AF: Enterprise was recently investigating several options as to its future direction. One option was the sale of the company. What were the factors and decision process that led to the conclusion not to sell the company?

Brown: Probably the single most significant factor, for which I would give Jack Taylor (Enterprise's chairman of the board) and President Andy Taylor much credit, was (pointing out) the amount of debt that would be required to support a fair sale price for the company. While a sale would have made a lot of people who own stock happy, those who stayed to take the company through the '90s would have had a debt service that, frankly, would have changed the way we did business. In particular, this debt service would affect the speed in which we could grow, and even our corporate culture. These changes, according to Jack and Andy Taylor and senior management, would not be in keeping with the commitment made to the 5,000 people who form Enterprise. The decision was made to give up the immediate financial gain in return for a continuation of what has seemed to work.

It's interesting that when others examine you, you then examine yourself much more closely than you might otherwise. Under very close scrutiny, and based on the comments of others, we probably came away feeling even better about our opportunities in the '90s from a competitive, operational, and organizational perspective. The prospect of going into the '90s independently became less frightening. It's not that it was scary before, rather it made us more positive. We examined all these factors, and decided that now was not the time to sell the company.

AF: A published goal of Enterprise is to attain over a billion dollars in sales. With this target only one year away, do you foresee Enterprise achieving this goal? What percentage of this billion-dollar sales goal will come from the vehicle leasing and rental segments of your business?

Brown: Yes, we will achieve that goal, unless something unforeseeable happens. As to percentages, our rental business continues to grow at a rate in excess of 20 percent, compounded annually. Leasing continues to grow in the range of 10 to 15 percent, compounded annually. Based on market factors, die revenues might grow more or less quickly depending on the cost of money, cars, and other things which drive pricing. Although we talk in terms of one billion dollars in sales, we think in terms of units in operation. Most of our measurements, operationally, tend to be in relation to units in operation.

AF: For the past five years, Enterprise has averaged 27 percent annual growth. Did this hold true for 1989? What were your annual sales for that fiscal year?

Brown: The growth in 1989 was consistent with the prior years. In fact, it even exceeded our expectations.

AF: What percentage of your fleet leasing business is to small fleets of less than 50 vehicles and what percentage is to large fleets?

Brown: We're structured with a company called Enterprise Fleets, Inc., (EFI), whose market objective is to service mid-size to large fleets ranging from 50 to 1,500 cars. Enterprise Fleets continues to grow at 15-20 percent a year, with some years better than others. The other part of our leasing business is within each of our regional operations. Overall, we do almost no consumer leasing, and 70 or 80 percent of our corporate business falls into the under-50-car category.

AF: What advantages does Enterprise offer to large fleet customers over other vehicle leasing companies? What about small fleet customers?

Brown: Let me separate what I call the small fleet division, which I just described, from Enterprise Fleet which is more like traditional, major fleet companies. In cities where we have free-standing, small fleet operations we can differentiate ourselves from the dealer on one side and the major fleet lessor on the oilier side.

Since we are local, we have a significant and complete local presence. For example, our Chicago leasing operation has a complete management team handling everything from billing to receipting, to answering questions posed by clients with 35- or 40-car fleets. The small fleet divisions within Enterprise do not expect the customer to depend on computer reports to get answers. Nor do they expect the customer to call various departments within an 800 (telephone) number infrastructure to get an answer. But rather, the customer wants to reach the person they do business with. That person, in essence, is the fleet administrator for that smaller fleet.

We believe this structure offers support that is superior to any dealer or very small independent leasing company because our people have access and the benefit of a major computer service. The structure is more sensitive to customer needs and more responsive than a "large" fleet lessor. We happen to believe there is a wonderful, important future there. In terms of Enterprise Fleets, Inc., since it's formation in 1976, the target has been to create a more interpersonal-based company than what's available from computer-based, major lessors. However, that is not to say one service is better than the other. It's merely a genuine attempt to differentiate: to make a relationship between us and our clients more personal in terms of their needs.

I believe that having started our business as an individual leasing company and then moving into the larger fleet arena gives us a somewhat different perspective on drivers and the needs of divisional people than a major fleet lessor. Other lessors are trying to learn to be responsive by coming from the other direction. This is a cultural difference which we continue to hear year after year from our clients as to the reason they do business with Enterprise Fleets. I might add, many of them tell us that we cost 50 cents or a dollar a month more per car. It's nice to hear most of them say it's a value.

AF: Presently, Enterprise's rental business is growing faster than it's leasing business. Do you anticipate the growth of the leasing segments to continue at the same pace in relation to rental? Or, will if increase or decrease?

Brown: Leasing is growing, but at a slightly slower pace than rental.

AF: In your leasing business, which has been the fastest growing segment? Also, in the next five years, what percentage of your leasing business would you want each segment to account for?

Brown: We hear people talk about three-year plans and five-year plans, but we're not that sophisticated because about the best we can do is plan a year or two ahead tit a time. One reason for this is that the industry is changing so quickly. The tax laws, clean air issues, manufacturer's segmentation changes, and the entrance of imports. So many things have changed so quickly that to answer that question is almost impossible. We do feel we're positioned well - because of our groups - to respond if the small fleet individual market really heats up. At the same time, though, we believe that the current growth rate of our infrastructure, computer support, and learning over the last 14 years of growth tit Enterprise Fleets has us well-positioned in the "large" (fleet) sector. To know which one is going to be most successful, today, is beyond my wisdom.

AF: There has been virtually no turnover at Enterprise's management level for the past two decades. What do you attribute this to?

Brown: To most of our employees, Enterprise has been their only job. They see working for the company as being a part of a family.

AF: As the immediate past president of the American Automotive Leasing Association, how would you review your term in office? What were your biggest accomplishments?

Brown: There are two things I am most pleased about: the association's focus today, more so than ever, is toward Washing, D.C., and federal issues. Additionally, the board and officers are now kept informed by a monthly, standard, pre-structured reporting mechanism from John Fitch, AALA's executive director. The past criticism of lack of information has been eliminated. I've been told by most of the board members that the new system of monthly reporting within the association has been very successful.
It's a system I learned from Jack Taylor many years ago. This system is almost a plagiarism of the system Enterprises uses to keep track of its 20 relatively free-standing corporations around the country which are run in semi-autonomous manner. It has been superimposed at AALA, and I think it's been successful.

The other thing I'm delighted about is that Jim Culotta (president of McCullagh Leasing) was willing to come forward and take what, for me, was merely an idea, a hope, that we could truly examine in an independent and clear way this question about driver reimbursement versus company ownership or the leasing of cars. All of us have known - and have models to demonstrate - that volume buying, borrowing, insuring, maintaining, servicing, and selling is cheaper than an employee doing it with company money. However, it was thought to be self-serving when first presented, because Runzheimer International had begun saying, essentially, that it was cheaper for companies to reimburse than to own or lease vehicles.

I'm convinced that the joint study with NAFA, with the assistance of AALA and the manufacturers, will bring to the public the absolute clarity and truth, once and for all, to the question of company-provided versus employee-reimbursed fleets.

What disappoints me is that the continuing consolidation of leasing companies through acquisition makes the numeric membership of AALA shrink, even though the number of fleet units represented in AALA grows. I also had hoped that some more of the smaller lessors would have joined AALA.

AF: You have been involved with the U.S. Treasury Department study on vehicle class life depreciation. How is this progressing? What input did AALA provide to Treasury?

Brown: Fortunately, AALA in the past 10 years has become genuinely known and repected by Treasury, the House Ways and Means Committee, and the Senate Finance Committee. There is no question in our minds that the work we did convinced enough congressional people that the five-year depreciation (the current IRS regulation) for cars is incorrect. Congress instructed Treasury to study and report back within a year on the appropriate depreciation life for vehicles. We think that is a great stride.

Obviously, we would have loved a fix right now, but that being impossible, the next best thing that we could achieve was the Treasury based study. In that regard, we are working very closely with Treasury. Jim Frank (president of Wheels) has admirably handled the efforts of the legal-legislative side of the association in recent years. I have every reason to believe that the findings will be, as with the reimbursement study, very favorable because they will represent the truth. Optimally, will get depreciation back where it belongs on cars and light trucks.

AF: With the ongoing consolidation in the vehicle leasing industry, how do you see Enterprise's position in the marketplace?

Brown: Well there's good news and bad news. We will continue at te current rate to move up the scale as a larger company, but the distance between the size of our fleet and the large fleets obviously will broaden. We do think, over time, that should be a positive development. Most people would agree that the returns today on commercial leasing are woefully low. Making a buck is as tough as it's ever been in my 26-plus years in the industry. Arguably, as you get more consolidation and more major players, there might develop some sense of order to this whole notion of pricing - once everybody has sorted out what share of the market they wish to own. In the short run, we see little or no impact, but in the long run we think it could be very favorable.

 

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