By Mike Antich
In the late 1930s and early 1940s, businesses started to migrate
from salesmen reimbursement to company-owned fleets. Since then, 10 milestones
have dramatically changed the nature of fleet.
1. Higher Content Fleet Vehicles:
In the early days of fleets, companies had a choice of three models: Ford,
Chevrolet, or Plymouth.
The typical fleet car was the standard model with minimal equipment. The
biggest selector deliberations were over the economies of installing a radio or
adding air conditioning for vehicles located below the Mason-Dixon
Line. The “Plain Jane” fleet car became a historical footnote as
OEMs bundled options into packages, allowed free-flow option ordering, and proved
that higher-content vehicles sold better in the resale market.
2. Creation of the Open-End
Lease: Early lessors offering full maintenance leases were R.A. Company,
established by David, Harry, and Nathan Robinson, and Four Wheels, founded by
Zollie Frank and Armund Schoen in 1938. Changing conditions in the 1950s led to
the development of open-end or finance leasing, which PHH offered in 1951. Fleets
wanted the ability to replace units after a 12-month period with off-balance
sheet reporting. In 1981, the Swift Dodge vs. IRS court decision legitimized
the use of the TRAC clause in an open-end lease.
3. Factory Ordering: Before
the advent of OEM fleet departments, companies purchased vehicles from individual
dealers. Use of dealer ordering codes by nondealers, such as fleet lessors,
allowed factory-direct orders. Another factory innovation was the introduction
of fleet previews to provide new-model specifications to facilitate vehicle
Deliveries: In the late 1940s, the concept of volume drop-shipping fleet
vehicles was developed. At that time, PHH factory-ordered vehicles delivered to
drivers by local dealers. Wheels and McCullagh (acquired by GE) started
delivering cars from regional dealers directly to drivers. Ultimately, it
became an accepted industry practice to pay a courtesy delivery fee to
non-ordering dealers to deliver and prep vehicles.
5. Creation of Fleet
Management Services and National Account Program: The first recorded
purchase of a fleet management program, other than leasing, was by Gibson Art
in 1946. Tire company national account billing started in the early 1950s. PHH
and Consolidated Service Corp. (acquired by LeasePlan) started selling tires
nationally using centralized billing. Other programs such as maintenance management
were not in great demand because gas was cheap and operating costs were manageable.
This gradually began to change in response to market demands and new fleet
services proliferated such as fuel management, accident management, and personal
6. Repeal of the ITC:
Prior to the Tax Reform Act of 1986, significant tax benefits prompted
companies such as Dart & Kraft, PepsiCo, and Xerox to acquire existing
fleet leasing companies. However, as a result of the repeal of the Investment
Tax Credit (ITC), many corporate entities sold off their fleet leasing business
units. Around this time, GE entered the market as a ready buyer and initiated a
series of rapid-fire acquisitions that coalesced the industry into 10 major
fleet management companies.
7. Outsourcing: In the
1980s, the trend to outsource non-core services swept Corporate America. In
1989, PHH created the first-ever total fleet management program with Eastman
Kodak. In-house fleet departments witnessed staff reductions as administrative
services were outsourced to third-party vendors. Outsourcing also changed the
skill set required of fleet managers. In the profession’s early years, most
fleet managers had a technical or automotive background. As these fleet managers
retired, a new generation of fleet managers emerged, whose backgrounds were financial,
administrative, or managerial.
8. OEM Incentive Programs:
In the early days of fleet, the standard fleet discount was a dealer-negotiated
10 percent off list. As competition grew, OEMs developed more complicated incentive
programs, such as guaranteed depreciation protection and rifle shot programs
offering tiered volume pricing. Also, OEMs introduced holdback for dealers,
which were often rebated to fleets. In the early 1980s, OEMs started
negotiating unique and substantial incentive programs directly with individual
end users. Prior to this, fleet programs were identical for all fleets.
9. Expanded Financing
Options: In the early years, financing was straightforward and sourced from
the manufacturers at Prime or Prime plus one. In the 1970s, financial choices
emerged such as fixed- versus floating-rate financing and commercial paper.
10. Computerization: The
fleet industry could not provide its breadth of services without computers.
Wheels and PHH installed their first IBM computers in 1959. In the 1990s, fleet
quickly shifted to Web-enabled services. Computers gave lessors the capability
to evolve into full-service fleet management companies.
Other Catalysts of Change
Besides these 10 milestones, many other changes transformed fleet such
as fuel management, the creation of NAFA, fleet safety requirements, accident
management, strategic sourcing, telematics services, and the regulatory
mandates of the Clean Air Act Amendments and the Energy Policy Act.
Let me know what you think.