Teachers Service Corp.: A 50,000-Car Leasing Potential

How was TSC started... What are its goals . . . AF talks to Newell Blair, chairman of TSC, and Frank. Wilfong Jr., general sales manager, and presents for the first time an in-depth look at Teachers Service Corp.

AF: What is Teachers Service Corp. and how and where did it get started?

Blair: The National Education Association, which always was and still is a non-profit educational association, found itself jeopardizing its tax status by being involved with various types of teacher benefits. In September, 1967, NEA decided to make an even greater effort to provide more membership benefits. As a result, Teachers Service Corp. was formed with $150,000 in paid capital with the view that the balance of stock would be purchased by state and local educational associations affiliated with the NEA.

AF: Was TSC" formed with the idea of auto leasing in mind or was this just a natural offshoot?

Blair: TSC already had considered a number of other benefit services. NEA currently has a rather large group insurance operation with more than 80,000 participants. In a few months, this activity will be transferred to TSC. Tin's is just one membership benefit that will be transferred under the auspices of TSC within the next few years, As of this moment, however, TSC offers only one membership benefit, auto leasing.

AF: How is TSC structured?

Blair: TSC is broken down into 13 field offices with a national headquarters in Washington, D.C. We are currently in the process of establishing some new offices, each of which will cover a minimum of three states. Total employment in all field offices is about 30. There are about six or eight more people on the Washington payroll.

AF: Are most of the employees of TSC versed in the leasing and/or automotive business?

Blair: In our field offices, about 45 per cent of our employees have automobile experience of one kind or another. Most of this experience is as used or new car sales managers.

AF: How many cars does TSC have on the road?

Wilfong: We have several field offices that have been in operation for a very short time. Therefore, the significant fact, we find, is the number of ears on the road in terms of how long a particular office has been in operation. We presently have 1,500 vehicles on the road. For the first year of our operation, from September, 1907 to September, 1968, we had a pilot program in Michigan, Southern California, Washington, Maryland and Virginia areas. The program took off so well that we have opened many new offices based simply on the results of the program.

The hardest part in opening new offices is letting people know you're there. Once they know you're there, the program takes care of itself.

AF: Of TSC's 1,500 autos, which is the most popular make? Also, could we discuss the model choice and equipment selection?

Wilfong: Of our total fleet, about 35 per cent are Chevrolet. Most of these are Impalas. In fact, of our total fleet, about 72 per cent of our rolling stock is General Motors products. A surprising statistic, I believe, is the fact that Buick is in second place in regard to selection. Ford is the third most popular model. About 40 to 44 per cent of our cars are air-conditioned and about 85 to 90 per cent have automatic transmission. Our most popular choice of models is the two-door hardtop, followed by the four-door hardtop.

AF: How does a member of the NEA pick a car from TSC?

Blair: We send out a brochure which now lists 52 different makes and models. We use this list only as a guideline. The teachers can lease any car that they desire. We try, however, to stay away from high performance cars with four-speed transmissions. On the hack of the brochure there is a space in which the teacher indicates his choice according to a master number list. An Impala two-door hardtop for example is number 11 on the master list. There also is a space on the brochure for equipment selection. The brochure is completed and it is sent to the particular state coordinator in the teacher's area.

The local coordinator who receives the filled-on brochure sends out a letter or phones the teacher. If the teacher either sends in $100 with the brochure or sends the $100 after being contacted by the coordinator, an insurance application is sent and the contract is signed. We will let teachers handle their own insurance in some states, but mostly we handle our own. Our group insurance rates are so low that there rarely a problem in regard to insurance.

The $100 security deposit that we require on each contract applies to most ears with the exception of a luxury vehicle such as the Cadillac. Thunderbird, and on the Mark III. We also require a $500 deposit on a Cadillac, Thunderbird, and on the Mark III. We require a $200 deposit on a Grand Prix. This security deposit is held in escrow for two years to insure the condition of the vehicle when it is turned in. If the car is returned in proper condition with normal wear and tear, then we refund the $100.

AF: Is there a condition report made on each vehicle?

Wilfong: The state coordinator makes out the con­dition report on all cars coming into his area. If he is unable to personally make out the report, we have it done through one of our delivering dealers. In our dealer network, we have about 250 to 300 dealers.

AF: Because the program has been in operation such a short time, has TSC had a chance to establish a pattern of used car disposal?

Blair: To be quite truthful, we do not know what our normal disposal channel will be. We are trying to determine the feasibility of establishing a reconditioning center in some areas. We are fortunate, however, in that we have many areas in which we are able to dispose of our used vehicle.

Unlike most leasing company who have only two or three ways to dispose of their vehicles because they are either open end or closed end, we operate with two-year leases that are what we call semi-open end. This is because of the following options available to the teachers: First is the fact that the teacher can purchase the vehicle at the option price, which is pre­sently at the AMR value. Secondly, the teacher can elect to sell the car to someone. All he has to do is remit to TSC the, washout figure to clear out books. The third option available is that the teacher may elect to re-lease the car for a third year at approxi­mately a 25 per cent discount. As a fourth option, the teacher may turn the car into us and lease another car. In cases such as this, we will carry over the security deposit to apply on the next lease. The fifth option a teacher may select is that he can turn the car in to us and receive his security deposit.

Under our semi-open end lease, the only expense to the lessee is gas, oil and tire changes. We have set up a tire program with the Gillette Tire Co., which is a division of Uniroyal. Most of our vehicles, however, are low-mileage cars and as yet, we don't have any results from the tire program.

AF: How have the manufacturers reacted to your program?

Blair: The response from the manufacturers has been tremendous. The factory people have gone out of their way to offer us help. They have offered to go to bat for us if we have a dealer problem and have worked very closely with our field personnel who are not versed in the automotive field.

Mainly we stress to our field personnel that they deal through regional zone offices rather than go to Detroit with problems or with requests. We feel that by dealing locally, our coordinators will have better results than if they had to go to Detroit with all their problems.

AF: With 1,500 cars on the road, is there a projection that TSC can make in regard to total units in the future?

Blair: There are more than 1,000,000 members of NEA. I do not think that it is pie-in-the-sky talking to say that TSC has a potential of 50,000 cars. NEA has a number of ways of reaching its members, thus informing them of our benefits. It can be done through various publications, through public agents of slate and local associations, through people making speeches to educational associations, and through meetings. I would think that we should be able to put 2,500 cars on the road per year. This figure is based on the fact that we are operating at the present time out of 14 offices, including Washington. Our larger offices will average 200 to 250 cars a year. Smaller offices, may only come up with 175 vehicles per year. By next fall we will have at least 16 field offices. For the 1970 model cars, it is reasonable to expect these offices to average 200 cars a year. In the next five years we should increase to 15,000 to 20,000 cars. I feel that is a very conservative estimate.

Basically what we are doing is missionary work in the leasing field. We are selling to 1,000,000 teachers the concept of leasing. In 15 years we can began talking about 90,000 to 100,000 cars without going overboard. This will depend upon how much leasing be­comes a part of the American way of life in regard to our total transportation picture.

AF: Is TSC geared for such a growth from an em­ployee standpoint?

Blair: After all, leasing is a relatively simple business. We don't have anything like the problems of people who service or manufacturer automobiles. We have no raw materials. This is a financing operation. I use the word simple because in a sense our problems are relatively restricted. We don't have labor prob­lems, etc. We do have our own problems, however, such as finding trained leasing people. I think as leasing grows, however, more of the more trained personnel will become available.

I don't believe in the magic and mystique of each line of work. Each line of work has its own technique, tricks of the trade. Those people who are successful are the ones who understand the techniques better than anyone else.

AF: Is there such a thing as a "typical" teacher selection or a "typical" choice of car by the teachers?

Blair: It's really esoteric dealing with teachers. Most of them have their minds made up in regard to a car and this can't or won't be changed. You might change the color because they are, short at the dealer, but you are not going to change the model or the make of car. Most of our teachers are very methodical people. Most of our people are college graduates and most of them live in urban areas.

We are fortunate in that the teachers start out with confidence in our organization because of our close ties with NEA. We really don't have to sell ourselves, just the concept of leasing.

AF: You provide a service to the teachers, but also TSC is set up on a profit basis, is it not?

Blair: Our salaries for those employed by TSC come out of the company and are not based on a quota system. We have a profit motive but we presently are trying to operate on a cash flow basis. The money that is coming in now will take care of the overhead, of the operating expense.

 AF: In regard to money, how soon do you pay dealers for their cars?

Wilfong: We try to have the dealers paid within 20 days of the time of delivery. This depends largely on the field coordinator.