With approximately 3,200 cars, 2,500 trucks, and 500 large tractor-trailers located primarily on the East, Gulf, and West Coasts, the fleet of Exxon USA rates as one of the "biggies." In its administration, Jack Lamb has exhibited the qualities that identify him as a professional. His knowledge of the industry is pervasive, and his experience has enabled him to help design and implement programs that have proven satisfactory to both management and drivers. For those reasons, he was selected by a panel of representatives from manufactures, leasing, dealers, and disposal to receive Automotive Fleet's first annual Professional Fleet Manager Award.
Recently, Automotive Fleet travelled to Houston to speak with Lamb about its operation. His comments provide an in-depth view not only of his fleet acumen but of some key philosophies for managing the fleet so the books please everyone.
AF: Let's look back to slightly more than 20 years. What was the status of the Exxon fleet then?
LAMB: Originally, everybody and his brother was in the business of buying and selling cars. We didn't know how many cars we had or who had them, so we had everything from chauffeur-driven Cadillacs to 150,000-mile Valiants and Corvairs. Fleet management wasn't a very well defined function at that point, nor were the manufacturers' fleet departments so well developed. The whole thing was just starting.
AF: You worked with ARI from '62 to '67, and for much of that time, you were "leased" to Humble Oil, as your company was then called. Why did the fleet environment begin to change during that period?
LAMB: The leasing business really got started after the war; it was a new concept, a new way to own a business asset. With companies growing all over the U.S. and needing to put people in vehicles, management had to take interest in those needs and found economical ways to do it. Even when you were buying fleet cars for $1,500 or $1,700, it was still a lot of money. So people began to look at their expenses, and fleet is certainly a major expense.
AF: But Exxon doesn't lease now. Why not?
LAMB: They did lease originally because they wanted to lease the people; it was an easy way to get started. But it was an operating decision, not a financial one. When we did lease, we were not only the lessee but the bank as well. Leasing is primarily a financial decision.
A fellow like me can surely get involved to a certain extent, but it's really the people who manage the company's money who make that decision. Our fleet represents a major investment that must earn an attractive return even when compared to other investment opportunities.
The decision to buy versus lease depends on the company's cost of capital, other investment opportunities, and the willingness to take risk. We've always felt that it's cheaper for us to take it than to pay someone else to take them.
AF: What are your main driver groups and what is your selector list for them?
LAMB: One of our larger functions is our marketing group, which has sales and engineering people who service the downstream part of our business. Our other large group is production and exploration, which has engineers, operators, and management who are on the road a lot, and frequently in the oil patch. Additionally, we have lawyers and auditors, people who must travel. It's a broad spectrum. Our selector list typically includes new intermediates, including GM A-cars, Ford LTD/Marquis, Chrysler/Dodge 600s. They are all four-cylinder, and, with the exception of the Ford, all front-drive. We don't have luxury equipment, such as stereo, cruise, or title, though we do have automatic steering, air, brakes, moldings, and white walls.
AF: Let's talk about downsizing. Do you agree with the decisions to downsize fleets?
LAMB: Certainly. It's simple economics. We're traveling 60 million miles a year. And when you save five miles per gallon at $1.20 gas, you're looking at a whole bunch of dollars. And management takes notice of things like that these days.
As far as the company is concerned, we haven't seen any big increases in operating costs when you compare four-cylinder front-drive to rear-drive cars. So we think we're where we need to be. We're providing adequate, economical transportation; we're giving the drivers the tools they need to do their business.
AF: As a fleet manager, how do you evaluate the current status of FWD?
LAMB: In general, I think that manufacturers have pretty well ironed out the front-drive problems. They've had to because it's not going to be a discretionary thing; outside of a few sports cars, front-wheel-drivers are going to be all that's available. It has enabled the manufacturers to decrease weight and to work towards the CAFÉ requirements. Although front-wheel-drive is expensive to repair, they're getting more and more reliable. I think Americans are building better and better cars, with extended intervals of service and greater reliability.
AF: How do the fours perform in the oil patch?
LAMB: If a driver truly needs more power and carrying capacity, he may, in fact, need a truck. So that's an option. In oil production, and in some of the areas of the company where we have a lot of off-highway driving, if a driver prefers to have a pickup truck equipped to spec, and he's otherwise eligible for a car, we'll get him a pickup. He's probably better off in a pickup if he's going to do a lot of off-highway driving, because when it comes back, a rough truck will sell easier than a rough car.
AF: Your holding policy is a bit unusual. Would you elaborate on the reasoning behind it?
LAMB: Over the years we've come to feel that there is really only one time of year to buy a car, and that's at new-model time. The optimum would be to replace every car that you're going to replace on the day that the new models come out. The used-car market is never higher than it is then, so your return on sale of used cars is higher. Prices are likely to go up later on in the model year, so probably the new cars are never going to be cheaper than they are then, and there are frequently price reductions for early orders. Additionally, the way the government treats investment tax credits is another reason to look to the last quarter as a good time to put cars in.
We like to say that we try to replace all our cars at new model time. Now obviously we don't ever achieve that; we have to put cars in whenever they're needed. We just try to have our people understand that on the routine cars there's a reason why we do it that way.
Right now, our policy is that we replace any car in September if it will achieve 70,000 miles before the next September. A high-mileage car might be a one-year car with 35,000 or 40,000 miles on it, while two-year cars are closer to 70,000 miles. Our average has gone up from about 57,000 to 67,000 miles, using that criteria. But we don't sit here at this office and look at each one car by car; we just set the guidelines; there are people on the local level who look at it on a car-by-car basis. In May or June, we send them a list, using projected mileage, of the cars that will be eligible for replacement in a given model year. We firm up our selector list and mail our material by the first of July. And we work hard to have all our orders in by the first week in August.
AF: Let's talk about disposal. How do you rate the importance of the disposal process in terms of your whole fleet operation, and what policies do you propose?
LAMB: With disposal, the only policy I know of is that we're charged with getting the highest buck we can for our used cars. Now what do we do? We don't have any single method of disposing of our cars. We avail ourselves of every opportunity that we know about and are constantly looking for new opportunities. We sell cars to new-car dealers, drivers, wholesalers, at auction, to just anybody we can find. It's been a very difficult market the last two or three years. We need to use every tool that we can come up with to merchandise our cars. "Merchandising" is a more positive approach than "disposal"; we try to do everything we can to enhance our return.
AF: Does that include reconditioning?
LAMB: It may involve judicious reconditioning in some areas of the country. We don't mind doing limited reconditioning within a certain dollar range if it's going to get a good return on our investment. We're not going to spend a dollar to make a dollar, but if we can spend a dollar to get two, we sure will. All together we may do reconditioning on say 20 or 25 percent of units.
AF: What other strategies do you pursue?
LAMB: We frequently move cars from one market to another, trying to seek out a better value. Here in the Southwest, for example, several events in the last four or five years have depressed the market. Mexico was a major source of sales for wholesalers here. When they devaluated the peso, it wiped out a bunch of buyers. Also, the declines in the oil patch business have hurt sales here. Consequently, we transport some cars elsewhere where they will net higher resale dollars. Moreover, when the new-car business is up, the used-car market usually softens. The dealers get a lot more of their used cars as trades. So I think that you're going to see more domestic programs such as 8 percent financing. Additionally, expanded leasing opportunities for individuals allow people to opt for a new leased car rather than a used car. All these factors contribute to depress the used-car market.
Obviously, you don't make a market; you operate within it. What we try to do is seek out every opportunity which we can find, using every available sales tool, moving cars, reconditioning cars, trying to enhance the value of a car, packaging cars. We can't control new car prices. But if we work hard, we can enhance our return on the sale of used cars.
AF: Are you emphasizing disposal over acquisition?
LAMB: Let's say this: in my opinion, a lot of people spend too much time on acquisition. Most all new cars are good. I just don't think that there are significant differences. There are style and size differences, performance differences, and some cost differences. But they are really minor. People like the new-car side of the business, so they like to spend a lot of time working it. But I don't think new cars are the most productive place to spend all your time. So if you ask, do we spend more time with our used cars? Yes, we do. Because we can make more money selling used cars than buying new ones.
AF: Let's talk about your truck fleet. What are the differences in buying a truck fleet in comparison to a car fleet?
LAMB: Our truck fleet is almost the size of our car fleet. So we spend a lot of time working with truck engineering people, equipment people, body builders, and so forth, making sure that we are getting the best and most efficient tools available for our drivers.
When you go to buy a car, you can change the amenities and certain components, but you basically buy an off-the-shelf item. Light-duty trucks are a little more difficult. But you're getting into a different area when you go to higher GVWs - first the cab and chassis and then custom installations of service bodies, special beds, or other things. How you spec the vehicle will determine its performance on the job. There are safety implications and power implications involved. Is the driver better off with an automatic or manual transmission? Does the transmission have to power other equipment on the truck? There are all sorts of considerations. This is a very specialized area. It takes a long time to reach the level where you feel you can measurably improve the performance of the vehicle on the job through better specifications.
AF: Let's shift gears and talk about fleet management in general. Is fleet management a career or a job?
LAMB: Well, I think I've always looked at fleet management as a career. I chose it. Now, it may not be the most ambitious selection around, but I always felt like this is an area that I felt comfortable in, and I've continued to feel challenged by it over the years.
AF: How will the fleet manager's responsibilities change in the future?
LAMB: Fleet managers are going to have to broaden their knowledge of areas where they previously have not been involved. Pending legislation and actions from state and federal regulatory groups will obviously have an impact on our business. Fleet managers will not be expert in all these areas but will have to rely on their abilities to coordinate efforts within their organizations in order to stay competitive.
AF: What important area of fleet management is often not sufficiently stressed?
LAMB: I think that probably the most important thing - and I've certainly always felt this - is that a fleet manager cannot be effective without the total confidence of management. Without management support, a fleet manager is nothing but a clerk.
AF: Let's talk about the fleet manager's job in general. What's the best way to learn the business?
LAMB: I think it's a business that you have to grow in. You can go to school; they are starting to have fleet management courses. But again, buying and selling cars at the curb is one of the best educations you'll ever get. That is where the action is, and that is where the people you need to know are, the influentials of the business. You learn by buying and selling.