Feature Stories - December 2003

Cars – Cheaper By the Dozen?

Nevada’s Fleet Sales Climbing

by Fred Couzens

No, the U.S. Navy’s Third Fleet is not conducting a warehouse sale on the shores of Walker Lake, but the number of automobiles, trucks, vans and other service vehicles delivered as fleet sales by Nevada’s auto dealerships is on the rise in most areas of the state.

"Every year for the last 10 years, business has been growing and growing," said Fleet and Commercial Sales Manager Tom Waters, who works for Michael Hohl Motor Co. in Carson City. "We started out in 1988 as a small fleet department and now I have seven individuals working for me." Other fleet managers throughout the state – whether Northern Nevada or Southern Nevada, urban or rural – have similar positive remarks about the flipside of retail showroom sales.

"We’ve been fairly busy, especially during the months of August, September and October," noted Ed Tozier, assistant director of the commercial fleet department for Bill Heard GMC in Las Vegas. "In fact, our business has tripled."

It’s not surprising that the urban areas of the state, where the bulk of Nevada’s economic power is located, have been doing just fine in fleet sales. However, the state’s rural areas have also been able to hold their own, despite the downturn in their largest local employers – the gold, silver and copper mines.

"Mining used to be a big segment of our business until the industry went down," said Chris Chealander, fleet manager for the Fallon Auto Mall during the past 13 years. "Surprisingly, business has been really good recently, even though we took a hit after Sept. 11."

Farther out on U.S. 50, things can be, and usually are, a little harsher for the city of Ely, which has a rich mining history steeped in boom-and-bust cycles that carry over to the overall economy, including car sales. "The mines have traditionally been our biggest customers. When they were going strong, we’d sell a couple of hundred vehicles a year, but now we sell about a couple of dozen a year," said Kurt Lee, vice president and part owner of E-Lee Ford Lincoln Mercury. "The real business came when the [mine] employees moved in and then we’d sell 200 to 300 a year. But it’s been fairly quiet the last year-and-a-half, so we’re looking at 2003 being a slow year."

For Lee, a slow year is 40 fleet sales. For Chealander, a good year is 200 units sold, making an average year about 150 units. By comparison, Waters sells about 400 new units and 150 used units during a typical year. Similar numbers of 400 or more units sold per year holds true with Tozier.

While sales and customer satisfaction are uppermost in the minds of every fleet manager, there are a number of factors that can influence that (hopefully ascending) red arrow seen on the sales chart at the weekly sales meeting.

Things such as government bidding, Internet orders, manufacturer incentives and a new trend called fleetail – a consumer sales hybrid that mixes walk-in retail traffic with the advantages of buying at less-than-retail fleet prices.

"A lot of people don’t know about it," noted Reno Toyota Fleet Manager Tom Werbeckes, when asked about fleetail. "Toyota Corporation isn’t really into fleet sales, but anybody can walk up here and buy a single fleet vehicle." For those who come to the retail-fleet fork in the road and "take the path less traveled," the benefits can be appreciable, but the process is pretty much pre-determined.

For instance, customers have to have what Chealander calls "a realistic expectation of price" based on doing their homework and knowing exactly what it is they want – model, engine size, transmission, cab choice if buying a truck, extras, even the paint color – because the fleet manager will offer the vehicle at a no-haggle, no-hassle, one-time flat price.

This eliminates the stereotypical showroom negotiating that goes on during retail transactions, which involve copious amounts of emotion. A customer may listen to what his heart wants while, in many cases, turning a deaf ear to his transportation needs. "A retail buyer is more emotion-driven than need-driven," Waters explained. "But fleet buyers are individuals, too, who have their favorite products. It all boils down to form and function and what looks like it will do the job for them."

Lee sees seasoned fleet buyers much like people on a mission. "To them, buying cars is like buying a box of cereal," he said. "It’s just a commodity, just a product they need in doing their business."

Whether it’s a commodity or a product – just another tool for fleet buyers to use in the normal course of their business – the customers themselves, especially repeat customers, are still the most important spokes in the fleet-selling wheel.

For many dealerships, the repeat customer accounts for more than half – and in some cases nearly 70 percent – of all their sales for the year. "Our business is built with customer loyalty," said Tom Craddock, fleet sales manager for Ford Country in the 137-acre, 15-dealer Henderson Auto Mall. "Customers’ time is worth money, so we make it accommodating to them. We give fleet customers a personal touch, because they expect that from the fleet department."

Michael Hohl Motor Co.’s Waters agrees. "Repeat customers are a huge part of our business – 60 percent or more," said the fleet manager, who’s worked in Nevada’s capital city for the past 16 years. "A lot of that is based on service and a knowledge and understanding of their business. We dig into what they want. We don’t just ask what they want. We ask about their business, how the vehicle will be used and other things that can make a difference in selling them the right vehicle."

Similarly, Fallon’s Chealander said, "We not only need to know our products, but we’ve got to understand their application, what people are going to use them for." His company not only sells vehicles in and around the agricultural city of Fallon, which serves the U.S. Naval Air Station, but also throughout Central, Western and Northern Nevada.

Fleet customers are not limited to buying their vehicles, but can also consider the traditional leasing option. However, that choice has become less popular in recent years as auto manufacturers continue to offer purchasing incentives too attractive to pass up.

"Leasing is flat. It’s not the hot product it used to be," Waters said. "To purchase a vehicle, our financing is at zero percent interest. It can’t get any cheaper than that." Other fleet managers agreed with Waters’ assessment. "Leasing was really good until two or three years ago, when the dealers started incentivizing at zero percent interest," Fallon Auto Mall’s Chealander said. "It almost doesn’t make sense to lease anymore. When it comes to leasing versus zero percent interest, a majority is going to purchase, but for some, leasing has tax advantages. It’s just a matter of how much of a write-off do they need."

Many Nevada fleet dealers get involved with government bidding, but make that segment a small portion – usually less than 25 percent – of their overall fleet business. Nevertheless, there are dealerships as E-Lee’s Lee put it, "waiting for a crumb to drop because it’s a land of scavengers out here."

"We do state bidding because most of our fleet activity is government now," said Lee, who has worked in Ely since 1974. "We bid all over the state, selling units to Carlin, Lincoln County and Reno, where we sold 15 [Ford] Explorers to the city last year. However, the transportation costs of shipping the vehicles from Ely to Reno just killed us."

A growing element of fleet sales is Internet shopping, which allows customers to browse the "electronic brochures" before heading out to the dealership of their choice. "The Internet accounts for 20 percent of our sales and it’s going to grow – no doubt," Werbeckes, Reno Toyota’s fleet manager for nearly 10 years, said.

Chealander reported the Internet has caused a trend over the years of customers becoming more and more educated about vehicles and possessing a greater savvy when it comes to buying. Although challenging, this bodes well for fleet managers and employees in Nevada’s population centers – mostly large and medium-sized cities, towns and counties – because as these communities continue to grow, so do the opportunities for increased vehicle fleet activity, which can make a fleet manager very happy and profitable. As usual, though, Nevada’s sparsely populated rural areas will have a tougher time holding on, but may prosper during yet another boom cycle.

"We’ll plug along and wait for the next wave of prosperity to come along," said Lee, who’s seen the Magma Copper Mine in nearby Ruth open, expand and close in post-Kennecott days, bringing with it boom-and-bust auto sales. "There’s always speculation that Magma is going to reopen. A wind farm is testing up there and if it works out, maybe Magma can buy cheaper electricity from them and then reopen."

Optimism – a necessary commodity in any industry – helps sustain fleet dealers while they wait for sales to return.