When a Leasing David Links Up With Goliath

Imagine for a moment that you're a small, family-held fleet management company with some 40 em­ployees and a mostly regional clien­tele. One day you're approached by a national finance and leasing firm with a $14 billion portfolio and an eye toward expanding into your area of expertise, light trucks and vans. If you're anything like David G. Kerr - president of Kerr Leasing & Fleet Services Co. of Englewood, CO- you won't have to think for long when the giant offers to buy you out.

"I could say I started jumping through hoops," Kerr laughed the other day, recalling the origin of his firm's acquisition in 1984 by Gener­al Electric Credit Corp.(GECC). "Since the company had not been for sale at the time, GECC's offer was kind of surprising. But when one of the most profitable firms in the United State steps up and makes such a proposal, you pay attention.

"We worked the transaction out over about a year until we were both comfortable with it," Kerr continues. "It's not easy going from a tightly-held family concern into major corporate involvement like this. But I have to say that everything GECC said would happen has happened. They're a very fair, very intelligent group of people, and money is not a consideration with them...

"So it was an opportunity for the Kerrs that we probably could not have passed up."

Founded in 1972 by David's father, David R. Kerr, Kerr Leasing & Fleet Services Co. owned a fleet of 8,000 vehicles and assets of $32 million when it officially changed hands a year ago last month. Its strength was in the management of light trucks and vans, particularly those operated by Rocky Mountain-state energy and cable TV companies.

Through its Commercial Equipment Financing Department, mean­ while, GECC had been in the heavy- truck leasing business for several years prior to '84. But heavy-trucks only account for 10 percent of the $25 billion truck market overall. GECC, a unit of General Electric Co., wanted to find a way to enter the growing market for light trucks. Without an ability to offer manage­ment services, however, the Stamford, CT-based firm was virtually precluded from the field.

In exploring the possibility of ac­quiring Kerr to smooth its way into the small-truck market, GECC soon learned how profitable it would also be to enter the fleet-leasing field. In the auto industry alone, one-sixth of all new cars manufactured in the U.S. are now leased - as opposed to one-tenth just a decade ago.

(To finance this growing industry, GECC had previously organized General Electric Credit Auto Lease (GECAL), and the Large Corporate Customers Marketing and Financial Support divisions, both units of its Auto Financial Services Operations. LCC, for example, offers vehicle leases and sub-leases for some 12,000 cars under managers Wayne Kuznik and Terry Durham.)

Because Kerr could supply valu­able services to maintain and manage leased truck and car fleets, GECC decided to make its offer for an undisclosed amount.

With its parent providing lease funding, Kerr now concentrates 80 percent of its activity on servicing fleets. Its current portfolio consists of some 10,000 vehicles, a figure that will eventually double as Kerr takes over most of the GE company fleets. Vehicle-leases will soon be divided about equally between cars and trucks, 85 percent of them tax leases wherein the ITC is passed through to the lessee. Since last year's acquisition, the number of Kerr employees has grown to more than 60; together, GECC and its new wholly-owned subsidiary have now closed over $3 million worth of business.

"We are, in effect, a stand-alone, asset-management company," ex­ plains vice chairman and chief executive officer Daniel Breene, Jr., who joined Kerr in July after specializing for several years in leveraged buyouts and tax leasing for GECC. "Operating as such, we do have a lot of accounting and sys­tems assistance that comes to us from GECC headquarters in Stamford, CT. But our day-to-day operations are all handled here in Colorado."

"When the acquisition was made, Kerr grew from two or three salesmen to over 150 salesmen overnight," Breene goes on. "They are out around the country selling middle-market leasing to a variety of companies, acting as our primary sales force. In addition, we have ad­ded six territory vice presidents who are essentially career fleet- leasing specialists...So from that standpoint we are getting a lot of marketing benefit from the association with GE Credit."

The GECC connection is invaluable in another way, too. "A second distinct advantage is that we now have some very deep pockets to access when it comes time to get money to expand," Breene says.

"In effect, we have been given no limits for our expansion budget. If we need $10 million, we've got it. If we need $100 million, we've got it. If we need $500 million, we've got it. The only caveat, of course, that GECC requires that we earn an adequate return on their investment."

By most accounts, Kerr fleet management services are designed so that the fleet operator will have maximum control over his fleet with minimum amount of supervision. Services are offered under a five point program consisting of the Wholesale Vehicle Acquisition Program, the Vehicle Leasing Program (offering either a tax-oriented or an open-end lease), the National Account Purchasing Pro­ gram (through more than 22,000 service centers nationwide), the Expense Reporting Program, and the Maintenance Management Control Program.

Because of the comprehensive, attentive nature of such services, the firm claims that no fewer than 95 percent of its customers have been retained since '72. "It all comes down to personal service and personal touch," says President Kerr. "We're still small enough that we know who our customers are and what their concerns are on a day-to­-day basis. And our Number One ob­jective is to maintain that close rela­tionship as we grow. It won't be an easy task, but I know we can do it."

To illustrate that "personal touch," Kerr recalls how his firm had advised one lessee against ac­quiring some 300 full-size pickups with potentially serious engine problems. When the lessee chose to ignore that recommendation and order the vehicles anyway, Kerr decided to keep extraordinarily detailed maintenance records on the trucks.

"When those engines began to blow up, one after the other, as we had forecasted, we had all the main­tenance records to show that it wasn't because of abuse or lack of oil changes or anything like that," Kerr says. "We proved to the manufacturer that it was an inher­ent mechanical problem. As a result, we were able to get every one of those engines repaired at no cost to our customer."

What's the biggest challenge these days for the newly-adopted kid of the billion-dollar parent? "We really have a very simple task," Breene says with a smile. "Just grow at a compound rate of 200 per­ cent a year for the next five or six years, and maintain the same high level of service. Have a little bit of fun, make a little bit of money."

Or a whole lot.