Work vehicle ownership is a significant expense trades must incur to provide their services. It’s a part of doing business. But, when vehicles aren’t available to purchase, how are trades supposed to:
- Satisfy demand when vehicles are under repair.
- Capitalize on short-term spikes.
- Grow their businesses.
To help our customers overcome these challenges, we hosted a customer roundtable on March 22, 2023. Along with a small group of customers, we invited two industry experts to share their knowledge and insights.
- John Ruppert, Direct of New Business Development at Adrian Steel
- Steven Dickey, Sr. Fleet Consultant at Selig Leasing
Following is a recording of round table and a transcription of the conversation.
If you have any questions, or want to discuss any of the suggestions detailed in the conversation, please email info@messerohio.com. We'd be happy to set up a call and talk through your options.
Tim Caldwell, Regional Manager
Messer Work Van Solutions
Vehicle ownership is a significant expense to fleets as is the cost of ownership.
What we're seeing now is folks are keeping fleet vehicles much longer. They're not cycling them out as much as they should or as quickly as they used to. So, there's just not as many vehicles available and MSRP prices are going up. Other things are also going up due to supply chain and raw material shortages.
So, we have to make our vehicles more efficient and keep them longer. So I think that's important for all of us to understand, and I know a lot of you are feeling the pain of that as we go through this.
One of the biggest ownership challenges we hear about satisfying demand when your current fleet vehicles are in for service. “Hey, I've got a van in for service, but I don't have enough vehicles for the guy I just hired.”
Another challenge is how to capitalize on short term spikes in demand. That's the biggest question I get from our fleets.
Like, when should they add one? What is the equation? “Tim, I've got, you know, I've got 16 projects going on, but I'm afraid I'm only gonna have eight next week. How do I manage, how do I control the demand of what we're seeing?” So I think that's important.
There's a lot of consolidation going on in the trades, especially HVAC and plumbing. I think all of our plumbing companies and they've either started an HVAC division or they've been bought by an HVAC company.
There is limited flexibility due to the high cost of ownership. In other words, there isn't a lot of flexibility to try out and test new types of vehicles or cargo management systems.
The risk of investing in a solution that doesn't work is too high and inhibits innovation. So what we've done on our end, and I think a lot of you know this, we have a 30-day just right guarantee. If we're implementing a cargo management system in a vehicle that may not work exactly as expected, we're flipping it out within 30 days for free.
Efficiency is critical going forward. I'll tell you this, we've had customers now, and you guys probably see this too, they would've never considered a truck before. That wasn't even on their radar screen, but now they're taking what they can get. So, I think that's something we all have to keep in mind.
So I want to just talk through a couple ideas we have to help satisfy short term demand. If you guys have been to our other round tables, you know, we try to give you some creative ideas, ways to think that might help out your situation or your inability to get that traditional vehicle.
So I just wanted to share some ideas that we have come across here that we're seeing a little bit more of.
Renting. I don't know if you've seen some of the companies here locally, Fluid Truck being one. You can rent an outfitted vehicle on a short term rent. There are a couple others as well.
I know this sounds odd for commercial vehicles, but we're seeing a few of our customers share vehicles with one another. It just happened three weeks ago. One client hired a new guy. A plumbing customer of ours had an extra van that we had outfitted that they weren’t using. Another drain company needed a vehicle. We met and married the two together and they were able to work it out for a few weeks.
So I don't think there's a platform out there right now that's sharing from an outfitted van perspective, but there's enough of 'em out there sharing commercial vehicles.
That’s some of the creative ways we're seeing others satisfy short term demand around here. It all comes down to thinking about things differently.
Next up, I want to introduce John Rupert from Adrian Steel. I'll let John talk about his background, but we're happy that you're here.
John Rupert
Adrian Steel
At Adrian Steel, we do three things. We manufacture our products that go into work vans. We are an installation facility for large fleets. We ship through facilities strategically located around the country. And third, we actually own some of our distribution around the country as well. So we're kind of all three layers of the vertical, which I think is an advantage because we understand the ecosystem a little bit better than maybe some of our competitors. So for that, we're very grateful.
I wanted to kind of piggyback on some of Tim's comments and talk a little bit about some alternative ways of thinking about running your fleet. But before I do that, I thought I would take a minute and just share some numbers.
The pain that you're feeling for lack of vehicles is not something that you're just dreaming or imagining. It's very real. The best way to reinforce that is to take a look at what's happened in the North American market over the last three years. What's not on the screen, which I think is important, is that in 2019, the industry was actually 17 million. So it went from 17 million to under 14 million in less than three years. And of course, now we're starting to see it pick back up.
What I would tell you is in 2024, most pundits have a prediction of somewhere around 15 and a half to 16 million, which is not full recovery. So, that would be positioned right here, kind of post 2023, but there's a direct correlation between what happened with microchips and what happened to the SAAR. There was a trailing effect.
You can see that here, with the 3.1 million vehicles lost to microchips. The impact started to happen almost a year later, where it went from 15.1 to 13.9 primarily driven by what happened with microchips. So there was some inventory that the industry was able to live off of for a while.
But ultimately, as we got towards the end of 2021 and into 2022, in particular, that inventory buffer started to wear thin.
One other thing that's not on here that I wanted to just share with you. Historically, many of the regional fleets that we do business with have lived off of dealer inventory for short term needs. And, typically across the US, there'd be somewhere between 2.5 to 3 million units in dealer inventory. Collectively, that's all cars, trucks, everything, not just commercial vehicles. That got to as low as 700,000 at the end of 2022. So you can kind of do the math. It was like a 75% reduction in dealer inventory.
You couldn't order any vehicles because there wasn't as much production-selling going on. You couldn't get it out of inventory and hence the shortages that we all felt.
So, if we go to the next slide, this is just some of the largest supply chain issues, if you will, from an upfitter standpoint.
I think there's some commonality across multiple vocations and industries, but not only did we have volatility with pricing and steel in, there were some major swings in the cost of raw material in that space, which is a key component for us. But it was also an availability issue. So you had pricing and availability both working against us.
We've also seen, at least within the last 15 years, historical highs on plastics. Some of our purchase products are reliant on plastics as well as corrugated. We don't sell corrugated goods, but when we ship product to our distribution network, it's in corrugated containers. And so, once again, shortage as well as volatility and pricing.
The last thing is the fuel prices and what it costs us to ship products to our distribution network. There was a lot of volatility as well.
Electrical component lead times remain at historical highs. That hasn't corrected itself quite as quickly as some of the other things, and primarily because they're internationally sourced. Much of the electrical components come from overseas. So, if you remember those pictures online of 33 container ships sitting, waiting to get into port? Well, that's where a lot of the electrical components were. So, we could manufacture steel all day long, but if we didn't have the electrical components to finish the outfit, then we had to hit the pause button.
And last but not least, and probably the one that doesn't get enough publicity, but I know all of you are dealing with it in your own businesses as well as the people you partner with. It's the availability of labor post pandemic. It was a huge problem and quite frankly, I think it's one of the hardest ones to solve as a business.
So those are some of the things we're dealing with.
I wanted to just also spend a minute and talk a little bit about fleet segmentation. Tim, you were mentioning this too, and it gets into mixed fleets and things like that. I mean, our specialty is in full-size vans. That's where we play, and compact vans to an extent.
Most of you may know that this is the last calendar year where there's gonna be compact vans in the US market. Those customers have to go somewhere with what they buy and what they own. And, we've done some research and we're leaned into the OEMs and we believe that migration's gonna be about 50% back into some type of a full size van—probably a low roof derivative on the Ford. And GM obviously has their one size fits all, and then the other half is gonna be split between full size and compact pickups. That's kind of where we think it's going.
And if you were at NTA this past week, you would've seen us with a display property upfitted with a pickup chassis. And, primarily we look at that as an incremental opportunity. I think fleets are being forced to look at alternatives beyond just van based products for doing commercial work.
The other thing I would tell you is obviously this is still a pretty substantial part of the market, but this space right here is where we're seeing the most activity on electrification.
Probably most of you know about E-Transit from Ford and Mercedes has announced an e-version and Stellantis has an E version coming. But listen to this list of names of vans also coming to the market, if not already here:
- Mullen, which is Bollinger Motors
- Canoe
- Rivian
- Arrival
- Tesla Robo Van
- Bright Drop
- Blue Arc, which is Shift Group
- GM
- Chevy
- Ford Transit
- Mercedes
- ProMaster
So, why do I bring that up? Well, the compact vans went away in the United States because it's too crowded. This segment's not large enough. There are too many manufacturers, which means there are gonna be winners and losers.
So, I would just suggest that as you, if you're choosing a platform for EV applications, do your research and make sure that that company's gonna be around long term. I just don't think there's enough space, there's not enough product, not enough business to support that much product.
So, how do we recommend attacking this shortage? Tim’s suggestions were really good. These are a couple of more.
The used vehicle alternative and some of our distribution points around the country really had to lean in hard over the last 18 months to use product that they could find in the market. And there's some advantages to it.
First of all, historically, and it's been this way even through the pandemic, the size of the used vehicle market is about two to one. So if there's 15 million units of new units being sold in markets, there's about 30 million used. Typically, there's product available out there to get your hands on.
Obviously, lead times are better because used vehicles are all localized product. You might have to move it from one city to the next, but for the most part, there should be little or no lead time concerns if you choose a used product. And then, there's a lot of companies out there now that'll do like new financing on used products, particularly if it's in nearly new—20,000 to 25,000 miles, or less.
The next slide talks a little bit about another, way of attacking the vehicle shortage issue, and that's what I would call—Labor Efficiencies.
This gets a little bit grimbly but the point here is if you're a fleet of 20 units and you can find 20% efficiency, you could argue that you might only need 16 vans instead of 20.
So one of the things that is part of our innovation journey at Adrian Steel is that we're trying to apply that principle in the local market and with our large fleets. We’re helping answer, “How do you use the product?” This is our philosophy across our distribution network.
Steven Dicky
Selig Leasing
Hello everyone. I'm Steven Dickey from Selig Leasing, based in Ohio. We are a nationwide fleet management company, predominantly in the commercial, but sales rep vehicles, etc., vans, trucks, larger trucks, etc.
What I wanted to talk about was a different alternative, and everyone's heard of Enterprise and Mike Albert, and we have dealership partners. You've gotta love your dealerships. We love our dealerships. We work with hundreds of dealerships across the United States. But what I wanted to talk about was the alternative to bind because we're in a cash flow society right now. Cash is king.
So I'll tell you a little bit about the company. Our advantages. Benefits of a replacement policy, if you can find vehicles. How we acquire vehicles. We are our full service shop, which I'll show on another slide so that if you need outfits, if you need graphics, if you need anything done, our motto is “Turnkey Ready to Go Solution.” We do the upfits, the branding, the wrap, zero money out of the customer's pocket for a turnkey solution. I'll talk about the open and leased funding. We're our own bank. There's a reason why about 80% of companies are now leasing their vehicles. There's a tax benefit, there's a huge tax benefit. But we're on our own bank, which means we're not bound by the rules. We don't have to file that on the personal credit score or the business credit score. So when you see all these new vans and you're like, how are they doing this? There's a reason why they're leasing them. There's a tax advantage as well as they're not leveraging themselves as far as personal and company credit score.
We are owned by Bud Selick, former commissioner of Major League Baseball. I think he's worth about half a billion dollars right now. But what that gives us with our credit lines is the accessibility for finding alternative funding solutions for our customers.
We are a full-circle company. So that means from new and used vehicles. Now if you're telling me you want a 2012 F two 50 with 180,000 miles, I'm probably gonna tell you we're not a partner for that vehicle. Um, equipment, we'll look at equipment again. Graphics design, special financing, flexible terms.
Our leases are predominantly 12 months, minimum term. Most of our customers, because of cash flow, 60 months, if a van costs $40,000 upfitted, with all of the upfits, the graphics, we lease it down to 20% of its value, $8,000. We know after five years, unlimited mileage, no wear and tear penalties. When that car, when that vehicle goes to auction, you will get more than $8,000 based on that methodology—60 down to 20. Don't care how many miles when you're done with it.
The other benefit is all of the profit of that vehicle is yours. You have full ownership of that vehicle. We're just reducing and doing better cash flow for you down to residual price. So the equity in that vehicle is yours. It is your vehicle. We're just the finance company.
We do offer maintenance programs, but the biggest piece right now, how do we get rid of these vehicles?
You don't have time to let someone test drive your vehicle. That's lack of productivity. We take an auction, Manheim, Odessa, or let's say you wanna sell to an employee at the company. We'll do all the paperwork for you. Send the vehicle on its way. But again, all of that profit is yours to keep off that vehicle. That's why people are leasing their vehicles now.
Acquisition, new and used. We love our dealership partners. We've bought vehicles from you, definitely vehicles from you. Bo Townsend. Marion Ford. All across the country. What we do, they get the benefit of the sale, but we also are your partner to make sure that you're getting any fleet rebates associated. Making sure that vehicle's the right vehicle for you, and then packaging it all into one component.
Predominantly factory orders are really the only way to get a cargo van now. There used to be a lot of availability of vans, but we do have strategic partnerships. Like for example, we just got 75 Ram Pro Masters on the ground. We ordered them 12 to 18 months ago, but they finally came in. We have sources to get vehicles.
The other benefit about Selig and some other leasing companies, we don't have brick and mortars to pay for. So you know, if we're talking about Enterprise or Mike Albert, we all get the same fleet rebate on the vehicle. We don't have brick and mortars to pay for. So acquisition cost is yours. We're not marking up the van for pure profit reasons.
Another, another huge benefit for leasing. Again, lower repair costs. You're cycling the vehicles now. Every vehicle's different. You know, an F-250 or Chevrolet 2500, with 120,000 to 140,000 miles. That's the sweet spot. But again, why are you leasing versus owning? Used to be “Drive it to the wheels, fall off.” Well, you put a transmission in, you put an engine in, you're married to that vehicle now. It still needed a transmission engine just for you to sell it, but now you have abundant maintenance costs in it.
Get rid of it before major maintenance repairs occur. Maximize resale value on it, get your usage out of it and move on.
There's a trend because you can't find new inventory driving older vehicles longer. Again, there's a lack of availability of parts as well. Mileage, gas mileage goes down. It's a curve. The longer you keep it, your maintenance cost goes up drastically. Fuel mileage goes down.
Less downtime. Productivity. We talked about that when a truck goes out for maintenance at a dealership. Whether it's a day or two weeks, can you calculate the cost of having that truck not on the road in production?
I can't, everyone, everyone of your customers, they know their return on investment. Lack of productivity means you're spending more money.
Safer vehicles, things are changing. You know, I think it was 2017 backup cameras became standard. Bluetooth became standard because if you're caught on your phone, you're gonna get a ticket. The industry is changing, changing, changing.
Employee morale and retention. No one likes to drive older vehicles. Well, it's a 2004 F-150 and it's rusting through. Not only is it an image to your customers, but to your employees. The morale is down. Company image, talked about that.
Hiring an advantage. Everyone likes pretty vehicles.
Employee morale, consistent brand image, cost savings, better resale value, you know, 36 months. We have a huge customer down in Cincinnati, F-250s with 160,000 miles in 39 months. They're making $6,000 to $7,000 off those trucks when they go to auction. They're dirty, but they're well maintained.
I talked about this curve. Time equals cost. The longer you hold that vehicle, this green maintenance line starts drastically going up. So the sweet spot on cargo vans versus trucks, we can calculate that for you, but everything's a little different. Like a cargo van, I'd say 150,000 miles, it's time to move. It's time to move.
These are old estimates and it used to be, I'll use a Chevrolet cargo van. Our fleet buying three years ago was $26,000 compared to 34,000 MSRP. Right? Then your upfits, whatever. It used to be, I drove it and put three engines in it. Yep, there's $15,000. But the longer you keep it, the value goes down.
Now, here lately because of lack of availability, a three year old pickup truck with 60,000 miles is worth more than what it was MSRP brand new. It is absolutely absurd, but for the long haul. The longer you keep it, the vehicles decline.
Company owners now have two decisions to make. I want to grow. I have customers that I'm turning down because I don't have cash to grow the business. That's why people are leasing. Increased cash flow and equity opportunity at the end of the lease.
All of that equity on that vehicle is the key. We have customers that when we sell an F-150 at the auction, here's a check for $6,000. Every time company owners take that $6K and put it down on another vehicle. Now your cost of ownership gets lower every time you cycle your vehicle. Or here's $6,000, invest it for future expansion.
The other thing that we do, it's not in here, we have customers that have been cash rich. They bought all their vehicles. Now they don't have money for expansion. It's called cash infusion. If you need money for expansion, we can buy your entire fleet from you, release them to you and disperse the cash to you for environments where you need cash for expansion.
We can sell the vehicles to employees or personal. We can sell them on our lots. Bud Selig owns multiple lots. However, the best bang for the buck and dealers buy vehicles here too. The auctions. It's wholesale, so it's less than the retail, but again, you don't have to go on every test drive with a potential buyer.
Fleet maintenance. We have a fleet maintenance program as well. You know, on a lot of the newer vehicles, I tell you, a Chevrolet cargo van bought on a fleet program, five year, hundred thousand powertrain warranty. You don't need a maintenance program. Keep that money in the bank. Oil changes. Tires, brakes. Oil changes. Tires, brakes.
Field manager. We work with WEX as well. Companies like having that corporate card. I can't tell you how many times they have caught fraud with employees having a fuel card where they are putting premium fuel, but the transit only uses regular unleaded, and it was on a Saturday. Where are you taking your boat? Yeah.
The number one reason 80% of companies are now leasing their vehicles, especially larger companies, cash flow tax benefits, not paying full tax on the purchase price of the vehicle, only on the payments you're making. Cycling out, lowering maintenance costs.
It's a puzzle, and when you have all those pieces together, it works.
Any questions? Yes, sir.
Compared to your competition, that owner keeping the equity, is that kind of unique to you folks or do others offer that as well?
Fleet management companies do it as well, because I haven't heard it that clearly. So I will not mention names, but every time I go against some of our competition, um, yeah, we sold this van. Well, how well did I do? Nope. Here's your new van. Because we're a financer. That vehicle is yours. You have ownership of it. All of the equity is yours to keep. There are some companies that require the end user to pay for those upfits.
We'll lease you the van, but not the full ready to go to work product. That's where we specialize.
