Building profitable fleet business

Motor,  May 2002  by O'Connor, Bob

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With competition for customers in the auto repair business so fierce these days, a number of shop owners are aggressively seeking a share of the lucrative fleet business. Perhaps it's time you considered adding fleet business to your operation.

Why don't more shop owners actively seek fleet business? Lengthy discussions with hundreds of auto repair business owners during the last several years have revealed many reasons why. Some can be laid squarely at the feet of potential fleet customers:

* Fleets often demand substantial discounts, which shop owners feel they cannot afford.

* Fleets often require priority service, which shop owners and service advisors feel will upset their production schedules.

* Fleets are notoriously slow payers, which causes poor cash flow and would mean financial hardship for many auto repair businesses.

*Some fleets don't pay their accounts at all, leading to account write-offs and resulting in a loss of profits.

*Fleets may require the repair shop to use customer-provided parts, which would lead to reduced gross profits and warranty problems.

* Fleets require the shop staff to deal with national fleet administrators, which can he time-consuming and perceived by shop owners to cut operations efficiency.

Shop owners must share some of the re-- sponsibility, however. Deeper discussione with shop owners who did take in fleet buis-- ness revealed that most had not prepare a formal process to evaluate prospective new fleet customers. In most instances, these shops never asked for credit reference or followed through with a formal credit inves-- tigation. They also never asked potential fleet customers for prior repair shop refer-- ences, never actually contacted any former repair facility and never visited the fleet cus-- tomer's place of business to interview the ve-- hide operators and check out the physical condition of the vehicles. Instead, they just accepted the fleet customer when he arrived at the front door, and only learned of the customer's excessive requirements as the re-- lationship unfolded.

Once a shop owner had a negative experi-- ence with one or more fleet customers, he viewed all fleet business as undesirable, and usually elected to refrain from having any further dealings with fleets.

In spite of all these negative perceptions, I believe that when handled properly, the right kind of fleet business can contribute to smoothing out the highs and lows of business trends-that is, the busy and slow periods-and add significantly to sales and net profits. That's why many astute shop owners have aggressively sought and developed very profitable fleet business. They did so by developing a well-thought-out plan.

Elements of a Good Plan

A good plan to generate fleet business is an absolute must, and encompasses several areas:

Assess your company's capabilities. Your plan should begin with an assessment of the capabilities of your staff, facility, parts inventory and equip ment to determine which and how many fleet vehicles you can accommodate. Part of the plan should include your being prepared to invest in some inventory and equipment to be able to service a new fleet customer's vehicles while remaining efficient in servicing your regular customers.

Your assessment should also include determining how many additional vehicles you feel you could efficiently process on a daily, weekly and monthly basis with existing staff and equipment.

Should you consider discounting? This can be an effective incentive to encourage fleets to do business with you. However, I'd advise you to sell your products and services for full value, and offer discounts only for prompt payment. That way, should you elect to extend credit, then have to collect a delinquent account via a collection agency or pursue collection through the courts, you'd be pursuing full prices instead of discounted prices.

If you're considering offering discounts on a basis other than for prompt payment, make sure you can afford them. When establishing discounts, take into consideration the total of all discounts offered to the fleet customer, so you don't exceed your discount budget.

Instead of discounts, you may want to consider rebates. Rebate amounts of up to a total of 10% could be offered at tiered purchase volume levels and be based on both purchase volume and prompt payment.

Determine your shop's credit and collection policies. Once the assessment is performed, the next step before you begin actually soliciting fleet business is to determine how you expect your new fleet customers to pay for the products and services you'll be supplying.

If you intend to extend credit, first determine how much you can afford to extend, and under what conditions. Discuss various options with your business consultant and/or accountant to determine what your cash flow will allow you to extend, or if you should consider getting a line of credit to enable you to extend credit to fleet customers. If you use borrowed funds, though, you'll need to generate enough gross profit on the additional financed sales to offset the interest costs.