The Car and Truck Fleet and Leasing Management Magazine

Why GE Purchases PHH Corp.

May 2007, by Mike Antich - Also by this author

GE Capital Solutions has entered into a definitive agreement to acquire PHH Corp. in an all-cash transaction valued at approximately $1.8 billion. PHH Corp. is comprised of the fleet management company PHH Arval and PHH Mortgage, a retail originator and servicer of residential mortgages in the U.S.

In conjunction with this transaction, GE has entered into an agreement to sell PHH Mortgage to an affiliate of The Blackstone Group, a global private investment and advisory firm, immediately after closing.

GE Capital Solutions will retain PHH Arval and merge it into its leasing, financing, and asset management business. PHH Arval has approximately $5 billion in assets. It is forecast that GE Fleet Services will increase its new-vehicle acquisitions to approximately 200,000 units annually.

To learn more about the acquisition, Automotive Fleet spoke with Bob Mitchell, president and CEO of GE Capital Solutions Fleet Services.

AF: Why did GE Capital Solutions buy PHH Corp.?Mitchell: There’s been a desire to put these two companies together for a long time. The two companies are a great fit in terms of how they think about process improvements and look at innovation, especially in technology, to help their customers be more effective in lowering fleet costs. In customer service, both teams do a very nice job and are very focused on the customer experience. Both have great people helping their customers save money using an integrated fleet management approach.

That’s what they have in common from a cultural standpoint. When I look at PHH,what stands out, and what my team thinks is important, is that they do a very nice job of strategic consulting and have good service offerings. They are passionate about their customer base and have long-standing relationships with them.

GE has similar attributes, but also a very important focus on process improvement, technology investments, asset management,and financing. When you take the best of both, put them together, you’ll end up with a really fantastic offering to customers that operate fleets.

AF: How do you see the combined portfolio of funded and managed vehicles fitting into the overall marketplace?

Mitchell:We face a lot of competition for the different elements of customer needs. Businesses can pick and choose from numerous providers including banks, dealers, national, regional, and local fleet providers, as well as maintenance, fuel, and reimbursement services providers. And if you look at an emerging service such as telematics, you see a host of companies entering that space. We believe we have a small presence in a marketplace that is poised to get much bigger. The demand for fleet management resources will grow as more companies seek specialized expertise, and more competitors will respond as they see opportunities to add value, particularlyon the technology front.

AF: Do you envision the PHH senior management being integrated in the GE Fleet Services organization?

Mitchell: Absolutely. There is a lot of good talent in that organization. We’re going to figure out the best of both and put that together.

AF: When the acquisition is consummated will the PHH brand cease toexist?

Mitchell: It’s too early to tell. There will be a lot of analysis between now and the closing of the transaction. It’s too prematureto think about that.

AF: Your announcement of the acquisition stated PHH activities and assets will be integrated into GE. How long do you anticipate this integration period lasting?

Mitchell: We’ll put together a plan that will probably take us out several years after the transaction closes. The end game is very simple. It’s to take the best of both of these companies and theirteams and create a better opportunity for our customers than we have today.

AF: What are your strategies to expand penetration into the served and nonserved fleet management segment?

Mitchell: Today, there are so many new opportunities and entries into the marketplace from the standpoint of analytics and the whole “green” movement for those companies that have declared they aregoing to be responsible for their carbon emissions. We will help these companies investigate different alternatives and types of vehicles to achieve their goals.

There are great opportunities on both of those fronts that, quite frankly, I think are new.

The traditional way of how we’ve looked at the fleet industry and market opportunities will dramatically change. The industry will get much larger.

AF: When the two teams get together to determine how best to merge the two companies, will everything be on the table? Would you be willing to adopt and implement certain PHH fleet management systems or programs to GE’s operations?

Mitchell: Yes. The benefit here is that you have two great long-standing companies that have both focused on trying to help customers. They have done that through process innovation, technology,and customer service approaches. We are going to take the best of both and use that to benefit our customers. Both PHH and GE customers will benefit.

AF: PHH currently uses PHH InterActive as its Web-enabled fleet management system. GE Fleet Services has its own Internet-enabled fleet management system. How do you intend to handle the transition between these two fleet management systems?

Mitchell: What we are going to have to determine is, first of all, what are the best attributes of both of those systems. If there is a way to provide the best of both in a cost-effective way, we’ll dothat. Time is on our side; there is no imperative to move customers from one to the other. We’ll figure that out as time goes on. Our intention is to give customers the best of the two.

AF: How will this acquisition affect the industry?

Mitchell: Again, we see a lot of benefits to customers and a very competitive marketplace. When you look at the industry today, especially with the areas that will grow the business, such as analytics and the eco area, there are going to be new entrants. As we go after those opportunities, this industry is going to get bigger, not smaller. We are passionate about the industry. This is a great opportunity for two really awesome companies to come together totake the best of their offerings, both in people, innovation, process improvement, and technology, and put them to work for both companies’ customers. We want to give our customers the best opportunity for anintegrated fleet management system, save them as much money as we can, and, if they desire to do so, help them move to a “green” fleet. We want to create a bigger market than there is today.

AF: PHH also operates another business unit called PHH First Fleet, a truck fleet leasing and management company. It operates as a separate entity in Florida. Do you envision that continuing?

Mitchell: We’ve had historical success in small and medium trucks. This organization is very complementary to that. I see opportunities for growth.

AF: Do you envision the PHH Arval offices at its current headquarters in Sparks, Md., continuing as a standalone entity within GE Fleet Services?<>

AF: Will the Canadian portfolio of PHH Arval also be merged into GEFleet Services?

Mitchell: What we do in the U.S. will be the same, or similar, to our approach in Canada.

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