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Tuesday, February 28, 2006 

Vol. 2 No. 11

The Growing Thunder of Small Fleet, Now 52% of the Fleet Business

In the February 3 entry, I did my best to define the composition of the total automotive fleet market, in aggregate, with the Commercial Fleet, Government Fleet, and Daily Rental Fleet components and their relative percentage of the total US fleet market. Now, I think I’ll drill down into the Commercial Fleet sector of the market, as my earlier definition of “non-fleet” might have been a bit confusing.

First, if you take a look at the “Census of the U.S. Commercial Fleet & ‘Non-Fleet’ Market” Pyramid displayed by the Bobit Business Media folks…you’ll see that the top four layers of the pyramid represent the Commercial vehicle market defined as Fleet – companies who have at least 15 or more vehicles in operation. They represent some of the large and mid-sized companies that own or lease vehicles in their corporate name and run between 15 and 20,000+ vehicles at any one time. You would expect these to be large companies and the aggregate of their vehicles to amount to millions of units.

It’s the smaller companies, represented by the foundation level of the pyramid that I want to focus on in this entry, those companies who have 5-14 registered commercial vehicles in their fleet. You might not suspect that they would amount to even more millions of vehicles than the combined companies represented in the top levels of the pyramid. Prepare to be surprised. The truth is “fleet,” by definition refers to those vehicles owned or operated by the 17,392 companies in the US that run at least 15 or more vehicles, a sector that amounts to 3,213,000 cars, light trucks, minivans and SUV’s. Non-fleet, on the other hand, are commercial vehicles owned and operated by the 433,000 companies in the States that have 14 or fewer company vehicles, but these add up to more than 3,420,000 total units in operation today. So you can see that the pools of fleet and non-fleet are roughly similar in quantity.

The Small Fleet Paradox
The irony is that virtually all of the personal attention and financial incentives from manufacturers, national vendors and others in the market have historically concentrated on only the “fleet” operators, particularly the 5,000 or so companies that have run at least 100 vehicles or more. The small fleet operators, then, the vast majority of US companies that operate a dozen vehicles or less, have received no special attention or privileges at all. Despite the fact that in many cases these companies buy multiple vehicles a year, they had been treated at local car dealerships with no more attention than your average consumer who comes in once every three or four years – and worse sometimes at the luxury brand and import stores.

Not that the manufacturers don’t want to focus attention in this area, especially after an industry study established that the “non-fleet” small company commercial buyers were more loyal to a brand than either large fleet buyers or average consumers. What’s more, the profit margins for both manufacturers and dealers on the non-fleet sales were much closer to retail consumer (one-at-a-time) sales. With this awareness, the problem became one of identification and reach. The small fleets were run by small local companies – the neighborhood dry cleaner, landscape company, travel agent, etc. - literally tens of thousands of small companies in every major market area, not easily reached through trade associations that the companies operating large fleets would join, such as NAFA, AFLA, etc., and almost impossible to reach without a local presence. To make matters worse, there was not usually anyone designated to fleet responsibilities; the person in charge of the “fleet” would also be the president, treasurer, office manger, etc.

Led by Ford Motor Company in the early 1990’s, manufacturers began to focus on the “non-fleet” business by educating their franchise dealers to reach out to small businesses for their commercial vehicle fleet business – it was local businesses reaching out and marketing to local businesses. Ford created a program called Mainstreet, which included a comprehensive three-day training program to educate franchise dealers on how to set up a commercial fleet department, a business within a business, to satisfy the transportation needs of small companies. Enthusiastic about this opportunity, having tapped into it myself as a dealer, I had a hand as a consultant, in developing the Mainstreet program into the current “Business Preferred” program for Ford, and piloted a similar program for General Motors, called Business Vehicle Services. To this day there is tremendous untapped opportunity in selling vehicles to small companies, and dealers who are willing to set up a “business within a business” to concentrate on it have been amply rewarded, as it has been proven that these small businesses value service over anything else, buy multiple units a year, and don’t have the time or inclination to shop price over everything (the way some consumers do).

The “Achilles Heel” of the Retail Car Business: Turnover
To this day too few dealers have been able to tap into this gold mine, and the reason to me is obvious: establishing and growing a client base of small commercial accounts requires sustained effort and a level of consistency in sales focus. In an industry where the average turnover in salespeople is over 51% a year (that was the average turnover last year), this is very difficult to nurture. That’s right folks, while it may or may not be common knowledge, the bane of the retail car business is the transient nature of the sales employee base – it’s one of the few businesses I know of in which a turnover rate of even 30% a year is considered good. Even the service end of business suffers this turnover malady, last year averaging 43%. It’s why follow-up at the salesperson level is difficult for retail customers, and why most stores are almost forced to neglect this opportunity.

Next entry, out of the non-fleet opportunity a whole other sector of commercial vendors grows…the NVLA…

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