Success in the auto leasing business depends on a firm's ability to help customers control vehicle costs.
William. C. (Bud) Fraser has been with Peterson, Howell & Heather, Inc., since 1958, serving in the company's Expense Control department for approximately two years before joining the Client Service department in 1960. In 1965 he was appointed Senior Account Manager. In October, 1966, he was named Manager of the company's Client Service Department, with the responsibility of maintaining day-to-day liaison with the more than 500PHH car plant management and leasing clients.
The contemporary sales representative has expanded their activities from the centralized metropolitan areas to now include even the smallest rural town. To reach these potential buyers, today's field representative must have at their disposal a fast, efficient, comfortable and economical means of transportation. This simple corporate fact of life imposes two basic "car plan" choices upon a company's management:
Company executives have been faced with demands for higher and higher allowances under plans where the salesperson uses their personal car without knowing how much it really should be paying. Studies generally show that all allowances have inequities and that it is easier to hire new people when company cars are supplied. Also, company car plans, with proper control, are less expensive than salesperson-ownership when normal allowances are paid and average business mileage is driven. Consequently, there is a continuing trend away from salesperson-ownership.
A Perplexing Problem
Although the company-provided car concept is now well established in American business, with some companies owning their vehicles, and others operating under one or more types of lease plans, one basic problem remains to be solved: once the decision has been made to provide company transportation, which salespersons actually qualify for the use of a company car? This question, in fact, sometimes influences the company's decision on whether or not to switch to a company-provided car plan.
Most of those who are close to the problems of car management agree that the answer to this question is highly complex and based on a combination of factors.
Mileage Driven: The Major Factor
Probably the most important single element in determining eligibility is the number of business miles an individual drives. Most company representatives who operate under the PHH Plan drive an average of 2,000 miles per month. There would seem to be little question that a person averaging 20,000 miles or more annually has a definite need for use of a company car. Consider, however, the exception whose business mileage falls into the 5,000 to 15,000 mile per year category. Should they be driving a company car? Normally, no hard and fast rule can apply.
Since the cost per mile is a good deal higher in the low mileage ranges, many PHH clients have established a minimum mileage figure to qualify an individual for a company car. Ordinarily, any employee who drives less than the established figure, simply does not qualify. These limitations and restrictions can produce some rather "sticky" problems, however. First of all, these requirements can be difficult to monitor. Thus some drivers will do anything they can to keep their mileage up in order to quality. Secondly, there is the morale problem of the person using a company car who has to give it up because their mileage suddenly drops below the established minimum due to a new job assignment or territory realignment. PHH recommends that the mileage line be drawn only as tightly as need be. For example, if only a few people drive below the established minimum figure, the company may still want to provide them with cars, whereas if a substantial percentage of the sales force normally drives below the minimum figure, the company would either declare them ineligible or re-evaluate the established minimum to determine if it is realistic.
How Some PHH Clients Draw the Line
Determining eligibility for a company car is not an exact science, and PHH clients have attempted to solve tin's problem in various ways. Here are a few specific examples of how they have gone about answering tin's question:
Company "A" operates 2,500 cars averaging 17,000 miles annually. A sales representative may have a company car if they travels over 500 business miles per month.
Company "B" operates 2,400 cars averaging 25,000 miles per car per year. A salesperson averaging more than 5,000 miles annually has an option to use a company car; if they drive more than 10,000 miles, the company requires them to use one of its cars.
Company "C" operates 400 cars which average 24,000 miles per year. The eligibility line is established at 12,000 business miles.
Company "D" operates 170 cars. It averages 28,500 miles per year, but a salesperson must drive 17,500 miles per year in order to quality.
Company "E" operates just 53 cars averaging 27,000 miles per year. All sales representatives, regardless of mileage driven, are provided company cars.
From these examples, it is obvious that although the decision is based on an established mileage minimum, these minimum figures differ considerably among various companies. This inconsistency is further highlighted by the fact that each of these companies, through PHH, has access to the same operating cost figures.
These differences in various company minimums point up, then, that mileage alone is not the only determining factor for eligibility. Other considerations enter into this decision. Some are:
Cost Per Year of Operating a Fleet
A company may often determine eligibility for a company car on the basis of annual cost of operating a company car versus cost of reimbursing an employee for the cost of their own car. Considering the fixed expenses involved, it generally benefits the company to pay a mileage allowance to the low mileage driver rather than to provide them with a company car.
Savings Realized From the High Mileage Driver
The savings effected from the high-mileage driver might be used to offset the cost of providing the low-mileage driver with company transportation. Some companies feel they can absorb the additional cost of providing all sales representatives with a car, regardless of mileage driven. The advantages of this policy include improved morale and relations among sales representatives as well as providing a ''tool" for recruiting better personnel.
The Need of the Individual Representative for Business Transportation
From the company's point of view, it makes little sense to provide a company car to a low mileage, occasional driver. The governing word here, however, is "occasional." A company may have sales representatives operating in a very confined territory on a daily basis. Although their mileage may be low, the need for a car on a daily basis is adequate justification.
The Desire to Maintain a Consistent Company Image
If a sales force is left to its own devices, a heterogeneous fleet will surely evolve. In order to maintain a reasonable degree of uniformity in image, some (but not complete) control over make and selection of company cars should be maintained.
Need to Maintain a Salesperson's Morale
A company car can be a great inducement to a prospective employee and help to keep present, experienced employees on the payroll.
Type of Industry
It is advantageous for a company to know the fleet policies of its competitors since, in certain high margin industries, it is a policy to provide all sales representatives with company cars. All companies within these industries, then, should do likewise to avoid the possibility of losing good people to competition on the basis of whether or not they provide company cars.
How a Salesperson Is Paid
If a sales representative is working on a relatively low salary basis, it might be wise to provide them with a company car as an added inducement for them to stay with the company. Contrarily, if a salesperson operates on a straight commission basis, the company should have little concern with providing them company-owned transportation unless this gives the company negotiating leverage in establishing commission rates or in recruiting better personnel.
The problem of determining who is eligible for a company car is one of the most perplexing a fleet administrator has to contend with. In making their decisions they often needs the wisdom of Solomon, the patience of Job, but, most important of all, some good, "old-fashioned" analytical reasoning on their part.
