free world (and not a free pass), we shouldn't be feeling "lucky." If you're with me, don't ever, ever give up.

On the other hand, there are many fleet managers today who have expressed their joy over current economic conditions. It's a strange set of circumstances that makes virtually every fleet manager look "smart" these days.

The industry's overcapacity to build vehicles plus the heavy burden of health and pension obligations by the domestic makers forces production beyond reasonable demand. Adding the advancing penetration by the so-called imports, it has become a most competitive U.S. world.

The result is that incentives have crept up for fleets following the retail incentives. We're into a shoot-out and it's not at the OK corral. It's with your factory rep and his boss who are necessarily following the spiral of CAP monies.

Hey, if there's a retail incentive of $5,000 on a vehicle for a single individual, it has to make sense to contract for a higher discount when you've got a volume buyer. What makes it interesting is that today, commercial fleets don't buy the "dogs" (end-of-the-run models, unpopular-with-the-public models, etc.). They're making up their selector list with new and hotter ones. And, typically, they have a long list of safety and driver options. No more "plain Janes."

Since most fleet managers elect to have their incentive monies up front at the buy time, they're getting a larger check each year. You can then imagine the impact of fleet managers running into their boss' office waving frantically (the check) and exclaiming how smart they are (versus lucky). Fleet managers have been pretty fortunate (both lucky and smart, probably). The last few years, as our analysis and feature reports indicate, operational costs have remained pretty flat, except for fuel costs, which continue to soar.

In the last decade, fuel management programs have helped companies save money and keep a tight handle on gas expense. Looking ahead, the inside engineers in the auto companies are privately very optimistic that we will be able to attain new fuel efficiencies of 25-50 percent in the next few years.

How? It'll be through "Displacement on Demand" (DOD) or other similar technologies where only half of your engine's cylinders work when all cylinders are not needed. There's the expansion of hybrids to help and expanded bio-diesel availability as diesel breaks through in lighter vehicles.

OK, so you're one of the many "lucky" fleet managers, and your boss is happier than a kid at Christmas. You are not all that lucky when you have to present the bill to Accounts Payable for the costly disparity between what you projected for residual return and what it sold for. It can be a staggering amount.

As the USA Today headline screamed on October 8, "Driving Off the Lot? Watch Out for the Cliff," depreciation caused by the higher incentives can ruin your day. Remember to caution your boss about the residual shortfall as you wave that CAP check.

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