From jobs in banking, insurance, and car sales to the top fleet position at giant IC Industries, Pierce Walsh has truly ‘done it all’ in the fleet and leasing industry. In this interview, Walsh recounts the challenges-and the change.
Have a question about the operation of a big, complex business fleet? You couldn’t do much better than to ask E. Pierce Walsh, director of fleet management for IC Industries, Inc., and the recipient of AF’s second annual, Professional Fleet Manager Award.
With a fleet including 3,145 passenger cars and 1,932 light trucks, IC Industries ranks twenty-fifth on AF’s ’86 list of the Top 100 business/corporate fleets in America. Number 67 among Fortune 500 industrials (’85 net income: $162 million on sales of $5.3 billion), IC itself boasts 43,000 employees in 34 U.S. states and 21 foreign countries. The Chicago-based multinational’s principal companies are Pet Inc., Pepsi-Cola General Bottlers, Midas International Corp, Hussmann Corp., Pneumo Abex Corp., and the Illinois Central Gulf Railroad.
To discover more about big-fleet management – Pierce Walsh’s way – AF met with Walsh one recent afternoon in his high-rise office in the IC Building on Chicago’s East Wacker Drive.
AF: Let’s begin with a brief review of your personal background, Pierce. It’s pretty wide-ranging for a fleet manager, isn’t it?
Walsh: It really is. After graduation from Notre Dame University with a B.A. degree in English, I went to work for the mortgage loan and real estate investment department of Prudential Insurance Co. Then I got into the banking business with major institutions in Buffalo, NY, Chicago, and Indianapolis. The interesting this is that I was dealing primarily with automobiles: auto financing, floor planning of autos, leasing funding of autos. While I was at the Indiana bank, in 1968, I was contacted by a Chicago car dealer who convinced me to come up here to start a fleet and leasing department for a Buick dealership. That’s really how I got into this – what I call the ‘purer’ segment of the business.
AF: Was there much automobile leasing occurring back in those days?
Walsh: No, there wasn’t. And the Buick Motor Division was not doing much in the way of fleet sales in general at that time, either there were only a few Buick dealerships doing much in the way of fleet sales at all, in fact. (In those days, fleet was primarily Chevrolet, Ford and Chrysler-Plymouth: the Buicks and the Oldsmobiles and the Cadillacs just weren’t heavily into it.) In any event, we took the department from nothing, to the point where we were the second-largest Buick fleet supplier in the United States. We went out and called on the major lessors like the Gelcos, the McCullaghs, the Hertz’s, the ARIs, and PHHs, convincing them to buy their Buicks from us. That was we got involved in national drop-shipment programs, courtesy delivery programs, that sort of thing. That was really my introduction to the fleet business.
AF: Where did you go after the Buick dealership?
Walsh: I accepted a position with Borg-Warner Corp., which sent me down to Houston. Economic times became extremely touch, however; and when Borg-Warner made some cutbacks, I got an opportunity to join Gelco, which literally was creating a position here at IC Industries, with IC’s approval, of course. Gelco had won the IC account a couple of years before, but Gelco really didn’t have the type of fleet management control in place at IC that was needed. Therefore, Gelco moved me up here to Chicago, and IC put me into an office and gave me an administrative assistant, though I technically worked for Gelco. Mine was a rather unique arrangement in the fleet industry, and I can’t say enough for Gelco’s vision in putting the arrangement together. In effect, Gelco had convinced a major company (IC) that they needed a director of fleet management or a fleet administrator to correct the fragmentation of their fleet. The only way to do that was for Gelco to hire a guy, bring him into the IC group, put him in the middle of the fleet program, and pay his salary. That’s what they did for me for a year, with the understanding that if IC Industries didn’t buy the concept – didn’t think they were gaining some momentum in controlling a $60 million asses – then IC was under no obligation to pick up my option. Fortunately, though, IC did, deciding after the first year to take me on as a permanent, full-time employee.
AF: What was the condition of the IC fleet prior to your arrival?
Walsh: The fleet was fragmented under IC’s six operating divisions (the firm now has seven divisions). They had individual fleet administrators, and they tried to run the fleet out of the corporate finance department here in Chicago. But it’s awfully difficult for a department to control such a fragmented fleet when that department is doing a lot of other things as well. The fleet has fragmentations in purchasing, in maintenance, in fuel programs, even in leasing. The whole idea of my coming on board was to consolidate the fleet – to develop consolidated purchasing power, to develop consolidated maintenance programs, to deal with all aspects of fleet operation from a position of consolidated strength.
AF: How is the IC fleet run now?
Walsh: We help develop firm policy and implement firm policy here out of a two-person office, just fleet administrator Mary Anicich and myself. We also use a fleet committee that meets at least once a year; by the time that committee meets, we’ve pretty much discussed what the programs are going to be. The individual fleet administrators, in turn, run their fleets themselves, based on the policies that we have developed here. We’re primarily responsible in this office for fleet funding, acquisition and disposal, vehicle spec’ing, maintenance, and cost-containment. And we implement those policies through a policy of consensus. But the buck does stop here. I’m a finance guy, mainly, reporting to the company vice president-treasurer, and ultimately, to the chief financial officer of the company. So we’re not a hubcap and carburetor operation here.
AF: How did your present policies evolve – in the leasing area, for example?
Walsh: We’ve used a couple of fine leasing companies – Avis and PHH – for some divisions, in the past. Eventually, though, we evolved into a one-lessor concept – again, trying to consolidate our pricing and service situation – and that one lessor is Gelco. So we phased out the other leasing companies. Even so, our door is always open to other leasing companies here: the door is not shut. We feel right now that Gelco is the best game on the black, and we’re very proud of our relationship. But we have friends at other leasing companies. What we are most proud of is the concept that Gelco provided this company with they showed a corporation, a conglomerate, a holding company of this type that you’ve got to have some centralized control, that you’ve got to develop some fleet policy, and have it adhered to. Gelco stuck its neck out and said, ‘Okay, we’ll show you that you need a good manager.’ Then they went out and hired me. It’s a revolutionary concept, in a sense, and I’m amazed more leasing companies haven’t done it.
AF: What are your primary policies for the IC fleet?
Walsh: As a cash-flow oriented company, we depreciate right now at 1.67 percent per month, which by some standards is very low, but we’re interested in tomorrow’s dollars. Our policy provides that we roll our cars at 60,000 miles or 36 months, whichever is less. But for ’87, I’d say we’ll have a policy in place providing for no more than 50,000 miles, and probably 27 months. That’s because of the mileage factor in today’s used-car market. We’ve known about that problem for a long time, now it’s being compounded by the fact that the factories are running around with their retail finance programs, and it’s just killing the used-car market. Aside from borrowing from Peter to pay Paul, the manufacturers are just absolutely putting the used-car market in a never-never land. The market is so depressed right now, why would anyone buy a decent used car when they can go out and buy a new car and have a lower monthly payment? That problem is going to be with us for a long time.
AF: What kind of cars do you give your drivers at IC Industries?
Walsh: We run primarily a domestic model compact-intermediate sized car, well-equipped where applicable with power windows, power seats, door locks, tilt wheel, stereo radio, and a top interior. We do that because it gives us a nice automobile coming back. Above the intermediate-sized car – for our upper-management executives – there’s a more active selector. But those cars are well equipped, too.
AF: What do you do for disposal?
Walsh: Not as much as we should. We’re only running about 25 percent disposal with our employees – what I call direct-market sales. The remainder are going to our leasing company, auctions, that sort of thing; and our leasing company is doing a good job. But we’re getting our brains beat out on residuals, for a variety of reasons: low depreciation, high mileage, not doing a good job on employee-sales, and the general condition of the used-car market. It’s hurting us right now. But we’re concentrating on it, and we hope to do better.
AF: Dealing with all these varied factors, your background must be invaluable?
Walsh: Yes, it is. I’ve really sat on four sides of the desk in this industry. I’ve sat on the sales side, on the funding side, on the used-car side, and I’ve sat n the maintenance side. I’ve been a banker, a dealer, a lessor, and a fleet administrator. I have an empathy for the dealer…for the lessor, and though I’m not an expert in any of those fields, I do have a good working knowledge of them all.
AF: What do you consider your greatest accomplishment at IC?
Walsh: We just took a totally fragmented operation with no conception of what we had out there, or where the units were, or how many there were, and we were able to get a pretty good handle on it. We’re now on an automated tie-up that gives us information on every unit in our fleet. It’s done independent of the other IC divisions, and we pay for it here out of Corporate. We’re also involved in Gelco’s GelcoLink program. We’ve been able to consolidate detail on every unit in our fleet: we know where they are; we know their book value, in many cases the mileage, what’s been done in the way of maintenance. A few years ago I couldn’t have said that. I’m very proud of the fact that I convinced management of the need for this capability.
AF: Looking back for a moment, what changes have you seen during your career in fleet management?
Walsh: I think fleet management has changed dramatically over the last 20 years. One part of fleet management involves dealer-sales, of course. And I just don’t see how dealers involved in fleet sales make any money today. I think companies like ourselves and the leasing companies have really got the dealers beaten down to a point where they have to dot every ‘I’ and cross every ‘t’ to make anything at all on an automobile. I don’t think that we as fleet users – lessees as well as lessors – pay enough for what we ask. I really don’t. I’m an ex-dealer guy, of course. But I try to pay a little more than what I think my buddies all over the country would charge me for a car, because IC is a very demanding company; we expect a lot of service. To me it’s a marvel that dealers can even stay open selling fleet cars for these prices; much less provide any kind of service. So, if I could stress one thing during this interview, it would be that my hat’s off to the dealers who sell fleet cars. They do a remarkable job for very little return.
AF: Are there any other changes you’ve noticed over the years?
Walsh: Companies like ours have gotten so much smarter in areas like funding. Years ago, companies’ lessors were primarily involved in acquiring and disposing of vehicles. Toady they’ve got to be much more sophisticated than that. They’ve got to acquire them at a very economical level; they’ve got to dispose of them with a good return; and they also have to fund them at a very critical level of profitability. Because today, people in fleet management are more finance-oriented than they used to be. You’re interested in the prime-related interested rate, the management fee. The depreciation factor – whether it is interest-averaged, for example. The business is a lot more sophisticated now than it was when I started selling cars. Look at all the computerization, there’s just a lot more to it.
AF: How can the average fleet manager keep pace?
Walsh: I think he’s got to have a good leasing company. Much of what I’ve learned in funding has come from our leasing company – and from our leasing company’s competitors, believe it or not. That can sometimes help you in negotiating with your leasing company, by the way; they may respond more quickly if the competition is jarring things along a bit.
AF: What about other keys to developing professionalism in fleet management?
Walsh: A good liaison with factory people is important; that’s helped me a great deal. I have excellent relationships with every manufacturer, and that goes back to my car days and my days in the banking industry. I’m very proud of the fact that I don’t have any difficulty phoning a manufacturer to get status on a car, for instance, to get a service problem handles. Today, of course, the manufacturers are much more aggressive in the fleet area, they’re making what I call ‘product information calls,’ and those are very, very important in telling us what’s going on in areas like build-out schedules. I hear those things from the manufacturers long before I get them from my leasing company. And I think I deal with one the best leasing companies in the world.
AF: What other sort of active role do you play in managing the IC fleet?
Walsh: We get great benefit from our fleet committee situation, because it allows us to look at the seven major operating divisions and receive feedback on the type of equipment our drivers want. Then we can make some decisions. Just this year, for example, we went to a one-nameplate application in our 600-700-unit intermediate/compact-sized car fleet, which is the bulk of our acquisitions each year. And that decision was jus a knock-down, drag-out brawl (with our drivers). But we went to the one-nameplate deal because of the manufacturer’s street fleet incentive program, and then we were able to negotiate a second package. We tried to do that with every manufacturer. One manufacturer could have card less; another one had an availability problem on the car we were talking about; but the third manufacturer stepped up with a constructive program, had the availability, and a proven track record. So in acquisition costs alone, that particular program generated savings of about $600,000 for our company. We’re going to review it every year, though, next year we may be with a different manufacturer.
AF: What are the advantages of such a program?
Walsh: We’ve got a firmer handle on control. We’ve lessened the fragmentation. We’ve been able to consolidate the available options, again because of discount packages that were offered. It wasn’t easy to do at this particular company – nobody had ever done it before – but I think this sort of package is here to stay. I did it all on my own – again, using my old relationships in the business – then I took it to management. They looked at me like I had four heads and said, ‘We don’t do that sort of thing; we’re not going to dictate what our drivers can drive.’ And I said, ‘Here’s what we can save’ it’s an outstanding example of cost-containment.
AF: But how do you deal with driver-objections over one name-plate…is it worth the ill will to save some money?
Walsh: I think so. After all, it’s our car. We are providing them with that car. And, importantly, we’re providing them with a very nice car. With the discount package, we were able to give them far more equipment than they’d ever had before. It’s also going to be a much nicer automobile when it comes back in. That’s why our management was convinced.
AF: What trends should today’s fleet manager look for down the road?
Walsh: I think we should all be looking out for the fact that we might lose our fleet incentives. I think it would be outrageous if the manufacturers weren’t able to price their cars, and then I couldn’t negotiate pricing. If that law were in effect right now, I wouldn’t have been able to cut the one-nameplate deal with the manufacturer I just completed, and I think I have the right to do that. And I think they have the right to agree to do it. It should be a free market.
AF: How about you personally, Pierce – will you conclude your career at IC Industries?
Walsh: I certainly hope so. I’d like to think that I’m in the home stretch here. As I said, I’ve sat on all sides of the desk, and I’m very devoted to this company and to my bosses. In some companies, you know, fleet is considered a ‘necessary evil.’ But not here: the people at IC have been very enlightened about fleet; they’ve supported us. So I would hope that I’ll be here for a long time.