Senior VP of Sales, Marketing & Account Management, Wheels, Inc.
Scott, tell us what the focus is at Wheels right now.
Our focus probably hasn’t changed much. One of our strengths is that we are very, very consistent. Our focus is in serving our customers and taking care of our clients. Doing a good job for them and trying to understand what it is they need from us, what is on their mind, what has them concerned and serving them well so that we get to stay their fleet management company.
What are fleets telling you that they’re most concerned with right now?
Our clients, like most corporations, are doing more with less. They are under a lot of pressure to deliver results. The large corporate staff just isn’t there anymore to implement a lot of the things they want to do. It may be safety. Certainly it is economics; everyone wants cost savings and everyone wants to run more efficiently.
It is sort of ironic, fleet is a really, really good deal right now and has been for quite a while. The vehicles that we use are better, they last longer, they are safer, they are more efficient, more reliable, and right at the moment the resale values are extremely good and the interest rates are very low.
The cost of fleet is excellent but it hasn’t taken any pressure off fleet managers and sourcing people who are responsible for fleet in terms of reducing the cost of fleet. It is the nature of Corporate America; it is not unique to fleet.
There are some things they want to do from a corporate standpoint and some things they want to do locally and dialing that in right, particularly when there are fewer and fewer people at corporate to make that happen but they are still accountable for it. We get a lot of those kinds of requests — help us make this thing happen whatever it might be. Regulatory compliance, safety, environmental, cost savings; you know it differs company to company.
How are we taking some of the costs out of the fleet?
Like I said, fleet is actually really very efficient. Right at the moment it is good to be a fleet operator in many ways. Probably the one exception is fuel. It is kind of interesting that we have gotten used to $4.00 a gallon gasoline in the United States. At the same time, fleet fuel economies are going up pretty rapidly. We are seeing fleets change, driver behavior change without much rebellion that you wouldn’t have been able to get done ten years ago, even five years ago, and so average miles per gallon has been going up in terms of vehicle choice and in-vehicle technology. The rest of fleet is a pretty good deal right now.
I think one of the parts of fleet that is not well managed is safety. We still have way too many accidents in the fleet industry. Coming through the bad economy the last few years, it was all about taking out cost. People are becoming more revenue focused. The downtime of the vehicle is directly tied to their customer service and their revenue and so they are increasingly looking to do a better job on that.
How does Wheels help the global fleet?
Our relationship with ALD is excellent. ALD is very, very strong in many other parts of the world including Europe. We work with ALD on a number of global clients. Often times they are taking baby steps and are experimenting with global fleet. Vehicle choice and even why companies have vehicles differs in certain parts of the world; it is very much about compensation in some places and in other parts it is a tool. We still don’t have in many cases, global products so I can’t really buy a global vehicle. I can’t buy a global financing product. It is still an industry where you mostly are buying regional fleet products.
It also kind of mirrors our clients as well because they are still buying regionally. They are buying North America, they are increasingly buying European, but not yet buying global. They’re talking a lot, looking at their inventory, and looking at some policies globally, such as vehicle eligibility. Certain things they are requiring their local countries to do, but real global control, not many are doing it. Some have pushed a number of things pretty far but global fleet still tends to be regional fleet.
How has the global financing market affected fleet?
It is interesting. LIBOR got a bad name because some banks were manipulating what LIBOR was, but what a lot of people don’t understand is that our clients actually benefited from that. The banks were actually manipulating LIBOR down; they were misrepresenting what it was really costing them to borrow because they didn’t want market to be concerned about their credit. So they were understating the cost of LIBOR. Since floating rate fleet lease financing is often tied to LIBOR, the clients actually got a lower interest rate than they would have otherwise gotten.
We see a lot of people using LIBOR for floating rate; now with rates so low, many of our clients have chosen fixed rate leases. Our large clients used to be entirely floating rate, and as interest rates have gone so low the last few years, people have jumped on fixed rate and locked in.
Where do you think interest rates are going in the near term?
Clearly the market says what the expectations of interest rates are and the market’s expectations are very low. It seems hard to believe that interest rates can stay low. Right now the ten year treasury is still under 2 percent and there just doesn’t seem to be any end in sight. Who knows how long the Fed is going to keep up their monetary policy and it will probably change very rapidly when the Fed decides they don’t want to do this anymore. It is a very good time to be financing your fleet — a very good time versus historical norms.
Are fleets that traditionally own their vehicles taking a second look at leasing?
I would say, yes and no. We have had some clients who have owned for a long time who have gone to leasing. But I don’t think it has to do with cost, I think it has to do with liquidity. One of the things that the 2008 financial crisis taught people was that liquidity and access to capital matters. We have had some very large ownership clients convert to leasing or are at the moment looking at leasing very, very hard. They are looking at their balance sheet liquidity and they are not taking it for granted, which is kind of ironic because we are back to where there is quite a lot of liquidity in the market.
At the same time, we have had some large lease clients look at ownership because they see they are holding a lot of cash. They are sitting with cash earning short term returns which are very, very low, and they are saying, “Gee maybe I could put it into a three year or four asset — a fleet vehicle – still very liquid. I can get out if I want and get a better return than I am getting on my short term funds.”
Of course there is a difference between investing cash for 30 days and buying a three to four year asset. When clients think about investing money for three and four years, now they have a different expectation for return. Go buy a three year corporate bond, what is the return going to be on that? It is essentially the same as the interest rate for three years on a lease. It’s the cost of three or four year duration in the credit market. After people look at it, they say – okay, I get it, and they continue to lease.
I wouldn’t say we’ve have had a lot of wholesale shifting between leasing and ownership but a lot of people are thinking about it; so, kind of in both directions for different reasons.
Are you finding that companies’ credit worthiness is improving?
Certainly, versus where they were in the depth of the recession of 2008 and 2009 — yes, balance sheets have improved, earnings have improved. It’s a little easier to get people through the credit standards our lending markets are looking for. The flip side of it is, as more financing liquidity has come back into the market and as people who have cash are looking for a place to invest, private equity is back. When a company with good credit gets bought by private equity, they inevitably lever up a nice investment grade or close to investment grade balance sheet, turn it into a triple C credit, and we can’t finance them anymore.
Is there anything in the finance realm that is starting to get you concerned about where we are headed?
I don’t think so. I am an optimist. Europe has some very serious problems that are a lot more complicated than I can understand. They have very difficult issues to work through and certainly we have very serious public sector budget deficits that just simply have to change. It is just not sustainable or we are going to end up like some of the sovereigns in Europe. You see it at the local level, and you see it in states — my state of Illinois is a disaster from a financial responsibility standpoint, and it is simply going to have to change.
But I think corporations have learned very valuable lessons and have made some tough decisions. You see it in balance sheets. You see it in corporate earnings which are very strong.
As you think of our business which is based on, at least in North America, workers needing transportation to do their jobs, we are tied to employment and we see employment strengthening which is a really good thing.
Fleet size is really indicative of employment. For several years in a row, many of our clients shrunk in headcount and fleet size and we made up for it by signing new business. The last two years, our clients have added people for the first time in five years. That is certainly indicative to us that our clients are more bullish, and they are growing, and that can’t leave us anything but optimistic for the fleet business.
The scope of our business has changed a lot. Our clients are pressured to do more– to exercise more control, to motivate the field in utilization, to manage field behavior, to support field activities, but with next to no resources at corporate. They turn to folks like us to help. So, the nature of business used to be, as you remember, about delivering a new vehicle, picking up the old one and seeing the driver three years later. It is just not like that anymore. We have about 300,000 vehicles on the road and we do 40 million transactions a year. That tells how much we are interacting with the vehicle and the driver throughout the year for just everything under the sun that you can think of.
What is it that keeps Wheels so current, still respecting the past but always looking to the future and seeking to do everything right today?
I have only been around 15 years, so I can’t speak to what has made Wheels successful for 75 but I certainly have my own observation about what makes the place work today. To me, it is about the consistency of the values. It is about the customer service values; about understanding that we are a service company and we only get to survive if we serve our clients well, if we treat them well, if we bring value to them, if we serve them however they want to be served.
Scott Pattullo, Senior VP of Sales, Marketing & Account Management, Wheels, Inc.
Scott joined Wheels in 1998 as Vice President of Marketing and General Manager of Wheels’ mid-size fleet division. In 2001, Scott was promoted to his current role as Senior Vice President, in which he oversees Wheels’ Sales, Account Management, Account Transition, Marketing and International departments. He has also served on the Wheels Board of Directors since 2005.
Scott has more than 25 years of experience in strategic marketing, business development and management consulting, having held executive-level positions at Chicago-area companies NutraSweet, Sara Lee and A.T. Kearney. Earlier in his career, Scott worked as an engineer for the Cadillac Motor Car Division of General Motors Corp.