Episode 116: Fleet Industry's Perfect Storm?

All right. Welcome to the 116th episode of the Fleet Success Show. I'm your host this week, Steve Salzgiver, Senior Fleet Success Advisor. And today I'm joined with my good friend and mentor and former owner CEO of Mercury Associates, who is now in retirement, Paul Lauria. Today we're going to talk about the perfect storm, which is a phenomenon that Paul coined several years ago as he saw the convergence of the baby boomer retirements and increasing complexity emerging into the automotive fleet industry. So our goal is kind of to beat that topic up and talk about some things that we can roll out or some potential solutions and best practices to help people combat this dilemma. So most of you know me, you've seen me as a veteran podcast host on this Fleet Success Show. I've been doing this now for quite a few episodes. You know me as a former CEO or Coca-Cola vice president, Republic Services vice president. States of Utah and Georgia Director of Fleet Operations, and I'm in the Government Hall of Fame. So that's kind of my background. Paul, give us a little bit about your background.

Steve, great to join you. So yeah, I retired, as you mentioned, about a year and a half ago from Mercury Associates, bringing to an end a 40-year career in transportation and fleet management consulting. Started my career at Ernst Whinney, which later became Ernst Young, back in 1984 in Washington, D.C. And within a couple of years in a national transportation consulting group, had discovered and decided to really focus my attention on vehicle fleet management. And as you can imagine, fleet management has changed a lot in the 40 years since I started my consulting career. So I spent 8 years at ENY, 10 years at Maximus, and then I co-founded Mercury Associates in 2002 and served as president for 20 years until I retired last year. And I continue to serve as a senior advisor. They occasionally give me a call and ask me to provide insights or assistance on something that's going on with the company. But I'm enjoying retirement. I have lots of things to keep me busy.

And I'm actually glad to hear that. I'm kind of surprised, but it's good to hear.

As a guy who keeps on telling me he's going to retire, probably first told me that 10 years ago. It's funny, here you are, you're still working for a paycheck.

You know, and I thought I was going to retire again, and then now I've seen this Perfect Storm, and now I'm like, oh my gosh, you know, maybe I still got a little bit more in me here.

I figure the storm can rage without me, Steve. So, I got other things I can spend my time on, but I'm glad to be joining you.

That's awesome. Well, Paul, tell us about the Perfect Storm, you know, how you came up with this, and, you know, what led you to think about this?

Well, there, you know, it's a, certainly it's not a coin that I trademarked by any means, but I started using that expression in presentations that I was making to fleet professionals probably about 5 years or so ago now, maybe even a little bit more than that. And it really refers to the convergence of 3 phenomena that were collectively going to create some pretty stormy weather for fleet owners and fleet professionals. So one of the things— so one of the three phenomena or storm fronts, if we want to overuse the metaphor, was advances in information technology. And as you can imagine, in 40 years in the fleet industry, going back to the early to mid-1980s, we've seen tremendous changes in the availability of information to help manage fleets over that period of time. You know, when I started my consulting career, Most fleet owners did not have computerized fleet records at all. Everything was paper-based. So if you can imagine trying to understand the maintenance and repair history of a vehicle or a piece of equipment so that you can make a decision as to whether to invest more money in that asset when it comes into your shop, that necessitated going through what was referred to as a work order jacket and essentially a manila file folder full of paper records, both in-house work orders and vendor invoices and to try to reconstruct more or less on the fly a picture of the maintenance and repair history of this vehicle. And of course, things have advanced immeasurably since then. First, some larger fleet owners started implementing and utilizing character-based, mainframe-based information systems. So they began to computerize some of the records on their fleet assets, but the data that was collected was really not very accessible. Starting in the late 1990s and really in the run-up to 2000, we saw a sea change in computerized fleet management information systems where a lot of fleet owners made a first-time purchase of a Windows-based or graphical user interface-based system, where they were replacing an older mainframe-based, character-based system. So that had a profound impact on the ability of fleet owners to actually start using computerized data to support decision-making, forecasting, planning, and so forth. So that trend continues. Now we're in the early stages of thinking about how artificial intelligence is going to transform fleet management. But so again, why do I refer to that as a storm front? Because there's a growing expectation in essentially all types of organizations, not just fleet management organizations, that business processes will be data-enabled, they'll be technology-enabled, and that we will get away from historical practices of making decisions based on subjective judgment, firsthand observation, personal relationships, and be more data-driven. And certainly, the technology is there that enables us to do that. But In many cases, organizations have invested in computer technology to support fleet management practices and lots of other areas of organizational endeavor, but they haven't invested in the training of people to actually turn raw data into actionable information. So that puts a lot of pressure on fleet professionals. Second major storm front or trend that helps explain what I call the perfect storm is advances in automotive technology. Okay, we all know that vehicles today are much more technologically complex, and in many respects they're, you know, more fragile than the ones that were being maintained and repaired and managed back in the 1980s when I started my career.

Funny you say that. I just saw a thing on— there was a— in Austin, Texas, they had a bunch of autonomous vehicles running around kind of willy-nilly causing traffic jams. So I'm thinking, okay, here we go, you know, talking about the fragility of fleet management here.

So yeah, and I think that's something that fleet owners are beginning to discover. I mean, you know, just if you think about the kinds of sensors that are now embedded in vehicles, you know, I read a story recently of, I don't think this was a fleet vehicle, it was probably a privately owned vehicle, but maybe it really tricked out pickup truck that, you know, was rear-ended and the cost of repairing it was in excess of $40,000 because of all the damage that was done to the sensors embedded in the rear of the truck, which is just mind-blowing to think about. So these advances in technology, again, put a lot of pressure on fleet owners, on fleet management professionals, not only to figure out what the costs of the technology are, to figure out how to continue to maintain and repair these assets. And in many cases, a lot of smaller fleet owners literally do not have the wherewithal to continue to perform the kinds of maintenance repair services on their own fleet assets that they were able to perform historically because they don't have the technology, they don't have the training budgets, they don't have access to technicians that really are versed in new technology. So that's the second trend. And then the third phenomenon, and the one that I think in ways is the most concerning, but but also has gotten the least amount of attention is workforce changes. You know, we are still in the midst of the retirement of the baby boom generation of fleet managers and fleet maintenance supervisors and fleet maintenance technicians. And, you know, these were individuals who had a wealth of practical knowledge that they had accumulated over, you know, several decades in the industry. And that's a huge loss. I refer to that part of the workforce change phenomenon as a brain drain. And it's not restricted to the world of fleet management. You know, the average age of HVAC technicians in the United States is almost 60 years of age. I mean, these are the people that we rely on to maintain our, our heating and cooling systems in both residential and commercial buildings throughout the country. So that's pretty scary when you think about that. You know, a lot of young people are not interested in skilled trades. Partly that's our own fault because as a country, we really pushed the benefits of a college education and for too long did not push high school students to consider technical training as opposed to a college education. And now, those chickens have really come home to roost.

It reminds me when I was in Chicago a few years back, we had an 82-year-old mechanic working on garbage trucks. It was just unbelievable. I mean, you'd think by that time, you know, somebody could retire, right? But it was such, there was such a shortage of technicians now. And we still see that phenomenon going on.

Yeah. Now, I mean, the, you know, the continuing advances in automotive technology are going to make that problem somewhat moot over time because even if you've got guys working in your shop with 30 or 40 years experience under their belts, they're not going to be able to continue to maintain and repair, you know, these new vehicles that are coming off the assembly lines these days.

You might have to You might appreciate—

Even if they don't have the technical expertise, they still have experience, incredibly valuable experience in working with vehicle operators and equipment operators, working with third-party service providers. And so while they may not know, you know, all of the ins and outs of the technology under the hood of a new Ford F-150, they certainly have a lot of experience dealing with Ford dealerships, working with third-party service providers, and make sure that they know how to get those trucks properly maintained and repaired.

Yeah, to your point, you might appreciate this. I just did a presentation for APWA out in PWX. And one part of that presentation, there was a— we were showing the Tesla robots that are coming out to become mechanics now. And that is right on the precipice. And Audi right now is actually using robots to diagnose and fix vehicles. So when you talk about the technician shortage, I mean, there is going to be some stopgap coming out here soon with the AI intelligence and all that kind of thing.

Well, I mean, there's no— and yeah, I mean, that's a good point. There's no question that a combination of robotics and AI will eventually transform vehicle maintenance and repair. But that's a huge transition for organizations that historically have assumed that their own employees could maintain and repair their fleet assets. And let's face it, a lot of fleet-owning organizations are not the best when it comes to buying goods and services, okay? Particularly in the public sector because of public procurement laws and regulations. You know, there is a lot of red tape involved in procuring services. And so, so while, you know, the— there may be a solution on the horizon to the technician or the technician brain drain, you know, there's still a price that comes with that solution. And that is organizations that historically have insourced a lot of fleet management activities are going to have to become much more skilled at outsourcing those asset management services.

Yep. Yep, you talked a little bit, I remember you saying, you know, the next recession is likely to exacerbate these challenges, you know, I think we're sitting here right now probably on the precipice of that recession. So talk a little bit about that.

Um, I think that, uh, right now from what I've read, you know, there is expect— an expectation that we probably have a recession next year. And you know what happens in a recession? Replacement budgets get cut.

Yeah.

Um, you know, uh, unfilled positions don't always get filled. And so there's always a pullback, and that just puts additional pressure on fleet management and fleet maintenance operations in particular. You know, another factor that you could really throw in there, or another, I guess, dimension of changes in automotive technology that we haven't talked about yet is electrification. I mean, I think that most fleet professionals would agree that the retail adoption of EVs is proceeding more rapidly. Than we expected. And of course, retail adoption always precedes fleet adoption. Okay? But shareholders, C-suite executives, elected officials start asking questions about, well, what are we doing in terms of electrification of our fleet? And I think that electrification is, it's kind of a mixed blessing or a double-edged sword. On the one thing, on the one hand, I think that the interest in or the enthusiasm for fleet electrification provides an opportunity for fleet professionals to highlight or bring to the attention of decision makers the kinds of challenges involved in managing a fleet of vehicles that they've never had before. I mean, there's just more of a spotlight on the world of fleet and all things fleet because of electrification than has probably ever occurred in the last century. That's the good part. The bad part is that I think there's some risk for some organizations of electrification sucking a lot of oxygen out of the air and a lot of money out of fleet budgets and really detracting attention from these other phenomena that I referred to. You know, the need for fleet management organizations to become more skilled in actually using computerized data for decision-making purposes. And dealing with the workforce changes.

It's certainly something. I mean, we just got back from the NCSFA conference this last week, and I would say electric vehicles dominated the discussion. Same with FleetCon last month. So it's definitely in the forefront right now. And, you know, I always worry that we're kind of moving very quickly and rapidly in that space without as much thought as we need to on the infrastructure and some of the intricacies of actually making this thing a doable solution. Sometimes we're moving a little bit faster than maybe we need to move. And I always appreciated what you used to say, electric vehicles are a great option, but they aren't the ubiquitous solution to everything. And there's other things that we need to be thinking about if we want to reduce our carbon footprint.

Yeah. Well, what's interesting when you think about this whole EV phenomenon is You know, I think it's fair to say that most fleet owners have never been all that adept at strategic planning. I mean, let's, I mean, let's be honest, it's— there are a lot of day-to-day demands involved in managing a fleet of vehicles, and they can easily consume all of the time and attention of fleet professionals. Makes it very hard to carve out time for any kind of strategic business planning or thinking about what the long-term ramifications are of adding a lot of electric vehicles to your fleet. So again, I think it's a mixed blessing for sure. Great for the environment. And, you know, certainly there are benefits in having more electric vehicles in the fleet, but they're not a panacea and they are going to bring their own set of longer-term challenges. And we are only beginning to understand what those challenges are. And so fleet electrification is just another element of the perfect storm that fleet professionals are going to have to be thinking about and thinking about the consequences and the costs of electrification for many years to come.

We're seeing right now with the UAW on strike, one of the big contentious points is electric vehicles. Right. Because it takes less people to make electric vehicles because of all the, you know, less components, less parts. And you can see where that contention has manifested itself in this strike that doesn't look like it's going to end anytime soon, at least without government intervention at this point. So it could be interesting to see where that takes us in the industry.

Yeah, I mean, I think in the long run, I mean, very good point, Steve. You know, electric vehicles are simpler to maintain. There's no question. You have a direct drive motor. It's much easier to maintain and repair over the long term than an internal combustion engine. And that should benefit fleet owners that are struggling with these workforce changes and with the retirement of skilled technicians and so forth. But the transition, you know, I think the transitional period is going to continue to be pretty stormy. And that transitional period is going to go on. I would think at least 10, maybe 15 years. And that's not the only— Replacing ICE vehicles with EVs is just one aspect of the continuing evolution of automotive technology. There's autonomous vehicles coming down the pike, autonomous vehicles beginning to be introduced into real-world applications as we speak. So there are a lot of unknowns. Fleet management is not going to get any easier. So I concluded I probably picked a good time to retire.

Yeah, I'm actually thinking that myself. One of the things that I've been noticing, and maybe it's just coincidental, I don't know, but last couple of engagements we've had consulting-wise, something simple like having a preventive maintenance checklist organizations aren't even using those, you know. And I'm sitting here going, well, how are you inspecting a vehicle to make sure it's safe? You know, that to me is a routine best practice. You know, I think back to our matrix that we used to have about 100 best practices, you know, and that's clearly one of those elements on that, you know. And we're having to educate people on, hey, you know, you need to have a checklist, whether it's digital or paperless or whatever. You need to be able to have some process for that mechanic to walk around that vehicle and ensure that it's being inspected properly. You know, and I think that goes back to the brain drain. You know, people are just omitting those kind of things.

I think that's part of it. But also I think that, you know, it's easy to say we need to have more training for fleet professionals, basically from apprentice mechanics on up. But it's not that simple. I mean, look, we know that there is advanced technical training from vehicle manufacturers. And there's lots of training resources for fleet managers. There's not a lot of training available for supervisors, for kind of mid-level maintenance professionals in particular. You know, the other thing that I discovered during my consulting career is it's all well and good to say, well, you know, you need to develop relationships with both tech schools, develop a pipeline of entry-level mechanics or apprentice mechanics. You need to develop an apprenticeship program for mechanics. The reality is if you actually talk with a lot of organizations that have tried to implement apprenticeship programs, I mean, think about it. In an apprenticeship program, who's doing the training? It's the journeymen technicians. Well, the apprentices basically end up being gophers. You know, they basically end up being laborers. They don't get a lot of true hands-on training in many cases because there's just so much pressure. Being placed on the maintenance organization by some of these other phenomena that we're talking about.

And you talk about, you know, we've talked about succession planning, but only really a handful of organizations have even been successful with that. Because I mean, for all intents and purposes, you got to have 2 people, right? And so their budgets, their staff budgets and all the, you know, the pressure and everything, they can't hire 2 people. So they find themselves in a dilemma.

So back to the point that I made earlier about, you know, the electrification, you know, creating the 15 minutes of fame opportunity for fleet professionals. I think that, you know, smart fleet managers recognize that there is much more interest in all things fleet because of the EV phenomenon. And they need to figure out how they can leverage that attention, that spotlight that's shining on the fleet operation to bring to management's, to bring to decision makers' attention some of these other challenges, the need for bigger training budgets, for example. The need for, you know, a more strategic approach to fleet replacement planning and fleet replacement budgeting. So if fleet professionals, fleet managers, senior fleet managers in particular, don't recognize that and take advantage of this opportunity to, you know, to really educate decision makers as to the whole panoply of challenges facing fleet management organizations, that would be a real shame, be a real missed opportunity.

One of the things that you've always been really keen to is, you know, how to rethink the conventional wisdom, you know, where we are and where we need to be. And I know I put together a list of some of those things that you had been proselyting out there, but things like, you know, repair versus replacement programs, things like that. You alluded to that a little bit earlier. You know, as we enter potentially a recession, you know, those things tend to go on the back burner. People start keeping vehicles longer, which becomes a real inherent problem, you know, in the fleet management industry. So talk a little bit about some of your thoughts on, you know, rethinking conventional wisdom, you know, along with this perfect storm.

Well, I mean, probably the most conventional wisdom is run them till the wheels fall off. And the funny thing is that that's one piece of conventional wisdom that we criticized for many, many years at Mercury Associates because there are a lot of hidden costs associated with running vehicles till the wheels fall off in terms of parts availability, in terms of downtime, in terms of lack of reliability. Ironically though, with this, you know, attempt that a lot of fleet owners are making to transition to more EVs, there's actually something to be said for trying to keep some older conventionally fueled vehicles in the fleet longer, assuming that you have the resources to continue to maintain and repair them properly. I mean, another piece of conventional wisdom, certainly, that's been prevalent in the public sector for as long as I was doing consulting is it's cheaper to buy vehicles outright with cash than to finance them either with debt or through leases. And, you know, one area, one aspect of fleet management on which I focused much of my career and which Mercury Associates devoted much of its consulting work was to debunking that notion that the most cost-effective way to acquire vehicles is to purchase them outright with cash. That's actually in most cases the least cost-effective way to acquire vehicles. You know, both debt and leasing allow you to pay for an asset incrementally as you're using it. It's kind of like a home mortgage allows you to have a roof over your head while you're buying the house. Right. I think it's safe to say that if most of us could only live in our own home, if we had to purchase it outright with cash, we'd have very different kinds of houses than the ones that we live in. So that same kind of—

We'd probably be living in a car.

Yeah. That really applies to fleets. And in fact, I could show you countless, both public sector and small commercial, family-owned business, family-owned companies that have fleets of vehicles where they felt that it was the most fiscally or financially prudent way to acquire vehicles was to buy them with cash. And what that does is it really distorts decision-making and you end up keeping a lot of vehicles and pieces of equipment in the fleet far beyond their economic service lives. And so, and I think that if there's one common element to, you know, these aspects of, conventional wisdom that I think it's important for people to recognize is that they're really not based on data. They're based on subjective judgment. They're based on supposition. And so, again, back to the point that I made at the outset of our conversation about advances in information technology. Today, organizations spend a huge amount of money to collect data on fleet assets, on the utilization of those assets, the maintenance and repair costs of the assets, on the performance of in-house workshops and workforces. But where they're not very good is figuring out how to turn those data into actionable information in areas such as repair versus replace or purchase outright versus finance versus lease. And that's, you know, that's one of those aspects of the perfect storm that fleet owners need to get there. You know, they need to address, continue to recognize this problem and address through more training of their employees in the use of data-based business processes and decision-making processes.

That's one of those things that we recognize all the time here at RTA, you know, because certainly we're a fleet management information system company at heart. And then we're also doing consulting. But if you go out to a lot of these places that we meet with, people like fleet analysts are just few and far between. I mean, really nobody leverages the data like they should. So you're making a really valid argument there. So how do we change that? What can we do?

Well, I think that, I mean, let's talk about probably a lot of RTA customers are smaller municipalities, for example. Yeah. In many cases, those municipalities may not even have a formal fleet management division, for example. Might be a group of people in the public works department that are managing all the public works vehicles and equipment in a municipality. Police department might be doing its own thing. Fire department might be doing something. I think one of the things that a lot of smaller fleet owners need to be cognizant of and be thinking about is How do we develop a kind of a central repository of data analysis capability and expertise within our organization rather than having the finance director with his analyst and the facilities manager having his or her analyst and the fleet manager maybe has no analysts at all? In some of your smaller client organizations, I would guess, Steve, that the closest thing to the fleet analyst is the fleet manager. So that fleet manager is buying vehicles, hiring and firing, dealing with third-party service providers, and also trying to make sense of the data that's captured in the RTA system. That's just not very realistic. So, which is all, all of which is kind of a long-winded way of saying that there are significant economies of scale associated with using a computerized fleet management system well. And small fleet owners can't really leverage those economies of scale. And so one of the things, you know, that we used to recommend that they explore is, is there a way to consolidate responsibility for data analysis across multiple departments within an organization or within a small company and have those analysts— so essentially the analysts have to be somewhat generalists, but be able to support both fleet-related decision-making, but also financial forecasting. And planning and infrastructure management and maybe HR and other things as well.

One of the things that we're seeing emerging, at least on our side, is fleet analysis as a service. You know, one of those things where we could actually leverage those, you know, in our fleet management information program and maybe provide that service to people that are subscribers of our SaaS program or our web program. So we're kind of moving down that direction because we see there's a gap there. So I know we're coming up to the end of the podcast, but I want any final thoughts on what you think we should be seeing out there, or any thoughts on the brain drain and all those things we talked about?

Well, you know, I think that the challenges that we've been talking about that I collectively refer to as the perfect storm, are not going to go away for a while. You know, we will have, you know, we'll have peaks, peaks and valleys in the economy. You know, recessions come along on average about every 6 or 7 years. So we know that there's going to be one, you know, in the not too distant future. So the pressure is not going to abate, you know, anytime soon. I think that the probably the if I could offer any words of wisdom to fleet managers that I've worked with for almost 40 years, it's You know, you have to remain vigilant. You need to pay attention, you know, to what you're hearing from industry associations, from service product and service providers like RTA. You need to take advantage of training opportunities when they come your way because, you know, these challenges are going to be very difficult to surmount and they certainly cannot, you know, I think that for the better part of a century, a lot of fleet owners could get away with kind of muddling through. Because there weren't significant changes in the vehicle technology itself. You can't muddle through anymore. Muddling through is no longer an option. It was an option 40 years ago. It was an option 30 years ago. It's not an option with the vehicles that are coming off assembly lines today. Muddling through just will not cut it. You're either going to figure out how to care for those assets using your own personnel, your own in-house shops, or you're going to have to become skilled at working with third-party service providers. But I think that's an unavoidable characteristic of fleet management today and for the foreseeable future. Maybe robots will eventually take over, but I think that'll be a while.

Great, great discussion. I know you and I could talk about this endlessly, but a couple of things to think about. We talked about succession programs and planning, mentorship programs, training programs. Certainly conferences, you know, and discussions, you know, partner— you could partner with a consultation team like even Paul and myself, you know, that have been around the industry and watched this phenomenon occur. And it's probably fair to say, you know, we put these podcasts together for exactly the Perfect Storm purpose so that we could continue to enlighten and educate those that are going to be immersed in this. And we wrote the Fleet Success Playbook, you know, certainly because of this, because the people that wrote that book are those that have been around for 40 years and have saw this phenomenon happen. So that pretty much wraps it up today. I really appreciate you, Paul, coming on. And thanks for having me.

Good to catch up with you.

It's been awesome, you know, and catch up with you. I'm so enthralled that you're enjoying your retirement and hopefully someday I'll be able to follow behind you.

So good luck with that. You just have to say yes.

I know my wife keeps telling me that too. So, so those of you that have any questions about today's information, don't hesitate to reach out to myself or our Fleet Success Show team. You can also send us your comments and suggestions and feedback at our social media site at Fleet Success or email us at podcast@rtafleet.com. And so if you have any opinions, please share them with us. And in the meantime, thanks for tuning in and we'll see you next time.