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November 2006, by Ed Bobit - Also by this author

What go my attention was not necessarily the headline, “Detroit 3:$2,400 profit per vehicle…gone.”  Now, I feel very badly about the people who supple 90-plus percent of our vehicles suddenly finding out that some $2,400 in lost profit (compared to the leading “import” maker’s manufacturing efficiencies) has been reported through the Harbour’s study.  It can’t be good for your business or mine.

 

Equally disturbing is confirming that Toyota’s warranty repairs only cost them $348 per vehicle compared to $512 for GM, $585 for Ford, and $595 for Chrysler.  Just how much competition can the domestics take when the odds are set that strongly against them?

 

But that’s not what got my ire up the most.  It was how the editor had composed his/her leas sentence’ “Everyone knows that the high cost of incentives, unprofitable fleet sales, and legacy costs are killing the Detroit 3.”

Wait just one cotton-picking minute.  “everybody” does not know this!  Au contraire as my young and mythical French maid used to say to me in my slumber.  Last night, I was reading the latest issue of our sister publication, Business Fleet, that serves the small (10-50 in fleet size) fleet market.

In the “Letters” department was a question from David Knudsen from Hackensack, N.J., who mused that fleet incentives “never seem to match or exceed the retail rebate.”  We receive dozens of that kind of letter each year.  Why?  Because it’s true.  Retail factory-supported deals are fairly competitive or better than many fleet deals.

And who says that fleet sales, as the AN story opined, are not unprofitable; especially commercial fleet sales?  I talk to the domestic fleet directory and everyone tell me that commercial sales are both profitable and have the blessing (and no volume limit) of top management to sell.

It makes sense.  Most factory fleet departments consist of a skeleton group compared to their retail counterparts.  Last year, Ford sold nearly 30 percent of total business with probably less than 300 fleet support personnel.  This compares favorable with probably thousands on the retail side.

Rental sales are different and no doubt thinner in the profit area.  While it only takes a few factory people to sell thousands of vehicles and it’s nice that they can be shipped in volume to a few destinations, there are other factors.  One is that they are returned on buy-back (guaranteed resale) deals.  Remarketing can be quite expensive, even after eight months in use.  Plus it influences the corporate residual values when you sell too high a percentage.

So, help me out here.  When some Detroit (or other) reporter states that “fleet sales are unprofitable,” set ‘em straight.  It ain’t the truth.

Another flag caught my eye this past week.  At my previous years at Mc
Graw-Hill, many of us would watch the new yearly report on how much an average sales call costs a company.  Oh yeah, in those days it was less than $100.  The new one just out pegs it at $324 per call.  That should be a flag for every fleet manager and their bosses as well.  To begin with, you, as a fleet manager, have a challenger to try to beat this cost with a better-than-average prowess of vehicle selection that also covers cost of operation (i.e. gas, tires, etc.) and resale values down the road.

It also calls for establishing good PM practices (now, if you don’t know that it stands for “preventive maintenance,” maybe we should start over) and for executing these recommended practices.  Downtime for the sales force will only escalate the $324 cost.

I hope you agree with my reasonings; if not, e-mail me at [email protected].

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