Fleet Leasing's Future: 13 Executives Comment

Asked their thoughts on the future of the car and truck fleet leasing industry in America, 13 selected leasing company executives were predictably optimistic in their individual, personal replies.

However, these transportation business leaders chart perhaps the truest possible course for one of the liveliest of industries. And the practical, "nitty-gritty" problems they discuss in this exclusive AUTOMOTIVE FLEET roundup represents an overview of informed opinion from the top of the American fleet leasing industry.

Here are 13 central concerns our 13 leasing company leaders consider when they ponder the future growth of their industry:

 

1. New competition from bank and car dealer leasing operations.
2. Fresh opportunities in individual car leasing.
3. Customer service improvements.
4. Effects of safety and emissions standards on costs.
5. Advantages and disadvantages of open-end finance leases and maintenance leases.
6. Mergers.
7. Used vehicle disposal in relation to internal controls, state and local tax situations, and new federal odometer legislation with its corresponding depreciation expenses on high mileage cars.
8. Manufacturer competition in the form of fleet policies and dealer incentives to enter leasing.
9. Interest rates and operating and maintenance costs.
10. Professional financial analysis and expertise.
11. Market penetration.
12. Computer reporting and management consulting.
13. Advertising and communications

In order of leasing company appearance, these are the men whose views this report presents to you:

Arno R. Neuber, president, Automotive Rentals, Inc., Pennsauken, NJ; Calvin T. Kraus, president, C.l.T. Service Leasing Corp., New York; Carl H. Auer, president, Crocker McAlister Leasing Inc., San Mateo, CA; Don Braman, vice president, Emkay, Inc., Chicago; Sam Goldman, president, Executive Car Leasing Co., Los Angeles; N. Bud Grossman, president, Gelco Corp., Minneapolis.

R. J. Sadowski, vice president, Hill-crest General Leasing Limited, Toronto, Ontario; W. E. Webster, president, PHH Fleet Management Services, Baltimore; John S. McKean, Lease Motor Vehicle Co., Pittsburgh; John A. Blessing, president, McCullagh Leasing, Inc., Roseville, Mich, and Heydon W. Hubler, president; Jerrold L. Lockshin, first vice president; and Robert C. McNair, second vice president, National Truck Leasing System, Chicago.

Arno R. Neuber

"The leasing industry should continue to show growth in both fleet and individual leasing both in the year ahead and over the next five-year period," said Automotive Rentals President Neuber. "We see the overall leasing market expanding with dealer-oriented leasing companies, banks and a smaller number of sophisticated well-financed, national lessors sharing the greater portion of the market."

"I would expect to see the individual leasing section show rather exceptional growth primarily due to the impetus created by the entrance of banks into this venture. Although it would appear that the banking fraternity are to a large degree merely shifting a new car purchase to a so-called lease, this will nevertheless generate greater activity in the field," Neuber said.

Perhaps this is the shot-in-the-arm needed by our industry, he continued, and will spark innovations that are sorely needed.

"Most individual open-end leases are not offered as they should be customer transportation service in mind - but merely as 'no down payment' financing. Therefore, we expect to see expansion in this area including a variety of services offered that only a true leasing organization can provide.

"The leasing industry cannot compete with banks in financing. Neither can banks, as such, compete with our industry in providing transportation services."

There has been severe competition in national fleet leasing with many ownership changes due to mergers and acquisitions, Neuber said. This undoubtedly will lead to a further "shake-out", eventually settling down to a true service industry. Added financial requirements, increased need for procurement, service and disposal expertise, which are lacking in many companies, will accelerate the re-alignment, he said.

"There is also major competition between manufacturers who are vying for a firm foothold in this expand, market. The varied factory programs plus governmental requirements (many of which are unsound) create problems and frustration for manufacturers and fleet users alike - another reason why lessors must become highly efficient and sophisticated to survive."

 

Calvin T. Kraus

"The leasing industry in 1973 will see a volume growth of between 13 to15 percent over 1972," according to CI.T. President Kraus. "The basis for this opinion is the experience of the past, coupled with the general economic forecasts for 1973."

"However, as in 1972, profits will not keep pace with volume increases," Kraus said. "This thought is expressed notwithstanding the general economic forecast of an increase in 1973 corporate profits after taxes in the 12 to 15percent range."

"The leasing industry will be adversely affected by the projected rise in short-term interest rates and to a lesser degree in long-term rates. Most leasing executives agree operating costs will increase by about 10 percent over1972."

Carl H. Auer

The retail lease market continues to be divided between open- and closed did leases, said Crocker McAlister's President Auer. The customer service appeal of net leases, further enhanced when associated with maintenance provisions, stands in opposition to the apparent and usually real lower cost of a finance leased, owner-maintained passenger vehicle. The open-end, or finance lease will secure increasing portions of this market in future years, Auer said.

"Retail closed-end fleets may be administered with maximum efficiency only so long as they are of a small size. However, both retail and commercial open-end fleets tend to generate the greatest return on investment to a lessor when the size of the fleet is large.

"Since it is most probable that large corporations, predominantly commercial banks, will in future years continue to enter and eventually dominate the retail lease market, it is reason able to conclude that they will select the finance form of lease because it is the most with large-scale operations. This hypothesis also leads to the conclusion that retail, open-end lease rates will eventually be driven down to the approximate equivalent of current bank installment loan rates," said President Auer.

Among commercial fleet leases, he said, there is an emerging realization that vehicle leasing is as much a financial transaction as it is a transportation arrangement. Therefore, we may expect to experience a trend to a greater involvement of financial managers in commercial fleet management decision making, Auer said.

Don Braman

"Because of the uncertainties in the used car market and escalating maintenance costs, many lessors have abandoned the closed-end lease entirely,thus shifting all of the risks to the lessee," said Vice President Braman."Emkay, however, sees an eventual resurgence of the closed-end, full service lease because many lessees prefer a lease program which includes complete management and administration as well as a fixed budgetable cost."[PAGEBREAK]

It is surprising how few lessors have explained the implications of the new national odometer law to their customers, Braman said.

The fact is, he said, fleet cars which are generally driven far in excess of the "normal" 12,000 miles per year will now be subject to an additional depreciation expense of several hundred dollars per unit. This additional depreciation expense will be reflected through deficiencies under the open-end lease and mileage restrictions under the closed-end lease, he said.

Sam Goldman

"I am continually amused by headlines in our trade papers heralding the demise of some segment or other of the leasing industry," said Sam Gold man, president of Executive Car Leasing Co.

"I believe we will not see the demise of any particular lease program, whether it be full maintenance, non-maintenance, finance, or net. If there is any truth to leasing, it is that there is no best way or best program, there are only best ways or best programs for a particular company or individual," Goldman said.

"So long as there are subjective decisions to be made by either lessee or lessor, we will in my opinion continue to see a growth in all phases of the leasing industry. While as in the past, finance leasing will probably enjoy the greatest growth, I do not believe that this will preclude growth in other areas.

With regard to individual leasing, even in my home state of California where we had the advantage of an early start, we have just begun to penetrate the market. The future is very bright, all we have to do is roll up our sleeves and get our share."

N. Bud Grossman

"The future of the leasing industry will, like the future of most other service industries in this country, be dependent mainly on the innovative and entrepreneurial abilities of the companies involved. We sense that there are many new services that leasing companies will 'discover' in the next five years," said Gelco President Grossman.

The growth of leased fleets in America has traditionally been around 10 percent annually. This growth rate does not, however, take into account new areas of market penetration by the leasing industry, Grossman said.

"We feel that corporations will be placing more and more vehicles underlease as they discover new areas for lease financing," he said. "Another growth area for leasing companies is that of related corporate services such as computer reporting, management consulting and other financial services."

R. J. Sadowski

"I cannot remember a time when automobile leasing has been so predominately advertised in our newspapers and related media," said R.J. Sadowski, vice president of Canada's Hillcrest General Leasing Limited. Unfortunately, some of it is not the best but, I certainly must attribute some of the vibrance of the industry to this advertising."

"Another attributing factor is the number of dealerships who have entered into the leasing field. This of course is inevitable, but from where I sit and from what I see, it is obvious that the industry could be embarking on a very dangerous trip that could return us to where we were ten years ago," Sadowski said.

It is understandable, he said, that the car manufacturers are encouraging their dealers to get into the leasing business, because it is another avenue of sales, but, it appears that once the dealer becomes involved, the manufacturer retains his interest only to the point of the number of units and not how to operate a lease company.

"There are at this moment 120 leasing companies in our (Toronto, Ontario) metropolitan area, and I would guess that this would have to be some kind of a per capita record.

"As you can see the competition will be fierce and although we have always welcomed good competition, we cannot honestly assess all of this as good competition. The problem being that until they have learned, they are going to hurt themselves and more particular the entire industry," Sadowski said.

John S. McKean

Lease Motor Vehicle President McKean said, "I feel there is going to be a strong growth in the finance leasing of automobiles and trucks in the next few years. Everyday, the increasing complexity of buying and selling fleet vehicles is becoming a larger problem for a company owned fleet regardless of its size. These problems are going to force many of these companies into taking a hard look at either leasing or outside fleet management."

With the national odometer law going into effect at the end of January, McKean said high mileage vehicles will be difficult to sell for top dollar, and the leasing company with the most efficient used car disposal method sand tight internal controls will have a decided advantage.

The buying of new cars," he said, "is becoming more of a problem due to the many different state and local tax situations, and the many varied and different dealers fleet policies (regardless of make). The experienced finance leasing company with a tight network of reliable dealers to properly service their customers' vehicles will have a definite advantage over compe­tition in this ever-competitive market."

We are moving out of the closed end all-inclusive type of leasing, the, Merest president explained, to a more flexible type, and working on creating a management-type of operation which we feel has the complete flexibility that a lessee needs and wants, and at the same time places the operational cost of the vehicle into the proper responsibility to the lessee and the lessor.

W. E. Webster

"Assuming a reasonably healthy economy, we anticipate that company passenger car and truck fleets will continue to expand in the years ahead. But with this growth will come a demand for an ever-increasing level of service on the part of the fleet management and the leasing industry - with the business going to those companies that are ready and willing to provide such as service," said W. E. Webster, president of Fleet Management Services, a client contact division created last spring by Peterson, Howell &Heather, inc.

The variety of services offered by PHH and others in the industry, he said, is much greater today that 25years ago - having developed gradual­ly over the years in response to the requirements of customers and prospective customers.

John A. Blessing

The years 1973 and 1974 should be growth years for the vehicle leasing industry, agreed McCullagh President John A. Blessing. Specialization and expertise developed by the major leasing companies over the past few years, coupled with the trend toward more professional management of company fleets, insure this growth, he said.

"Major challenges are on the horizon," he warned. "The impact of safety and emission control standards on1975 model vehicles will cause many changes in types of vehicles used, length of service and cost of operation. It is up to each lessor to work closely with his clients to insure that challenge is met in the most efficient and economic manner."

"Communications are critical dur­ing this time of change," Blessing said."Everyone involved, company users, lessors, manufacturers, publishers must work together to lessen the cost impact as much as possible."

National Truck Leasing

Nationalease's top officers are optimistic about the future of full service truck leasing. That's the word from the National Truck Leasing System's newly-elected top three officers. NTLS is a group of 125 locally owned and operated member companies in the U.S. and Canada, affiliated in a network of more than 200 service facilities across the continent under the Nationalease trade mark.

The system's president, Heydon W.Hubler, said that for the short range view he was sure the industry would maintain its annual rate of 15 percent a year. He also felt a decided trend was growing among common carriers to turn over all tax, maintenance and financing headaches to full service truck lessors, and that this pattern would accelerate because of the increasing complexity of transport. Hubler is vice president of Hubler Rentals, Inc., Allentown, PA.

Jerrold L. Lockshin agreed. The new first vice president of the system is also president of A-1 Truck Rental Service in Canton, OH. Truck lessors' growth is assured in his opinion if for no other reason than their guarantee to provide service, which often means24-hour maintenance, seven days a week. "Our industry is building an expertise that few private operators can match," he said. Increasing business competition will accelerate leasing as lessee management finds it is suddenly free to sell, manufacture, or otherwise run their businesses instead of worrying about transport, Lockshin stated.

The second vice president of NTLS and president of McNair Truck lease in Houston, Robert C. McNair observed that accelerating trends noted by Hubler and Locksh in for the near future is another lessors' guarantee - to provide back-up vehicles if a leased truck breaks down. This necessitates a maintenance program which produces results. Marginal operators who try to skimp are being forced out of business, whether the trucks are owned or leased. McNair also feels that gross vehicle weights will go up as every efficiency is sought.

All three men agreed that consumerism, ecological factors and governmental regulations will continue to affect transport in varying degrees. Again, they felt that these problems would work to the advantage of competent operators. Safety in both the truck and in the shop are two more areas the National ease men thought would play an important part in future operations.