Fleet-ing Thoughts

I really enjoyed Jennifer Saranow’s Wall Street Journal, June 15, Weekend Journal cover story, “Honey, I Wrecked the Porsche.” I often wondered how difficult it was to control some of the cars I’d really want to drive, and now I have a reason not to want a $500k + automobile. It seems as more of these cars “hit the road” in the hands of inexperienced drivers, more of them get hit on the road, in greater proportions… Saranow’s article said that in the last 18 months, drivers across the world have cracked up at least 6 $1M Ferrari Enzos…only 400 of which are built…if I wracked up a car like that, I don’t think they would ever get me out of financial intensive care…

So many of these accidents with exotics are happening so regularly, there’s even a Web site devoted to it, WreckedExotics.com, which added over 700 new photos of cracked up, super expensive cars a year, and gets over 650k visitors a month. The article also says that according to Leland-West Insurance Brokers, most of the supercar accident claims come from men aged 25 to 40 driving newer, high-performance cars too fast and losing control. (Okay, so I sort of fit the age bracket and have never had a problem wracking up a car-- I just need the supercar now, right?).

Closer to our business, even those folks who rent out the super fast exotics are not immune. Tthe article states that according to New York Gotham Dream Cars, a rental car company that rents out supercars for the day, one in fifty of its rentals comes back damaged…bet they don’t offer any collision damage waivers…

Finally, one other good reason why I really don’t want to smash up a supercar (like I need a reason), it turns out when an accident happens, all the usual gawkers care way more about the car than the driver, so you can’t expect any sympathy… The article quotes one person who smashed his Ferrari 360 into a light pole in Palm Beach, Fl as saying that he heard comments from passersby like, “wow, you are really having a bad day,” “that is really a bummer,” and “your toy is broke”…”Nobody is really concerned if you are hurt” the driver of the Ferrari said…

Ford Fleet Show a Bit Early this Year…

I’m used to the Ford Fleet Show happening at the end of July, but it seems alternate years they have it a bit early, and it falls the end of June. This year it was June 24-26, in, of course, Las Vegas. While I didn’t stay very long, it was another opportunity to meet up with old friends before and after the event – fleet folks are my favorite people, and Vegas, of course, is my favorite venue (I feel kind of bad for anyone in the car business that does not like Las Vegas…).


…And Finally, a Few Words about Carliquidators.com…or…The More Things Change, the More They Stay the Same…

So I should say a few words about our new consumer focused venture that I’m very excited about and that has been taking up most of my “extra” time.

First, a little background: When I first entered the car business, almost 23 years ago now (at age 10 folks), the rental industry was a different place than it has been the last 15 years or so. While there were domestic manufacturer “program” cars, that is, cars that were short term (four to twelve month) leased to the rental fleets with a guaranteed buy-back or turn back provision (kind of like a “put” option that kicked in after four months), at subsidized rates on some vehicles, the majority of the major daily rental car companies’ fleets were “risk,” or owned vehicles that the rental operator was responsible for remarketing at the end of their term. These rental companies therefore had a lot of well maintained, depreciated vehicles, originally purchased at very low prices (remember rental folks buy a lot of cars, so there are a lot of “cash on the hood” incentives, at least for the domestics), which represented fantastic potential bargains for retail consumers in the market for slightly used (on average 6-9 month old, same model year vehicles, with 10-15k miles) cars.

So it was only natural that all of the major rental car organizations, and their licensees and affiliates, back then offered these cars for sale direct to consumers on their own retail focused used car lots around the country. Hertz, Avis, Budget, Thrifty, etc. all offered their turn-in rental vehicles direct to the public on their own used car lots, as it was a benefit both to them in turning their cars quicker and for a few extra dollars, and a big benefit to consumers.

Indeed, retail consumers flocked to these used car, off-rental sales locations, operated by the rental folks, and bought so many of these great value cars, that local new car dealerships around the nation felt the competition, which effected both their used, and new car sales. Back then, in the mid and late eighties, it was a different era for domestic manufacturers, they had much more clout in the market, as did their dealer representatives, and so the “heat” that the dealers put on their manufacturers essentially forced these manufacturers to get the rental car companies out of the “slightly used car business” not by prohibiting them from selling off their used rental cars to the public, but by subsidizing the monthly depreciation rates of all new cars sold to the rental folks, coupled with a guaranteed buy back after a short 4-9 month rental run. The manufacturers would then sell these cars back to their franchise dealer body, in company “closed” physical auctions. As long as the monthly depreciation rate artificially subsidized by the manufacturers stayed below the normal monthly rate, it didn’t pay for any rental car company to pull a car “out of the system” to sell to a retail consumer.

Finally, after a few years, Detroit’s “guaranteed pay” contracts with the United Auto Workers Union effected the situation even more,as they guaranteed almost full wages to plant workers, whether or not plants were producing vehicles. With this development, rental car program buy backs became a way for Detroit to keep plants producing vehicles that were not required by retail demand, that is, rental car distribution became a dumping ground for excess inventory. As a consequence of all the above, most of the rental companies ended or significantly wound down their retail car sales divisions, with the notable exception of Enterprise Rent A Car, which has the distinction of never having taken a “program” (guaranteed buy back) car from the manufacturers – bucking the trend of the entire industry. Enterprise actually strengthened their retail and wholesale distribution networks in the void and lack of competition for the retail or wholesale buyer left by the other rental car organizations. Subsequently, they became far and away the most successful and profitable rental car entity in the US.

Of course there were exceptions, and even when all of the major rental car licensors where close to 100% program cars, some licensees and smaller independent chains took risk vehicles and maintained direct wholesale and even retail distribution channels, but for the most part as long as Detroit was motivated to produce more cars than retail consumers where buying, rental car fleet sales became a safety valve for production, and subsidized depreciation and guaranteed buy backs were the norm for at least the last 15 years. Rightly called the “heroin” of the domestic car industry, in that it was a losing proposition cycle that they all wanted to break, but felt they couldn’t without dire results: significant production shrinkage and plant closings.

Now jump up to the 2007 model year. Detroit manufacturers are in such a financial quagmire, that bankruptcies are even rumored. The tremendous annual losses that were always directly attributable to the rental car program cars’ greatly subsidized depreciation rates could no longer be financially tolerated, and, indeed, the cold withdrawal medicine of decreasing production and shutting down excess plant capacity is the only option. In this reality, now the old proportional majority of “program” cars in rental fleets as compared to risk vehicles is quickly reversing itself, and now, for the first time in over 15 years, all of the major daily rental companies have many, many more vehicles which they own and must dispose of themselves. Now, just like many years ago, (or like Enterprise Rent A Car all along), the conventional channel of sending all vehicles to a physical wholesale auction is not effective enough for a rental car company to dispose of all of their turn in vehicles quickly, let alone in a cost efficient manner. Even online wholesale channels, an electronic form of a wholesale physical auction, may not take care of every increasing remarketing need…so what new way will rental car operators look to turn inventory quickly and efficiently?