Had someone told me, when I graduated from new York University in '49 as a pre-med student, that I would spend 35 years in both the retail automobile business and the leasing business, I would have told him he was crazy. Had he told me that I'd be sitting in Eden Prairie, MN, 35 years later, reminiscing; I would have had him committed. Yet, here I am, reflecting on a career that has exceeded my wildest anticipations.
It's very interesting to look back over the events that have taken place and the changes in the leasing business from the time I started in 1962 until today. I vividly recall my first meeting with Herman Meckler at Lease Plan International. I was being interviewed for a position as assistant to the president. The decision reached as a result of those interviews was to put me in sales, working with Dewitt Chapple. I remember being told that I had about six months to close my first deal; I wrapped up three deals in the first 90 days.
Sometime shortly thereafter, Dewitt and I sorted out our roles. I became the salesman, and Dewitt started spending 100 percent of his time in a client-relations role, working with the existing accounts. Four months after that, I suddenly found myself with the manager of the used-car department reporting to me as well as with continuing sales responsibility. This was the result of my having spent the 13 prior years in the retail automobile business. Everything was new and different.....and exciting.
In those very early days, Herman Meckler, or "Meck" as he was called, went in on a few deals with me to assess and appraise my sales presentations. This soon came to a halt, and I was on my own.
The marketing was interesting. I was covering the entire U.S. and Canada, visiting towns that I never knew existed. The most amusing part of all was that, in presentations and the meetings, we spent more time talking about the Cadillacs and the Lincolns the executives were driving than the fleet itself. In retrospect, that hasn't really changed; the interest levels are the same. The presentations, however, are far more sophisticated, and I'll talk about those later on. When I look at some of the old proposals, with a four-door sedan for fleet costing $1,993, prime at 4.5 percent, and the cost of money to the client at a half over prime, it seems like a fairy tale. The entire marketing thrust in those days related more to the ability to sell used cars than anything else. The client had a choice of three cars: Ford, Chevrolet, or Plymouth; Biscayne or Bel-Air, Main-Line or Custom-Line. The biggest area of discussion related to the economies attendant to putting in air conditioning for vehicles located above the Mason-Dixon Line.
The marketing was fun. There are many factors that are very, very different today as compared to those early days. We would sell a deal, and because LPI was a relatively small company, I would go out after selling the deal and sell the financing either to a bank doing business with the client or to one of several banks in New York. It meant that, as a salesman, I was actively negotiating rates, procedures, payment terms, and so on. It was very educational, in that the expansion of knowledge relative to the banking of the deals is something that doesn't happen in today's market. Now, the more sophisticated financing is all handled by financial people, and the lay people are, for the most part, out of the picture.
The deal that really launched my career was the sale and leaseback of the Singer Company fleet in 1963. At that time, it was a 3,000 vehicle fleet and, I think, the largest sale and leaseback in the industry to that date.
In 1963, I signed the Xerox account on a dual-supplier basis, and the entire fleet was 1,000 vehicles, with 500 to each supplier. This gives you some idea of how things have changed and developed: the Xerox fleet today is in the area of 12,000 to 13,000 vehicles.
I talked earlier about the fact that the sell was very deeply involved with used-car returns. Additionally, there was a strong emphasis on the personalities of the people involved. Integrity was very important. Personal relationships were absolutely critical. We used to call it a personality sell then, and this has changed completely in the market place today, not with respect to the integrity of the company and the integrity of the salesmen, but with respect to the salesmen, but with respect to the fact that numbers are equally, if not more, critical than the personal aspect of the sale itself. We were dealing then with many of the old-time purchasing agents, who have long since gone by the way. I can recall occasions where the ability to drink four martinis at lunch was a pre-qualifying factor relative to whether the individual wanted to do business with us or not. This was one hell of a way to break in new salesmen.
In those days, I was selling not only the finance leasing of passenger-car and light-truck fleets, but full-maintenance programs for city-delivery-type truck fleets. The exposure to all facets of the market was tremendous experience. In the trucking end of it, we used to actually go to the shops and do surveys on a vehicle-by vehicle basis in order to draw a profile of the fleet and the anticipated maintenance costs. One of the last ones I participated in was a survey of a fat-rending company in Long Island in August. These people had a contract to collect horses, whales, etc., anything dead- with the exception of people, of course-that ended up on the streets and beaches of New York. If you can imagine horses that had been lying on the ground for four and five days in that heat -it was just incredible. It took me three days to even start to smell right again, and that only after throwing away the clothes.
Business was brisk, and we were closing a lot of deals. The types of fleets we went after were critical to our growth. Everybody was seeking some niche in the marketplace. At that time, we were directing our effort towards service fleets, which tended to be fairly rough-usage vehicles. Competition was as tough as it is today and, in most cases, with basically the same players. But the competition became a function of management fees and the ability to get a better price for used cars. The marketplace itself was such that the acquisition costs of the vehicles were standard across the industry, as were costs of money. ITC and accelerated depreciation were never mentioned, and it was primarily the service relationship between the lessee and the lessor that made the deal.
There were many fleets coming down. The marketplace was strong, and everybody had the opportunity to make a decent profit. At LPI, we were becoming known as the company for the big deals. During the period 1963 to 1968, we had done Singer Company, Addressograph-Multigraph, Friden, Humble Oil (the old Exxon), NCR, all of which were jumbo fleets then and, in may cases, still are. Our biggest competitor was Peterson, Howell and Heather, and nothing has really changed there, either.
As time passed, the business started becoming more sophisticated, not to the point that it is today, but fleets were looking at something more than just the ability to sell used cars. We went into a period in the middle sixties where clients, for the first time in our experience, were coming in to visit prior to signing and were actually interviewing management for stability, integrity, and professionalism. This hasn't changed. In fact, the cycle has been ever increasing to the point that it's almost standard operating procedure today.
LPI, as time went on, developed a group that essentially ran the finance-lease operation. I was running sales; Dewitt Chapple was running client relations; and Harry Brey was handling finance and administration. "Meck" was deeply involved in managing the entire company, which at this point had grown very rapidly from 20,000 vehicles in 1962 to 75,000 by 1967.
Back in those days, I was selling against John Lalley, who handled the New York market for PH&H, Norm Kasschau at ARI, and Ted Less at Wheels. All are familiar names. Some are still in business, and some have retired. It was fun.
The manufacturer who played the most active role in the fleet business at that time was Ford. We all remember people like Jimmy Larkin, whose colorful speeches enlivened dealer and fleet groups; Howard Cook, or "Cookie" Larry Domegal, who handled fleet and leasing-he was an asset that still hasn't been replaced. The other manufacturers were a little slow in coming into the fleet and leasing scene because, I think, they didn't really believe our industry was around to stay. That has been corrected over the years, and there is a fairly good level of responsiveness from all of the manufacturers today relative to fleets.
In 1966, LPI was acquired by Pepsico, who were long-term clients from both the passenger-car and trucking end of their business. It was nice dealing with an acquiring company that consisted of old friends. The only problem was that Dewitt Chapple, Harry Brey, and I really weren't attuned to dealing in a major corporate environment. In the latter part of 1967, we started to look around for an opportunity that would provide the type of challenge we had had with LPI when it was a small company.
We were very fortunate in January of 1968 to get together with Bud Grossman of Gelco, which at that time was a tiny little company "somewhere" in the Midwest. You have to understand that when you're from New York, there's really nothing until you get to Los Angeles or San Francisco. I think the New Yorker magazine crated the appropriate map depicting that. I had met Bud on several occasions before. Brey and I got together with Bud to discuss the possibility of putting something together. It turned out to be a fact deal. We sat down over a breakfast meeting, and by two o'clock that afternoon, we had shaken hands on the deal that gave us the challenges we needed, along with potential financial rewards. We started working for Gelco three weeks later.
The leasing industry and the manufacturers at that time thought Bud was absolutely out of his mind for contracting for the package he did with the three of us, and the predictions on the long-term viability of Gelco were somewhat dire. When the three of us came out to Minnesota in February (which gives you some idea of how ignorant we were of the weather conditions), we walked into a very vital, very aggressive, very small company, with a fleet of approximately 6,000 vehicles. The three of us were housed in cubicles, each with room for one desk and one chair. We all shared a secretary, who really belonged to somebody else. But that point in my life started an odyssey of success that I still don't believe.
We started selling to prospects who couldn't determine whether Gelco was a product of General Foods or what. And it took an awful lot of talking to get the credibility level across. The net of it was that we were able to start selling almost immediately. In April of 1968, we made our first acquisition, which was a small leasing company in Portland that virtually doubled our size.
We needed a niche in the market place to create some very fast growth, and it appeared to us that rough-usage fleets were the way to go. As a result of that, in 1969, we did a sale and leaseback on the Montgomery Ward fleet, which was approximately 3,000 vehicles. This deal was big enough to represent more than 15 percent of our total business, and I think was the only deal in our industry that ever hit the broad tape.
From there, we moved very strongly into the railroad fleets, and the growth part of our business has never really stopped. In 1972, we were able to acquire LPI from Pepsico. There was a desire to keep the former LPI people out of the negotiations, which was very understandable, and as a result, Dewitt and I were sequestered in a hotel room in a White Plain, NY, for a week, while Bud was sitting in Purchase, NY, negotiating the deal. The deal was finished on a Friday, at which point we went into the LPI offices. It was like a homecoming for the next four months, Dewitt, Walt Belleville, who was running sales for LPI, and I, were on the road five days a week, convincing the LPI clients to stay convincing the Gelco clients that we were not going to fall apart because of the problems with the acquisition. The net effect was that we retained approximately 80 percent of the LPI fleets and 100 percent of the Gelco fleets. This was the last acquisition that we made in the large-fleet segment of Gelco.
One of the major factors in our fleet-management business today is managing fleet maintenance. Gelco had been in this business at a very low level in 1968, and we started to expand it and talk about it in the early seventies. It was interesting that nobody really paid attention to our Maintenance Management program because gas was so cheap and costs were such that no one was too concerned with them. The oil embargo in 1973-74 suddenly created an awareness of the operating costs for vehicles, and our maintenance management program absolutely took off. We had about 4,000 vehicles under the program at the beginning of 1970, and we have today approximately 75,000 vehicles on the program. It has become a major factor in the industry.
The Gelco years have been very exciting. Working with Bud over the years had been a very satisfying experience in both a personal and a business sense. The explosive growth that Gelco has enjoyed is the direct result of his management ability and the close personal relationships he developed in the early days of Gelco. For me personally, it has been a very ego-gratifying period in that, while I had accomplished all of my personal goals at LPI, I never really knew whether it could be attributed to myself or the dynamic nature of "Meck," the company founder. At Gelco, Bud had been very deeply involved in marketing. In fact, a little anecdote: I had been never heard my presentation and would like to come along on a deal with me. I said "Great. Be delighted to have you." As we were walking into the deal, he said.
"You handle the deal and make the presentation," and I again said "Great," We got in; I got to say hello; I managed to say goodbye; and that was the end of my involvement. This was also the last time I invited Bud to join me.
While Bud was managing the business in Minneapolis and I was out selling, I had the opportunity to prove to myself that our growth was, in fact, to a large degree a function of me and my sales people being out there. As I said before, this was an ego trip of the highest order.
The market changed very drastically during my time at Gelco. Cash flow became a factor. Discounted cash flow, spread sheets, ITC, accelerate depreciation-all these things suddenly became very common in the sales presentation. I saw many salesmen who were superb performers during the early years, being passed by due to the increasing sophistication. We were no longer dealing with pure fleet mangers. The average deal was being presented to financial people and was being reviewed by financial analysts. We were getting deeply involved with tax and EDP people. The integrity and stability of the company were still absolutely critical. But the sophistication and the presentation also became critical. Innovative financing came into play.
I became deeply involved in AALA, the American Automotive Leasing Association, because we needed to be participating in what was happening in the marketplace, and legislative activity was suddenly becoming a major factor. Along the way, I was elected president and then chairman, and am now honorary chairman.
When I look at our industry today, I am somewhat troubled by what I see happening. The continuing legislative pressure on leasing is something the industry can adjust to and live with. But the continuing pursuit of market share, at any cost, that is taking place in the fleet management business today is self-destructive, and it creates, in my mind, the picture of lemmings running to the sea. The fleet management company gains some volume, but only until someone else underbids the deal. The fleet gets lower rates, which will ultimately result in substandard service and dissatisfaction, and then the whole bid process starts over should take a good look at what is happening to the airlines in today's market and take heed.
My only real regret in leaving the industry is leaving behind the very many good friends I have made and worked with over the years.
As I look back over the 13 years I spent in the retail automobile business and the 22 years I spent in the leasing business, I think of how it all started. A casual acquaintance said, "Why don't you try the car business? I have a friend looking for a salesman." Now, 35 years later I still have a hard time believing all of this happened- but I'm glad it did.