[originally published in January 1971] Baltimore is an interesting and engaging city. A fascinating blend of conservative traditionalism and freewheeling modernism, it offers vistas of quaint raw-house and luxurious in-town estates, a moody harbour in which the frigate, Constellation, rests as a structural rebirth, and a population that tempers its shrewd business acumen with the graces of a gentility and charm that seem part of a bygone era.
But more importantly, for the fleet industry, Baltimore is the home of Peterson Howell & Heather, the world's the world's largest fleet management and leasing company. Of course, PHH is a great deal more than that, and attempts to characterize it have often failed. As John S. Lalley that we are in a fascinating multifaceted business that is extremely difficult to describe accurately or adequately in a few words..."
In honor of the 25th Anniversary of the founding of this world-renowned industry leader, AF has decided to expend more than just a few words to get to the heart of the PHH story to discover just what it is, how it got that way, and where it is headed. Our focus will be primarily on the Car Plan Division of this congeneric giant; but taking the lead from PHH's own philosophy that stresses the "man" in management, we will zero-in with finer tunings on the men responsible for the company's outstanding success.
It was back in January, 1946 that Harley W. Howell wired Duane L. Peterson and Richard M. Heather, "Have decided to join you and Dick in Baltimore... Plans look good. See no reason why we shouldn't enjoy success and a pleasant business association." Just three days later the partnership name that means so much to the fleet industry today was agreed upon and a new company was born. The idea for the company itself was the brainchild primarily of Peterson. He had formerly enjoyed a corporate position with Butler Bros. In Chicago and had just recently in Baltimore shortly thereafter as a business consultant. While engaged in this pursuit, he came up with the idea of a management plan for large automobile fleet users.
Both Howell and Heather had been associates of Peterson at Butler Bros. Possessing a deep dedication to sound business principles and confident of their ability the three men quickly moved to establish their partnership. Shortly after, they were joined by Dale F. Spencer, another former Butler Bros. employed who was just out of the Air Corps and who had such faith in the new company and its leadership that he worked without pay for some time.
Since there was a shortage of cars just after World War II, the new company concentrated on developing a car management plan for fleet users. Yet as early as June, 1946 they were holding talks with Chrysler, Ford, and General Motors in Detroit so that they would be prepared for expanding into leasing operations once cars became more readily available. Meanwhile, they had moved to larger quarters and signed their first management contract for the small fleet of the Gibson Art Company. Shortly afterwards, they were also able to convince Johnson & Johnson of the value of their new service, and signed them up as a customer.
After that, the company seemed to soar to the top. Though its top management was committed to a "long-haul" rather than a "fast-buck" business philosophy, their idea caught on like wild-fire. Soon they had made the necessary arrangements with large financial institutions and backers and entered the actual leasing end of the car management plan that Howell had evolved. But it was all three partners, according to the management of PHH today, who developed the idea of the finance lease that soon became a byword in the fleet industry.
During the next ten years, PHH began branching out into other areas of transportation management and leasing. In 1951, truck leasing was added to the services offered. By 1953 the company had arranged with Hawkins-Shanahan Co. a discount plan for PHH customers whereby they could purchase tires on a discount plan for their fleet cars. A year later, having outgrown their original quarters, PHH moved into the newly constructed two-story building and in 1963 into the six-story structure that now houses the company on historic Charles St. In the mid-fifties data processing equipment was installed for tabulating and statistical services; the first aircraft ease was signed with Marshall-Wells; and the PHH Dealer Lease Plan was offered to fleet-minded dealers.
MAJOR TURNING POINTS
Major turning points in the development of the company occurred in 1952 when PHH extended their operations into Canada; in 1866 when the company purchased the Hawkins Co. (in order to handle simple maintenance services and glass and tire replacement at a discount); in 1969 when it purchased National Truckers Service (a type of credit card system that allows PHH customers to purchase diesel fuel and related supplies through certain member truck stops throughout the country); in 1968 when the wholly-owned finance subsidiary, PHH Funding, was established; and in the late Sixties, when they first offered the sight-draft reimbursement plan for drivers of PHH customers and the PACE control program which and travel-related costs (in addition to those that are auto-related).
At the present time, the energetic young company is guided by a group of men who match the company image in vigor and youthfulness. Led by John Lalley who became president in 1966, the average age of the senior management team of the company is a surprisingly low 45.
Lalley, who joined the company in 1952, had previously been with the Civic Bureau of the Baltimore Association of Commerce and the Maryland division of the American Cancer Society, where he had been Regional director.
"It seems like an unlikely background for someone who would eventually become involved in this business;" Lalley advised AF in his office in Baltimore, "but while doing work with the American Cancer Society I came in contact with Duane Peterson who convinced me there was a big future at PHH."
Subsequent events for both PHH and Lalley proved that Peterson had been right. Digging in at his new position under Peterson, Lalley soon developed the Account Manager concept of the company's car plan which soon became a PHH hallmark and was widely imitated in the industry. And at the same time he completed his Law degree begun earlier at the University of Maryland.
Under this plan a PHH employee is permanently assigned to an account as a client's representative. Working in liaison with the client's fleet manger and other management figures, it is his job to personally handle all complaints, to know as much about the client's business and fleet as possible in order to constantly upgrade the client's Car Plan; to conduct regular seminars for the client in order to keep him abreast of latest fleet and leasing trends, and to act as a go-between when warranty or similar problems arise between the client and the auto manufacturers.
Although Peterson has since passed on, Harley W. Howell serves as a company director, and Richard M. Heather remains active as Chairman of the Board. From this position he continues to direct the destiny of the company, overseeing its latest developments, Checking its proposed evolution against the original concepts of the company when he helped found it.
Under Heather and Lalley are a group of dedicated and knowledgeable Senior Vice Presidents, each in charge of one particular division of the company. W.C (Bud) Fraser heads the Car Division; W.E. Webster is in charge of Group One operations (tuck leasing, special leasing, Hawkins Division, and National Truckers Service); W.B. Hendrix supervises the legal, title and tax, contract administration, and general services duties of Group II; W.H. Hill heads the Finance Group; Dale F. Spencer (no longer working for nothing as in the first days of his employment) is responsible for public relations and building administration; and J.G. Geckle heads the important planning and development group.
Though the current home office on Charles St. is only 7 years old, PHH is already straining its facilities due to its ever-mushrooming activities. Built specifically for the company, the modern concrete and glass structure features a two-story entrance lobby; self-contained, sheltered parking for employees; and elegant modern appointments throughout.
Currently housing almost 350 employees, its days may be numbered as the corporate home of the expanding giant.
As a PHH spokesman told AF, during its recent visit to the imposing structure, "It seems impossible, but we've already outgrown the building-and we're going to have to do something about it in the near-future."
While there, AF also asked why PHH had never established any branch offices. Of those questioned on this score, perhaps the best answer came from President Lalley.
"We're committed to the idea of centralized control," he advised. "All statistical information, all or management expertise is concentrated at this one location. Consequently, it seems foolish and wasteful to have a man permanently located at some far-flung location, who would only have to be calling back to us for the information he needed to service his accounts."
CAR PLAN DIVISION
But President Lalley isn't the only member of the PHH team that can come up with decisive and knowledgeable answers. Take for example the ones we obtain from "Bud" Fraser, who heads the Car Plan forces.
Responsible for the needs of over 700 clients (127 of which are among the top U.S. companies) Fraser's division is responsible for the 50-thousand cars purchased and 35-thousand traded through the fifty states and Puerto Rico.
But as Fraser is quick to point out when quoting these impressive figures, PHH is not committed to leasing as the only solution to a fleet user's needs.
"For some companies, leasing may not be the answer for one reason or another." He advised. "This can only be established after we have conducted on in-depth study of the client's needs. You see, we are really interested in the concept of providing a management service for the client. That may incorporate leasing; but it may mean merely a management control system with client-owned cars."
Among other things, we asked Fraser what makes the PHH Car Plan unique in its field. According to him, this answer can be found in several areas that the company has originated and developed. First, there is the fact that PHH is an independent company with no ties to any individual supplier. This means that the company can suggest strictly unbiased alternatives for a client.
"You see, we're interested in selling a service, not cars," was the way Fraser put it to AF.
Second, Fraser mentioned the concept of the Account Manager which has been developed to a high degree at PHH. According to him, these men become so deeply immersed in their specific client's operations and needs that they can provide an immense service to the client.
Third, due to the size of PHH, the company has a great deal of influence on the auto manufacturers. This aids the customer not only in terms of warranty claims and product disputes, but also with respect to delivery and service. In fact, both Ford and General Motors have full-time employees based in the PHH headquarters to see that everything runs smooth;
Fourth, there is the PHH dealer plan which aids in delivery, service, and top resale value. As an adjunct to the matter of their dealer plan, we also queried Fraser on the subject of subsidies. He advised that PHH has always been against subsidies, and that the PHH concept in terms of obtaining best results for fleet buying is to establish a strong, independent network of supplying dealers.
Last, Fraser mentioned the vast resources of PHH statistical data that each client has at his disposal.
"After being in this business for 25 years," Fraser commented, "we've gathered a great deal of information on the fleet car. Most of this is now in our computer bank, which the client can tie into and utilize to his best advantage."
Focusing on the information contained in the company's computers, AF asked for the present composition of the PHH fleet, industry trends with respect to models, the question of driver-buy-back, methods used for used car disposal, and what percentage of clients leased and what percentage owned their own cars.
Fraser advised that 85 per cent of their clients are leasing cars, while 15 percent (who are not bothered with cash flow problems) own their own vehicles. With respect to models, the PHH fleet for 1970 was composed of an insignificant number of compacts, 4.4 per cent intermediates and 89.4 per cent standards. They see a significant trend toward the intermediate models (which they recommended this year to their clients) so that these may comprise up to 25 percent of their fleet by next year. On the other hand, they do not see any significant trend toward the compact, which they feel is not suitable for the typical salesman driver of their clients.
With respect to driver buy-back and other driver-oriented practices, Fraser advised that although some problems are encountered when drivers are allowed to purchase their leased cars at disposal time (especially, in terms of over-maintenance), PHH is in favor of the idea. Further, he stressed that since PHH feels that the key to successful cost control of fleets rests with the man in the driver's seat, they are committed to the concept of driver-selection of the make of car he will be using.
"If you force a particular make of car on a driver," Fraser advised, "the chances are he will go out of his way to prove that it is a bad piece of machinery."
When it came to discussing used car disposal, Fraser turned us over to his assistant, Harry F. Quinn, vice president in charge of buying services. With Quinn we also discussed such things as PHH's dealer program, prepping, reconditioning, and purchasing.
Used car disposal, Quinn stated, is mainly handled through the over 500 authorized dealers that deal with PHH. Only about 150 cars per year are sold through auctions or whole sale buyers (mostly when a car is sols outright with no trade-in). But even these few typical sales serve a purpose: for they give the PHH car buyers a yardstick to measure their dealers against.
As for those sales made to dealers, the used-car price is established on all makes and models in the PHH fleet once a month. This published price, which the dealer is sent, is an average based on sales of the model through all sources throughout the country. It is a negotiating price for the dealer who takes the car in on the sale of a new car. If the price meets his approval after he has established reconditioning costs based on a driver-ok'ed condition report, he then completes the transaction by invoicing PHH. If he has any question about the value of the used-car, he phones one of the eight regional car buyers and negotiates a price.
Trust plays a big part in the relationship between PHH and its supplying dealers. In fact, PHH hopes they feel as though they are like partners to the mammoth management company in the marketing of used cars. But as all systems need some controls, PHH has developed its own unique method of keeping tabs on its dealers.
All transactions with any specific dealer - whether on a new car delivery, a new car purchase, or a trade-in - are fed into PHH's computer bank. The information collected on each dealer is then available to each of the regional car buyers through closed circuit television.
To see how the process worked, AF stopped in at the busy office of Sam Penn, the Midwest regional buyer. Behind his desk sat a small television set. By dialing a coded set of numbers on an attachment near his phone, Penn was able to obtain a complete read-out on a variety of things for each of his dealers on this small TV. This read-out gave him the number of cars the dealer had sold to PHH over the year, how current he was with delivery, where the dealer stood in relation to other dealers in his area with respect to used-car prices, and what the average reconditioning cost he had been charging amounted to in terms of regional and national averages.
Going back to discuss the PHH fleet with Quinn, we learned that Penn and the other buying mangers spend most of their time in negotiations with dealers. But in addition, they are in the field for about a month during the buying season, calling on dealers, looking at the new models, visiting clients, and checking with auctions.
With respect to the majority of the PHH cars, Quinn advised that these were top-line two or four-door hardtops. Generally they were equipped with power steering (but not power brakes), an AM radio, air conditioning (used in conjunction with a temperature chart) and often studded tires when conditions required them.
Questioned on PHH's position on drop shipments, Quinn advised, "We don't look favorably on them. They don't fit in with our long term outlook in terms of building our dealership network. Also, we've heard of a number of complaints from those using this method of distribution.
One of the most fascinating of the many services PHH performs for clients is that of its statistical department. No only does this provide invaluable information to clients regarding such things as optimum model replacement time, cost comparisons on models and equipment, etc., it also feeds back information to the auto industry itself. From its vast storehouse of accumulated data, PHH compiles a huge quarterly report on all the makes and models in its fleet which it sells to the auto manufacturers. In this report the manufacturer can see how much driver-loyalty his product is getting (how many drivers repurchase the same make), how expenses are running on each model, and what trouble spots can be discerned in any model from an engineering standpoint.
This report is not available to the general public or to PHH customers. When asked why this was so, David Grant, vice president in charge of expense management and statistical services advised, "This information would not benefit our customers in any way. First of all, much of it would be incomprehensible to them. Second, the information relating to trouble spots on a particular model may no longer apply due to a modification of the model. Lastly, the information might lead some clients to demand a certain make of car for the following year-this would defeat our whole philosophy of driver selection of the vehicle and would eventually mean dissatisfied drivers and abused cars."
While talking with Grant we also discussed the recently developed sight draft system and PACE (payment, audit and control system) which PHH is now offering. With the sight-draft program the driver is able to issue expense drafts whenever necessary to maintain the client's car. PHH audits these expenses, compares them with the issue drafts, and provides the client with a monthly accounting for each driver. With PACE the clients are able to obtain a monthly accounting for all sales and auto-related expenses. Thus, it includes not only expenses of traveling salesmen with company cars, but those of any employee who travels on company business and expends money in doing so.
Due to the brevity of AF's visit to PHH, we were unable to cover all the departments and division s of the huge corporation. We were, therefore, unable to look in on the truck and special leasing divisions of Group I operations which is under Senior Vice President W.E. Webster. Similarly, we failed to meet W.B. Hendricks, Senior Vice President in charge of Group II (legal and general services). We had heard a great deal of this group from a variety of sources regarding their expertise in legal matters and their dealings with tax and titling officials at the local, state, and Federal levels.
Missed too was a chance to become better acquainted with Dale Spencer's communication group. Of course, we are old friends with John M. (Jack) Bond, who paved the way for our visit and whose PHH NEWSLETTER is so well known throughout the industry. But it was somewhat disappointing to discover that time had run out when we finally did get around to seeing him.
We did, however, spend some time with A.J. (AI) Deery (a one-man Baltimore Chamber of Commerce). Al is the head of the important Hawkins Division of PHH which provides the means for discount maintenance services and tire and glass replacement for PHH clients. Due to the importance of his story and space limitation here, we are planning a full feature on the division in a future issue of AF.
THE FUTURE OF LEASING & PHH
Before leaving Baltimore, we were able to catch busy PHH president John Lalley for a brief final interview. We asked him a number of questions about the future of the leasing industry, the direction of PHH, and what plans his company had for the near future.
Commenting on the leasing business, Lalley stated, "Its future depends to a great deal on the economy and how sharp a particular leasing company is in terms of providing collateral services. What I think we're going to find very shortly is that the average national corporation that uses the services of a lessor has grown pretty sophisticated."
And what of PHH? Where is their place in the future?
In reply, Lalley commented, "We are determined to expand our involvement with our clients as time goes by. We have been consistently oriented to the nation of providing a service for national corporations. Any growth through diversification will, by design, be in this area."
AF then asked for something more specific.
"Specifically," Lalley added, "we are gradually expanding our involvement with our existing clients-first through the development of truck fleet management services, national purchasing programs allied to the automotive industry, and more recently, in the field of expense management services. We have a number of additional ideas on the drawing board but all of them have the common denominator of doing something for companies that they are now doing for themselves-but doing it better and more economically through specialization, the pooling of purchasing leverage and systems expertise."
We wanted more, but Lalley was off to see a client to convince him that his company really should switch to intermediates for the coming year.
"I've got to convince him that we're right, that his salesmen won't complain, and that it's going to mean a lot of money for him in the long run," Lalley said as he prepared to go.
As we left with him, we reflected that such dedication and self-assurance was typical of the men we had met at PHH. And, we silently wandered where the next 25 years would find the determined young company, when the first 25 had brought it so far.