Podcast 138: Tony's NAFA Recap

All right. Welcome back for another episode of the Fleet Success Show. I'm your host, Josh Turley, joined by my co-host, Tony Yankovich. How are you?

Doing great, Josh. Thanks.

Awesome. Hey, so here in the shop today, this week we're doing Spirit Week. That's the, the fun threads. Tony representing KC over here. That's right. Two-time Super Bowl champs. Right.

Three out of the last four years.

Yeah. Going for a three-peat this year, I think. Right. So, but you just got back from NAFSA last week. I know we just published an episode about that shortly ago. And I wanted to kind of get like, you know, from, from the show floor, right, from your eyes and ears. I wasn't able to go this year. Mark and I are going to talk about the EntreLeadership Summit that we were at just down the road in Dallas. But I would love to hear, you know, your perspective, how the show went, kind of like a recap for our listeners who couldn't attend.

Absolutely. Well, first of all, NAFU was in San Antonio this year and it coincided with Fiesta Week. Oh, son, Fiesta was an incredible time. Um, the, uh, the convention center is right there in the, in the heart of downtown San Antonio. So, uh, the Riverwalk was right there, and we got, got to experience the Riverwalk and a lot of good things that San Antonio has to offer. So it was a great location, a great venue. Um, I talked to a few of the NAFA folks, and they said they had record turnouts this year.

Cool.

So, uh, the, the most attendees that they've had in the past, like 2,100 people. Yeah, over 2,000. They were very excited about that. So it was a great turnout. The venue was nice. I actually did a presentation and educational session on Monday afternoon about replacing vehicles in the middle of the supply chain issues. So we had probably 125 people or so attended my session that afternoon.

That's awesome.

Yeah, it was a great turnout. So that was exciting. I'll go over some of the things that we talked about in that session in a minute. But then we also had a booth down on the exhibit floor and the exhibit floor was full. They had a ton of vendors and exhibitors and equipment. So there's a lot of stuff to do and see. We showed off our brand new booth. Yeah, it was fantastic. It was awesome. We had so many compliments on the new booth setup. It was just exciting and very proud to be an RTA employee when people were just enamored with our booth.

Yeah, I really like that new booth setup. Like, I haven't seen it in person yet. I've seen videos. I'm really excited about next week. We're going to Government Fleet Expo. Seeing it in person for the first time. And they heard it was awesome. I heard a lot of good feedback on it. So it was—

yeah, it was great. And we had so many people just come up. People came up and take pictures of it. Yeah, like, oh my gosh, we've never seen anything like this. This is fantastic.

What does that do for you as an employee when you're there and you see like your, your company is on a booth like that versus, you know, our normal setup is just a simple 10 by 10 pop-up frame?

Well, it makes you so proud. I mean, it makes you feel like you're truly part of something special. And our booth is special. The people that were working the booth, we had 7 RTA folks there from various teams, and it was great. We had great people, had a great booth, we had a great turnout. So many people came and visited us. Yeah, current clients, past clients, people that are looking to maybe get some consulting work, people that were thinking about changing fleet management information systems stopped by. The way the booth was set up, we had an opportunity to actually give live demos Yeah, in the booth we had some, some other demo loops going on at the same time. The other nice thing that we did is we actually did some mini educational sessions.

I heard about that. Yeah.

Yeah. So Fukundo and I, we actually set up there and, and had a couple of like 10 or 15 minute educational sessions where we talked on different things. And the first one that we talked on was the probably the top 6 KPIs that fleet managers should be looking at and tracking and reporting on. And so that was exciting. We had real good communication back and forth between the people that were there and us. And so that, that ended up, you know, running over about 10 minutes or so just because we were so engaged with them and they were— they kept asking questions. It was fantastic. And then when we weren't actually actively doing those presentations, those mini presentations, we had so many people come up and just take pictures of the slides that were up on the, on the TV.

So that— yeah, yeah. Well, cool. What were some of the, you know, as you're there on the show floor, what are you kind of hearing? What's the word on the street about, you know, either attendees, what were they saying about the event? What were they saying about Fleet in general? Just anything you were hearing out there on the floor?

Well, I think the first thing that we heard a lot about is, you know, so many people came up, hey, this is our first conference back after COVID.

Oh, wow.

So a lot of people are now having the opportunity to get back out and hit the conference, the trade show circuit again. So that was really exciting. So many people were saying, hey, this is my first conference since pre-COVID. Wow. So that was exciting. Uh, 5 years. Yeah, it's been a long time. Yeah, it's been a long time. And I talked to a few of the NAFA board members that came by, and they were so excited with the turnout. They're already looking forward to next year. They're already putting, putting stuff together. I think it's in Long Beach or something like that next year. I can't—

it sounded familiar. I'm trying to remember.

I, I should have looked that up. Um, but they're already looking forward to that. I mean, they had such a turnout, and they want to build on that. Uh, the, the people that were there with— for Fleet, they were really looking at, um, technical technology innovations. You know, they're looking at things that, uh, you know, resources are, are still tight, you know, and generally that is either with the, the actual assets, the vehicles and equipment, or with people. So they're looking to look at technology to help them, you know, augment that shortage of people in their offices.

Yeah, it's not a budget shortage, it's literally an availability, right?

Right.

People or availability of parts/vehicles, Exactly.

And great segue into my session. So generally what we talk about in Fleet Replacement Planning is we identify the economic theory of vehicle replacement. We talk about optimal replacement cycles and how to calculate those and what, you know, when should you be replacing those assets. But what the slant that I put on the session this year was more on, let's identify what those supply chain issues are. Why are we having this difficulty in replacing vehicles? And we talked a little bit about, you know, every OEM has their order cycle and production cycle. And typically in the past, you know, those are pretty standard and they're pretty fixed and they hit those targets. But over the last couple of years, I mean, the organizations or OEMs are flat out canceling orders. I did one of those show of hands at one point during the session. I said, how many people have had their orders delayed? And, you know, a lot of hands. Okay, now keep your hands up. How many orders were delayed by more than 6 months? Most of the hands stayed up. How many orders delayed more than a year? And you'd be surprised how many people have had orders delayed that long. And then the next question was, okay, how many have had orders canceled completely?

Yeah.

And it was amazing. I mean, about half the people that initially raised their hands kept their hands up. So people are flat out getting their orders canceled and they're not being able to replace vehicles.

Yeah. And so we started— well, all they do then is like they just keep rolling forward the order. And it's just they're stuck in this endless loop.

Absolutely. And that's what some of the people were talking to me about afterwards. It's like, this is a vicious cycle. How are we ever going to get out of it?

Yeah.

And I think one of the important things is to learn why are we in this, in this position. And so we talked a lot about the supply chain issues.

Yeah.

We talked about the impact that COVID had on just, just the, the stay-at-home orders and the production plant shutting down. And not only the OEM shutting down, but like the semiconductor chip production was shut down completely. And then the interesting thing was the shift from the demand on semiconductors from automobile industry to actually to home electronics and consumer products. So everyone's working from home while the kids are going to school from home.

Now there's a huge need for cell phones and tablets and laptops, webcams and microphones and like cameras. It's crazy. Yeah.

Absolutely. And it was crazy because a state, you know, and again, these are just some round numbers, but a, a standard vehicle today at the minimum requires about 200 semiconductor chips. And then if you have a little more, um, you know, luxury car and it has a little more bells and whistles, you have infotainment, you have a navigation system, we can get up to about 1,000 semiconductor chips that are required for the production of a vehicle. Yeah, which is a ton. And then you look at electric vehicles, they're requiring somewhere between 2,000 and 4,000 semiconductor chips in a vehicle. Yeah. So it's crazy.

And so now we've got this little perfect world, right, of we've got this increase in EV demand and an increase that puts an increased, you know, supply chain load on the demand for semiconductors because it requires, you know, 4 to 5 times as much as just a standard vehicle. It's interesting, though, is that fleet vehicles are the ones getting canceled when they typically order the ones with the fewest bells and whistles, right?

Exactly.

Um, then that should be the one, you know, you figure like that's your most reliable repeat buyer. A consumer isn't necessarily going to have that same type of brand loyalty, but, um, you walk around any dealership lot and where's the focus? It's on consumer-driven, you know, the vehicles, right? Consumer-grade vehicles anyways. Uh, but it's, it's been interesting to see that shift a little bit And I think to what happened, everybody started working from home, everybody started saving money. The economy just got flush with cash, right? If you remember through like the PPP loans and the, you know, the EBITDA loans and all that stuff, the ERTC loans, it was nuts. There was just so much money in the economy that no wonder everybody just had, you know, spare cash to you either were buying houses or buying cars, right? Or you're buying this brand new TV or something. Yeah, it just put an absolute crush on the supply chain. It wasn't ready for the demand. It did. It's funny though, it's like we still haven't recovered from that.

No, and part of the reason is because that shift in consumer demand for the semiconductor chips. Yeah. And the other thing that has happened now is, um, so the OEMs and a lot of, you know, uh, companies that produce things, um, they, they were really in, in step with just-in-time ordering.

Yeah.

So I mean, they did not want those shipments of semiconductor or components or parts to arrive until they were going to go and be assembled on that vehicle coming down the assembly line today. And then the OEMs have done a great job of doing that. Then the supply chain issues hit, the semiconductor shortage hit. And so now what they've done is because they don't want to— so at one point, the Wentzville, Missouri, GM plant had 30,000 Silverados sitting in the lot with what they called build chai. So they built them everything they could do until they couldn't build anymore. So they were just parked. So they would do that. And now what they want to do, because they couldn't get the semiconductor chips to complete the build, now what they're doing is they're actually stockpiling. So OEMs and all these other production companies, now they're stockpiling semiconductor chips. And that, you know, it—

this is a masterclass in supply chain management.

Oh my God.

So I went to school, gosh, this has been 12, 13 years ago, right? But in my supply chain class, we literally talked about the effects of just-in-time inventory and how awesome it is when it's efficient. But then when there's a shortage and an event, right, a black swan event, then all of a sudden you get this bullwhip effect, right? And you guys know how a bullwhip works, as you know, like it trails behind the, you know, the leading hand and then it snaps and it goes way further, way faster, and it gets out of control. And that's what we're seeing is that people have a bullwhip tendency to, oh, I've got a shortage. What's my natural tendency? Stock up. Stockpile.

That's right.

We saw it with the toilet paper shortage, right? But now this is just happening at a corporate scale for GM, which is like, this is way bigger than hoarding toilet paper. This is, you know, like now we're stockpiling semiconductor chips. What's crazy about that is that those end up going obsolete and now you've just got a surplus of chips that can't be used.

Right.

And you're trying to figure out, okay, how do we leverage these, right? And make sure that we're still using them so we're not totally losing our shorts on this investment because all they do— that's a gamble, that's really what you're doing. Exactly.

And you know, one of the other things we talked about is how we truly are a global economy now.

Yeah.

And, and what happens in other parts of the world really does impact what we're doing. And so we talked about some of the political issues and some of the wars and, and conflicts that are going on.

Yeah, like the trade, like the trades between us and China right now is just— it's a mess.

Absolutely.

It's a diplomatic mess.

And so, exactly. And then, you know, we talked a little bit about natural disasters and I mean, literally a month ago there was the 7.4 magnitude earthquake in Taiwan.

Oh yeah.

And how does that impact the automotive industry? Well, 60% of all semiconductors are manufactured in Taiwan, and 90% of all the advanced semiconductors are manufactured in Taiwan. Oh man, the leading semiconductor chip producer in the world is in Taiwan. They lost—

TSMC, right?

Yes, exactly.

Taiwan Semiconductor Company. Yeah.

Um, they lost 30% capacity of production immediately following the earthquake. So I, you know, one of the things that I kept stressing to people is we are not going to go back to normal. Yeah. Um, you know, this is going to be the new normal where you're going to have to adapt, you're going to have to be flexible. Um, you know, and I feel, um, I, I feel bad for some of the government clients because they are so strict when it comes to procurement and budgeting. And can we encumber the funds? And you have to be able to be flexible. You know, we're working with the university client right now and Thank goodness that they have some flexibility. And so when their dealer that they've been working with, um, most recently, uh, they had a few extra vehicles come in and they— the guys, like, he called up the university and said, listen, I know you, you aren't looking to buy anything right now, but I've got 5 of them that just showed up. I'll give you first crack at them. Yeah. And they went to the dean of finance and said, listen, here's the deal. And, you know, finance signed off on it, said, go get them. Yeah, you have to have that flexibility nowadays.

What'll end up happening then as a side effect, right?

We'll—

and we'll be talking about this in a year or is because of that, like, now you have a very non-standardized fleet, right? So you're gonna end up with more parts inventory just to cover more, you know. And so it's just downstream effects of this. We're going to be studying this for years, you know. Forget the, the political, sociological aspects of the pandemic. The supply chain is going to be a case study taught for generations, right? Like, just how this all trickled and how it really is a global economy now.

It really is. And it, you know, the new normal is going to be, I don't know what to do. Yeah, you know, the, uh, the fleet manager is going to have to wear another hat, and that logistics expert hat. And, um, it's, it's really a struggle to be a fleet professional nowadays.

Yeah. Well, I mean, the good news is I have a theory, is that if you do extend out your Optimum Replacement Lifecycle, as long as those maintenance costs are still cheaper than year one of buying the vehicle, you're still doing okay. So, you know, if you do have to extend out a year or two, maybe even three, you know, you're gonna be creeping up your probability of a chaotic repair, right? Or a— I wouldn't know what the word is, but, um, a critical repair goes up. But in between then, you still have some window. Just don't let it turn into 10 years, 15 years, because I've seen some of those vehicles in our system, right? The 20-year, you know, Ford vans that are still running around. We still got Crown Vics in the system, right? By the way, that's our most popular vehicle that people track today. Uh, it was still running strong, good old Crown Vics. I heard from somebody else that was on the show floor, it seemed like EVs were all the talk of the trade show circuit. Like the most of the sessions all circled back to EV and the general census was like, enough of EV already, right? Like, you know, keep this out, please.

Exactly. I mean, you know, there were a ton of EV vehicles. In fact, Tesla had one of their pickup trucks on the exhibit.

Oh, nice.

Which was kind of cool.

It is cool looking.

That was neat. We had, you know, right across from our booth, there was another electric vehicle canoe, I think is what it was called. Those are cool though. Those are really cool looking. So that kind of stuff is really exciting. But on the educational sessions, you know, again, I didn't count them up, but I bet more than half of the educational sessions, each education block was centered on some type of EV topic.

Well, and I know from the last 3 years, you know, going through the sessions, I felt that shift where like, okay, there's a whole track on EV, perfect. But then what ended up happening is even if you were in a class that was talking about EV, invariably all the discussion would push you to EV, and it was— every session ended up becoming an EV session just by the discussion, right? Absolutely. It doesn't seem like that's stopping anytime soon. So if you're hoping to go to a show and learn something different, hold your breath a little bit, you know, and you'll get something out of Tony's, but I'm sure somebody brought up EVs during— right?

Yeah, absolutely. Yeah, we talked about that, um, one of the school districts that we've been doing some work with recently They had committed 100% to EV school buses.

Yeah.

And year, year 1 went great as scheduled. Year 2 went good as scheduled. Year 3, they got— they were shorted a few, but this year they can't get any. Zero. Zero electric school buses are available from their provider. And so now they're going back to diesel school buses just because they have to.

They got no choice.

Yeah, they have to replace them. I mean, it's a state mandate that they're supposed to replace them at 12 years. And you can get 1 or maybe 2-year extensions, but they have to replace them. Yeah.

The good news is, as long as you're not in California, right, or say that's signed on to CARB or ACF, if you do diesel, you can get other alternative diesels, right? You can get renewable diesel. You can find other sustainable means of fueling that vehicle even though it is conventionally fueled. If that's something that, you know, you have somebody that's really pushing for sustainability, green, all that, there are options for that.

Absolutely. One of the things that, you know, Mark, Mark, and that works with us, obviously he's a big proponent of it. And we do a lot of analysis that show people that just by renewing your fleet and getting newer models in the fleet, even if they're gasoline, even if they're diesel, you're going to have increased fuel efficiency, you're going to have reduced greenhouse gas emissions. So you are doing something even if you're not buying EV or hybrid vehicles.

Cool. Well, you know, thanks for going out and hitting the trade show circuit for us. Absolutely. You know, it's obviously awesome to have you out there as an ambassador for the company. If I remember right, you're speaking next week as well.

No, not next week. I'm at FleetCon in the fall.

That's right. Okay.

But I'm not— I will not be at GFX this year.

That's right. Mark Facundo and I are speaking. We've got our after session. So if you're going to be at GFX by the time you hear this episode, you know, I'd love to see you guys stop by the booth and stick around for our after session after the event. We'll be talking about fleet success, some of these things with fleet replacement, and then, you know, doing a little show and tell of what's new at RTA. Because it's exciting times. So with that, we'll, we'll sign off. And until next time.

Great.

Thanks.