Gelco’s New Concept in Service

Each day, N. Bud Grossman checks the sales reports for Gelco-IVM Leasing Co.

According to Grossman, who is president of the Minneapolis, Minn., company, this routine gives "me a bigger kick than any job function I perform."

If this is true, then Grossman is getting more kicks these days than a woman in her eighth month of pregnancy. For Gelco-IVM has what must be the greatest growth record of any leasing company going to the post in the last decade.

The Boom Begins

In October, 1964, Gelco had 4,000 cars on the road. As of October 15, 1968, the company had nearly 20,000 units under contract.

"By the end of 1969, we expect to have between 25,000 and 26,000 units, both cars and trucks, operating under a Gelco-IVM lease," Grossman told AUTOMOTIVE FLEET. Of this total, about 20 per cent are trucks.

And if numbers alone aren't convincing, try these figures:

"Last year we billed about $20,000,000 in business," said Grossman.

Grossman and his fellow brain-trusts at Gelco talked with staff members of AUTOMOTIVE FLEET in what one AF writer described "as the most unusual interview session I have ever been a part of."

Mood Is Informal

Present at the session, were Bud Grossman; his brother Harold, who is vice chairman of the board; DeWitt Chapple, executive vice president of client relations; Stan Chason, executive vice president of sales; and Harry Brey, executive vice president, finance and operations.

To say that the mood of the interview was informal would be like saying Raquel Welch has a good figure.

Punctuating the answers of AF staffers were one-liners between the participants. It was enough to make a Rowan and Martin gag writer duck for cover.

But through all the horseplay and the good-natured ribbing, there was one predominant theme:

Here was a group of professionals obviously filled with pride in what had been accomplished. Here was a group that looked forward to the future with unbridled enthusiasm. There was a group of men who obviously enjoyed what they were doing ... and enjoyed it even more because they were working in each other's company.

Perhaps the best indication of Gelco-IVM's rapid growth can be seen in the building that serves as the company's headquarters. Seven years ago, when the one-story structure was completed, 18 persons were employed. The 18 had enough working room left over in the 11,000-square-foot structure to hold a football game or two. Today, the 96 persons employed by Gelco-IVM crowd headquarters to the bursting point. Last month, the company began construction of an 11,000-square-foot addition to the building. The company grew from a local to a large regional operation and finally into a national organization offering its clients management of the maintenance lease coupled with the finance lease concept. Gelco-IVM does not sell a closed-end lease.

IVM, when it was merged with Gelco earlier in the year, had 5,000 vehicles on the road. All of these vehicles were under the same type of leasing program that Gelco offered. According to Grossman, this was the reason why the acquisition was accomplished.

Autonomy Retained

"While Gelco was much more sophisticated in its reporting formats, the two companies were basically alike in their approach to business," Grossman said.

Grossman was quick to point out, however, that while the two companies have merged, IVM retains its distinctive autonomy.

"IVM operates in the west and has offices on the West Coast in Portland and Los Angeles. We have retained IVM's key personnel, and although the companies operate under one banner, IVM continues to do business in many respects as a separate, autonomous unit," Grossman said.

While the acquisition of IVM was a great shot in the arm for Gelco, the company received another tremendous boost when Chason, Chapple and Brey, previously of Lease Plan International, joined Gelco-IVM early in 1968.

The three gave numerous reasons for joining Gelco. The most mentioned reasons, however, centered on Gelco's growth and a chance for personal achievement and advancement.

Since March, when the company put together its new national sales program, Gelco-IVM has made more than 125 proposals for new business. Eighty-five per cent of these proposals were made to companies that were leasing. Since March, Gelco has signed what Bud Grossman described as "twelve major accounts, plus numerous others."

7,000-Car Potential

According to Chason, these contracts have a potential of 7,000 cars over a two-to-three year period.

Gelco-IVM's selling revolves around what it calls a "fleet vehicle management program." Grossman calls the program "unparalleled in the leasing industry." Simply stated, the program is a two-step operation. The first step is complete control of a client's maintenance. The second step is a complete bookkeeping and reporting service for the client. And the center of this program is a computer system that AUTOMOTIVE FLEET staffers found to be one of the most sophisticated that they had encountered anywhere in the car fleet industry.

Basis of Idea

According to Grossman, the idea for the company's fleet vehicle management program originated to satisfy the need of the fleet administrator for sophisticated management tools to control his fleet maintenance. "We worked on the idea, refined it, and developed it until today 10,000 cars leased by our company operate under the program."

"Of the new clients that we are signing, better than 60 per cent of them are using our fleet vehicle management program," Grossman said.

The maintenance control part of the program is centered on what Gelco-IVM calls an "exception report." Each vehicle in the program becomes a data card in the computer system. Gelco sets up a standard of maintenance for each account and each vehicle. If a vehicle runs 25 per cent over or under this figure, the computer will automatically kick out an "exception report" on that particular vehicle. On this report will be a record of all invoices billed against the vehicle.

"Take a fleet of 400 vehicles. If 10 per cent of their drivers are either over-maintaining or under-maintaining their vehicles, the computer will produce 40 reports instead of the fleet administrator having to check through 400 reports," said Grossman.

"Basically what we are doing is giving the fleet administrator the tools to do his job more effectively," said Brey. "Merely examining expense reports after the fact is not the answer. Controlling these expenses at the point they are incurred is the answer. And Gelco-IVM controls them. We determine if the car needs maintenance. We not only give the OK if certain work is to be performed, but we also provide the purchase order."

"We examine repair orders to determine the applicability of warranty; we examine to see if proper labor rates are in effect; that: the proper discount on parts has been applied; in short, that the bills are properly priced and paid," Grossman said.

"Total maintenance expense on a two-year vehicle is the greatest single controllable variable in the entire transportation picture," Grossman continued. "The difference between controlling it and not controlling it represents the area of the maximum savings to the client."

Under the bookkeeping part of the system, the client gets one bill and writes one cheek for all his maintenance.

Pinpoint Expenses

"Through our computers, we can pinpoint a client's expense down to what it costs him to write a cheek," said Brey.

Among some of the other forms received each month under the "fleet vehicle management program" are a "unit expense report," "unit maintenance ledger," "monthly field performance .summary," and "fleet operations summary."

Among the information included in the "unit expense report" are variable and fixed expenses, monthly expense totals, and unit cost analysis from the date that the vehicle is put into service. Cumulative expenses lists total to date, per mile expenses and expenses per month. This report gives a complete breakdown on each unit in the fleet.

The "monthly field performance summary" is done on a calendar basis and is used so that each division in a company can see what its vehicles have cost them for the calendar year. It is used primarily as a budgeting tool. Among the information included in the report is unit rental for the month and year-to-date, and total and incidental fixed expenses.

The "fleet operation summary" gives the client a picture of the total fleet. This is also prepared on a calendar basis.

The "unit maintenance ledger" records the maintenance performed and the maintenance costs on each unit. When a unit goes over or under the standard established for each vehicle, it is here that the "exception report" is printed out by the computer.

An Advantageous Factor

Grossman continued: "We have many, many clients for whom we perform all the bookkeeping on any expenses regarding the vehicle. For the client who has 100 or more vehicles, this is a very advantageous factor. We design report formats and incorporate them into the client's own bookkeeping system, so that the man making out his expense report has a carbonized tear sheet. He tears this out and it goes directly to Gelco."

Does the "fleet vehicle management program" work in regard to used car disposal?

"Before you can intelligently determine when you are going to replace the vehicle you must know the maintenance factor," said Grossman. "If you go by miles you are really doing nothing. After all, in our business, the name of the game is used car disposal. Our basic responsibility to our clients is to dispose of that vehicle using as a standard the current wholesale market. We feel that we do this better than any other leasing company in the United Stales."

"It occurred to me that the real thing we must do as a leasing company is manage the used car into the market. In doing so, we project mileage for every vehicle in the fleet on the basis of mileage; and terms. This information is contained in a computer form called a 'mileage projection report.' If a particular vehicle is out of maintenance standard, the report will so indicate. Right then and there we look and we may decide that this vehicle must be replaced earlier than projected. We print out a list for the client of vehicles that are going to be replaced in the next four months."

"Replacement scheduling is not an automatic thing," said Chapple. "What we are doing is combining computer technology with our knowledge of and exposure in the used car market."

Chason added: "Most leasing companies use either mileage, age or market in varying combinations as a means of replacement. We have combined the three with the cost of maintenance and refined the entire technique of managing the car into the market."

Does Gelco have any financial proof that the system is saving its clients money?

"At Gelco-IVM we check used car disposition records, and based on what we know through our studies of leasing companies, we find Gelco is getting more for used cars than any other major company we know of," Chason said.

What about new car procurement?

"We adhere strictly to a policy of delivering through local dealers," Chason said. "We are currently dealing with close to 4,000 dealers in the United States. We sell our used cars to dealers, drivers, wholesalers or through auctions. The delivering dealer has the right of first refusal. This, of course, applies if company policy forbids the driver to purchase the used car. If neither driver nor dealer bid on the car or if their bids do not reflect true market value, our used car department individually analyzes the vehicle to determine where it should be sold, how it should be sold and the extent, if any, of reconditioning needed. We generally get back $1.50 to $2 for every dollar we spend in reconditioning."

Does Grossman see any limitations regarding the future growth of Gelco-IVM?

"I place no maximums regarding how far we can go. I see us being the number one leasing company in the country. From a quality standpoint, from a size standpoint, I frankly don't see any limit on this thing, unless of course growth interferes with quality of service in which case we would sacrifice growth."

What about future acquisitions?

"We are not aggressively pursuing new acquisitions. We didn't aggressively pursue IVM. That transaction resolved itself in a matter of days. It somebody were to contact us and if it looked like a 'fit.' we would be interested," Grossman said. "Any company that is involved in vehicle management one way or the other would be a company that we would be interested in. It has been our experience that most companies that are in that area are relatively small and reach a quick saturation point."

"How much business can you do? How much can you do with primary EDP equipment? If you are going to get into it on a major scale, you are running into huge expenditures," Grossman continued. "What I would predict would happen to any company that is in this area would be that they would have, to make a decision to remain relatively small or get big. There is no in between. The costs will just kill you. It never is more apparent than in this area. Other companies have various types of expense control and some pseudo-management control, but nothing approaching the EDP systems that we use."

"Our management is young. We not only have the financial stability and the brains to progress, but we have the time in which to do it." Grossman said.