The best news I can pass along to you today is that the future is clear. You can be certain there is no uncertainty about the future, at least as it relates to the automobile industry. We know what's going to happen and we know how it's going to affect our fleets. In truth, we have known it for quite some time.
Our first clue came in 1966 with the passage of the Clean Air Act. You remember the Clean Air Act and the PCV valve that came with it. The Clean Air Act really opened the door to Federal regulation of the automobile industry. In just 13 years, we've come from that small valve all the way to unleaded gas and catalytic converters.
In 1973, we got another clue to the future when safety and crash worthiness standards were set by the National Highway Traffic Safety Administration (NHTSA). Beginning with the 2.5 mph impact bumpers, NHSTA has spawned padded dashes, padded visors, back-up lights, side running lights, seat belts with and without buzzers, outside mirrors, and non-glare inside mirrors. Still a future possibility - the nefarious air bag.
Then, in 1975, came the Federal Fuel Economy Act (PS 94-163), which said, "Mr. Car Manufacturer, you will build a model mix that will produce 27.5 mpg by 1985. And if you don't, we will fine you five dollars per car for every tenth of a mile per gallon you're off." Now if you're General Motors, building six million automobiles a year and you miss the standard by a tenth of a mile per gallon, your fine would be $30-million. That's what I call economic incentive!
THE FUTURE IS NOW
It's not particularly difficult to hang emission controls, such as pumps and valves, on cars; you can even add safety devices without too much trouble. But how are you going to get 27.5 miles per gallon?
First, let me assure you that there is no new technology to provide easy answers. We have had the internal combustion engine for quite some time, and we will continue to have the internal combustion engine for a long time to come. Certainly into the 1990's. You may have heard a lot of talk about Bristol engines, hydrogen engines, and other miracle workers, but they're just not practical because the transportation infrastructure is based on the internal combustion engine.
In late September, Pete Estes, the President of General Motors, announced GM's new electric car. But even then, Mr. Estes talked about a 1990 market; he talked about possibly capturing 10-percent of the personal commuting market; and he talked about a two-passenger car with a top speed of 50 mph and range of 100 miles.
Although this type of vehicle will help our overall energy situation, such an electric car is not a typical fleet car.
There is only one way that we're going to get to 27.5 mpg by 1985, and that is with smaller, lighter, more fuel efficient automobiles. From 1977 to 1980, we've taken 650 pounds out of the typical automobile, and you haven't anything yet. Remember in '81, '82, and '83 we have to improve the mpg by two miles each year. So an additional 820 pounds has to come out by 1985.
Because cars will be lighter, engines will be smaller. By 1985, you're going to be looking at an engine mix of 60-percent or more fours, with the remaining 40-percent sixes or small V-8's and, in my opinion, mostly sixes.
Up until about four months ago, we had cars designed in Washington, and a supply created by bureaucrats who said, "You're going to buy smaller cars whether you like them or not!" But then came dollar-a-gallon gasoline. Now we still have cars designed in Washington, but we have a demand created by consumers, not bureaucrats. It's a much healthier environment for both the automobile industry and for our country. For fleet administrators, dollar-a-gallon gasoline means that, more than ever before, you must have job-rated cars.
JOB RATED CARS
No longer will you be able to afford the luxury of having one car for your entire fleet. From now on, you're going to have to use smaller, four cylinder cars in urban areas and, possibly, larger V-8's in rural areas where you have high mileage drivers. Because the car will have been selected to fit the job requirements, not the driver, the car will stay with the territory and you will transfer the driver. The economics of fuel economy will more than offset the increased complexity required to manage your fleet on a job-rated basis.
We're at dollar-a-gallon gas now, and the price of fuel will continue to rise. It is unreasonable to assume, considering the amount of oil we import and the way the dollar is dropping in value, that the price of fuel will not raise. So if it's a dollar a gallon now, it will be higher than a dollar a gallon in the future.
We will continue to have spot shortages and they will occur on a more frequent basis. Fifty-percent of our oil supply is imported, imported from a part of the world that has less than stable political environment. So you and your drivers will have more frequent availability problems. As fleet managers, you must realize that supply problems are the norm, not the exception. Gear your organization so that you're ready to handle spot, regional or national shortages of fuel.
Because of the uncertain fuel supply situation, the used car market will be more volatile in the future. In periods of abundant or adequate fuel supply, used car prices will go up; in periods of fuel shortages, used car prices will come down. Since we are going to have spot shortages, you're going to see more dramatic swings in the market. These wide variations in the marketplace will become a part of your day-to-day operations.
There won't be five years till the next oil crisis. I can't stress enough that fuel shortages and dramatic swings in the used car market are now a permanent part of your business today. They are no longer the exception to the rule.
You do have a new set of challenges facing you today. Managing costs and coping with the complexities of our business are major challenges all by themselves. And you can add to those challenges convincing your associates that there is no uncertainty about the future of the automobile industry. Tell them about smaller cars, more costly gasoline, and more expensive automobiles.
Yet, your most important challenge is to lay the groundwork for an orderly transition within your company fleet to the concept of the job-rated car. We cannot tolerate complacency, and at the same time we must fight off the desire to panic.
HOW TO SELECT NEW CARS
Let's see how my remarks can be applied to today's environment. During the last 90 days, all of you have tangled with the question of how to select from the new generation of cars. Briefly, let me review with you some new car selection criteria.
First, and foremost, you must have an automobile that will do the job you want it to do. Your company is in business to make a profit by selling its services or products. If your driver needs a large trunk and a big V-8 or a station wagon to get the job done, then that's the kind of vehicle you should select. However, if it is possible and practical for you to use smaller lighter, more fuel efficient cars, then by all means do so because of the economics of lower acquisition and operating cost and because of the economics of depreciation.
And, of course, in the new car selection criteria, don't forget image, ride, comfort and safety. Those are intangibles and can't be directly tied to a dollar amount. But let me assure you of this: don't overlook the intangibles. The most important ingredient in an efficient and economical car plan is your driver. He can impact fuel economy by as much as six miles per gallon! Don't forget your man behind the wheel when you're selecting your new cars for the coming year.
Briefly, let me review with you Peterson, Howell & Heather's basic recommended cars for 1980. The cars we've recommended provide for an orderly transition to a new generation of cars. In the Buick, it's the Century and the Regal; in the Chevrolet, it's the Malibu Classic and the Monte Carlo; for Chrysler, it's the Le Baron and the Cordoba; in Dodge, it's the Diplomat and the Mirada; from Ford, it's the Granada Ghia and the Thunderbird; in Mercury, the Monarch Ghia and the Cougar, the Oldsmobile Cutlass and the Cutlass Supreme, the Pontiac Grand Lemans and the Gran Prix. In all cases, we have recommended the six cylinder engine where it's available. We believe these cars offer the best combination of fuel economy, purchase price, residual value, ride, comfort and durability. And there is one more word to add to your new car evaluation list - availability.
Today, General Motors has 62-percent of the domestic automobile market; and while they have certainly earned every bit of it, we benefit in the fleet business from competition. With the power that GM has in the marketplace, it is possible that we could overlook some of the other manufacturers when laying out our car selectors. So let me ask you to include Ford and Chrysler so that those drivers within your fleet who want to select such cars have that opportunity.
HANDLING YOUR KNOWLEDGE - AND THEIR PANIC
As we move into the 1980's, your job as a fleet manager is to have a firm knowledge base of your business. Know your company. Know your sales organization and know your service organization. Understand the characteristics of the environment that you have to live in.
In addition to a firm knowledge base, you must manage your costs. You can't reduce overall costs because inflation is pushing new car prices up and energy costs are rising too fast, but you can identify your costs and you can manage them. You are handling big bucks today and they will be bigger bucks tomorrow; that's something you'll want to get across to your finance people.
Finally, you must be able to make objective decisions. We live in a world of the instant expert, and the instant expert has a knowledge base that is only as deep as today's headlines. If the headlines say "fuel shortage," he wants to go to bicycles. And if the headlines say, "fuel abundance," he says, "Bring back those big V-8's." Well, you and I cannot live in that environment.
You cannot panic and you cannot let your company make bad decisions. As fleet managers, you have a big responsibility. A responsibility to your company, a responsibility to your drivers, a responsibility to the industry that we work in, and a responsibility to yourselves. Whether you like or not, you have just received a large dose of job enrichment. There is no question in my mind that you will succeed.