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The Little-Known Origin of Total Fleet Management

April 8, 2016, by Mike Antich - Also by this author

"Total fleet management” is a generic, shorthand term used to refer to programs offered by fleet management companies (FMCs) that administer all aspects of a client company’s fleet operations. Today, almost all FMCs offer variations of total fleet management programs branded under various go-to-market proprietary names.

Have you ever wondered about the origin of this concept? You might be surprised to learn that IBM was one of the initial catalysts leading to the development of today’s total fleet management programs. This might surprise some in the fleet industry, because for the longest time, IBM has been the poster child of driver reimbursement. Although IBM operates a service fleet, it has never been a strong proponent of company-provided vehicles. If you’re fan of radio, you may have listened to the legendary Paul Harvey, who produced a popular program called “The Rest of the Story.” In keeping with this theme, I would like to provide “the rest of the story” about the genesis of total fleet management.

Kodak Develops a ‘Shoe Allowance’

In the early 1980s, IBM had approximately 30,000 salespeople around the country covered under the Runzheimer driver reimbursement program. “It was a huge number,” remembered Jim Rallo, retired senior vice president of PHH. “IBM also had a large number of service vehicles, of which, PHH (now Element Fleet Management) had a tiny piece of under 200 vehicles.” At that time, IBM was organized into seven operating groups, ranging from computers, to copiers, to Selectric typewriters; all of which used driver reimbursement.

In 1982, the IBM corporate office in New York called PHH to say it had created a committee to investigate whether it should continue with a reimbursement program for its drivers or institute a company-provided car program. The fact that IBM even decided to study the merits of company-provided cars was a significant milestone in the fleet industry.

Because of its pre-existing relationship in managing some of IBM’s service vehicles and PHH’s ongoing sales overtures, it was the only fleet management company invited to participate in this study and Rallo was named to represent PHH. The other outside company participating on the IBM committee was Runzheimer, the incumbent driver reimbursement program administrator.

The IBM corporate office assembled a 14-person committee, comprised of representatives from each of the operating companies. “It was a very unique process,” said Rallo. “The members of the committee were selected to be equally divided – those in favor of a company-provided vehicles and those favoring a continuation of the driver reimbursement program. A key ground rule for the IBM committee was that whatever decision was reached, it had to be unanimous.”

Both Runzheimer and PHH provided industry information requested by the committee. One of the studies PHH developed for the IBM committee was a lease versus own model and a company-owned versus employee-owned model, which were certified by Peat Marwick, which today is KPMG. IBM had two major concerns about the study: It possessed no in-house fleet management expertise and, second, it was opposed to the idea of PHH assisting it in creating an in-house fleet department. Instead, IBM asked if PHH would be willing to manage its fleet administration behind the scenes. “When drivers would call, IBM wanted PHH to answer the phone as the IBM Fleet Department,” said Rallo. “IBM wanted us to be their fleet department, but they would set policy. In the past, PHH provided the services, but now our relationship with IBM expanded to provide the administration. This was a revolutionary proposal.”

There was one caveat, however. PHH told IBM that its driver reimbursement could not be completely eliminated, since many of its employees were very low-mileage drivers. “These employees would simply drive downtown, park their car, and ride elevators to clients all day long. For these IBM employees, we developed a ‘shoe allowance,’ ” said Rallo. The concept of a shoe allowance was borrowed from Kodak, another early PHH client. “Many Kodak field employees serviced copiers in downtown metro areas that didn’t require much driving, but a lot of walking. A shoe allowance was literally an allowance that paid employees for the wear and tear of their shoes. IBM thought it was a fantastic idea,” added Rallo. “In 1984, IBM reorganized and in the process of the reorganization, the proposal to outsource fleet management was put on hold.” But this did not deter the spread of total fleet management programs throughout the fleet industry.

The Expansion of Total Fleet Management

Around this time other early manifestations of total fleet management were occurring elsewhere in the fleet industry with the placement of several fleet managers on FMCs’ payrolls to manage client fleets.

The first fleet manager hired in this capacity was Pierce Walsh, who ultimately became an AF Fleet Hall of Fame inductee. In 1982, Walsh was hired by GELCO (at the time, the nation’s largest lessor) to fill a fleet manager position it created for IC Industries, one of its clients. GELCO convinced IC Industries that it needed a director of fleet management (Walsh) to gain control over the company’s fragmented fleet, which was divided between six divisions. After the first year on the job as a contracted supplier, IC Industries hired Walsh as a full-time employee. The following year, in 1986, Walsh was named AF Professional Fleet Manager of the Year for IC Industries.

The next manifestation of total fleet management occurred in 1985 when GELCO started a fleet administration program implementing a request by Avon and later Mallinckrodt, which at the time (but no longer) was a wholly owned subsidiary of Avon.

The first best-known total fleet management program was with Eastman Kodak, then the oldest client of PHH. After being solicited by another FMC with a total fleet management program, the Kodak procurement department approached PHH, as the incumbent supplier, to establish a separate dedicated resource team. “Not everyone within PHH thought the Kodak propsoal would be successful or even appropriate. It required selling the concept internally at PHH,” said Rallo. Under the agreement, reached in 1986. Kodak outsourced its fleet department to be administered from PHH’s headquarters. The process was designed to be transparent to Kodak drivers. When they would call for fleet assistance, they would reach a PHH employee, who answered the phone as “Kodak Fleet Department.”

In the ensuing decades, total fleet management proliferated and FMCs expanded their hiring professional fleet managers to manage client outsourced fleets.

In summary, and in tribute to Paul Harvey’s signature closing of each radio program, “Now you know the rest of the story.”

Let me know what you think.

[email protected]

Comments

  1. 1. Chris Hill [ April 11, 2016 @ 12:16PM ]

    Kodak's neighbor in Rochester NY, Xerox Corporation administered a very large car fleet under the well-known fleet manager Ron Pink. In Canada, it outsourced fleet management to a large FMC which I joined in 1993 to manage. I had just outsourced Honeywell Canada's fleet management to PHH and left to become Director, Total Fleet Management with Xerox Canada's 1,600 vehicles as my largest account.

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Mike Antich

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Mike has covered fleet management and remarketing for more than 20 years and entered the Fleet Hall of Fame in 2010.

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