In 1939, Wheels became the first automobile leasing and management company in the U.S. when it leased 75 vehicles to Petrolager, a pharmaceutical company. Since then, the family-owned business has grown to encompass sales approaching $3 billion per year, with nearly 300,000 vehicles on the road in North America, and more than 1 million vehicles in 41 countries around the world. The company was started by Zollie Frank and his brother-in-law Amund Schoen.
In 1974, Jim Frank, the son of Zollie Frank, became the second president of Wheels. In 1999, he was joined by his son, Dan Frank.
To learn more about the history of Wheels, its accomplishments, and its goals for the future, Automotive Fleet interviewed Jim Frank, CEO and president of Wheels, and separately Dan Frank, president of Wheels Services and CTO.
The following are excerpts from both interviews:
Jim Frank Looks Back
AF: Congratulations on your 75th anniversary. As the first fleet company to reach this milestone, you have the perspective of seeing how the industry has evolved from its inception to present. What are the top milestones that helped shape the fleet industry by decade, starting with the 1950s to present?
J. FRANK: It starts even before the 1950s:
1930s: The fleet leasing and management industry is founded when Wheels Inc. leased 75 vehicles to Petrolager at an all-in (everything included except gasoline and oil) fixed price of $45 per month and a 12-month replacement.
1940s: No new vehicles were produced during the World War II years and Wheels demonstrated the flexibility and creativity for which the industry had become famous by purchasing used vehicles and providing creative solutions to maintaining existing vehicles for clients. After the war, fleet allocation and close factory relationships, carefully nurtured, allowed Wheels to obtain new vehicles for clients who were anxious to ramp up peace-time operations.
1950s: Working with the OEMs, Wheels developed the new concept of drop-shipping fleet vehicles. This innovation replaced regional purchasing and over-the-road deliveries, ultimately laying the ground work for the most cost-efficient and highest-quality method of vehicle procurement anywhere in the world. Initial resistance by some lessors dissipated rapidly as the effectiveness of the drop-shipment system became obvious, and it is now the universal solution in the U.S., envied by others throughout the world.
The introduction by PHH of the first cost-plus lease laid the foundation for the explosive growth of the industry. Ideally structured for the North American market, open-end/cost-plus leasing provides the most cost-efficient and flexible solution for business fleet for the vast majority of clients. Wheels consummated its first cost-plus lease with Pfizer in 1953, and it now represents 97 percent of our portfolio.
One interesting side note is that the introduction of cost-plus, rather than fixed-price, leasing led to the development of large and sophisticated fleet management departments at our clients. Without fixed, guaranteed costs, the users felt the need to develop in-house expertise to control expenses of the fleet.
1960s: Clearly, the introduction of computers to the industry was the highlight of the 1960s. Sophisticated automation allowed the fleet management industry to efficiently increase in scale and scope, resulting in improved quality, lower cost of operation, increased purchasing power, and the beginning of the Information Age.
1970s: The energy crises of 1973 and 1979 totally changed the automotive and fleet management environment. Previously, a fleet selector consisted of an eight-cylinder Chevrolet Impala, Ford G500, or Plymouth Fury. With fuel scarce and more expensive, the science of vehicle selection became paramount and vehicle selectors became much more diverse. The expertise of the fleet manager became much more important as calculation of TCO, with all of its many dimensions, became relevant. And, it became increasingly important to match vehicle capabilities to the business requirements.
This is also the era in which automation and information technology began to bloom as fleet management companies learned to leverage the power of computers for information and decision management, not simply operating efficiency.
The 1970s also saw the birth of sophisticated outsourcing of maintenance management by clients to leasing companies. At the request of the Chicago and Northwestern Railroad, Wheels built our first cost-plus maintenance management program, the beginning of a move to outsourcing that has ultimately transformed the fleet management business.[PAGEBREAK]
1980s: Interest rates (an all-time high Prime rate of 21.5 percent) and inflation soared in the 1980s, putting increased pressure on costs and emphasis on expense control in fleet. The focus on cost was emphasized even more by the pressures of globalization and leveraged buyouts, all of which enhanced the importance of effective fleet cost control. The sophistication of both fleet management companies and fleet managers grew dramatically, as did financing capability in the fleet leasing industry.
Prior to the 1980s, the primary source of lessor financing was subsidized funding from the OEMs. Due to the soaring interest rates in the early 1980s and severe financial distress of all of the OEMs, the successful fleet lessors initiated funding strategies directly in the capital markets. Today, with sophisticated securitizations and commercial paper programs, we are among the most efficient and cost-effective financial institutions in the world.
The 1980s also saw a significant trend toward sole sourcing in fleet management. Previously, clients felt that they needed at least two lessors in order to evaluate effectiveness. But, with the growing sophistication of technology and data, clients had the tools to evaluate their suppliers without running a concurrent competition. Sole sourcing simplified operations and enhanced the client's buying power of the client, it was a natural, and it ultimately migrated to the OEMs as well.
GE's entry into the business in 1986 was also significant. As GE acquired fleet lessors, the number of suppliers for large national fleets declined from more than a dozen to less than a handful. This concentration of the supplier base benefited the clients, as the remaining companies have grown to a size and level of sophistication where they offer a much enhanced value to clients.
1990s: The 1990s were truly revolutionary for the fleet industry, driven by a continued move toward outsourcing and the proliferation of products offered by the fleet management companies. Today, Wheels offers 37 different fleet-related products to our clients, quite a change from the day when our total operation was vehicle purchasing, disposal, licensing, and financing.
2000s: If the 1990s were revolutionary, fleet management in the 21st century has been transformed, driven by powerful forces:
● Fuel prices. Gasoline prices spiked to move than $4 per gallon. Concerns about fuel costs, energy independence, and climate change drove dramatic changes in thinking about vehicle selection and replacement, as well as resulted in a great deal more choice from the OEMs.
● Increasing sophistication and involvement in fleet by strategic sourcing. Sourcing has brought a totally new perspective to fleet management, and, in many ways, has raised the bar in terms of effectiveness and focus.
● Economic crisis of 2008. To date, this was clearly the defining moment of the 21st century. If it was not true previously, cost control and effectiveness became the dominate mantra of fleet management and will probably continue to be so for the foreseeable future, until such time as there is a significant improvement in the economy. At the same time, the financial crisis reemphasized the importance of supply-chain reliability and doing business with financially sound, well-capitalized suppliers.
● Technology revolution. One cannot discuss the importance of the 21st century without paying homage to the remarkable impact of technology. The Web, portable devices, GPS, and telematics are all transforming the way we live and facilitating dramatic new opportunities in effective fleet management. Real-time data translated into actionable information allows much improved decision making at a granular level. Creative new tools allow for individualized feedback to vehicle operators resulting in constructive behavioral change. Improved fuel economy, safer vehicle operations, and optimized maintenance decisions are now all possible.
It is an exciting new world in which we live today.
AF: How has the fleet manager role changed during the past 75 years and how will it evolve in the future?
J. FRANK: Just as the fleet management industry has changed over the decades, the role of fleet manager has evolved in response to changing circumstances and opportunities. In the early days of fixed-cost leasing, the fleet manager's primary job was bidding out the fleet and getting the best price.
When fixed-cost leasing was replaced with cost-plus, the fleet manager's role expanded to managing and controlling costs, so fleet management staff and required expertise expanded to fill this new role. The job became even more sophisticated with rising fuel costs and availability issues, the consequences of which were the proliferation of vehicle choice and much greater selector flexibility.
Technology has also changed the game. Data and metrics provided the ability to move to single sourcing fleet management suppliers and moved the responsibility of the fleet manager from managing multiple suppliers based on competition to managing a single supplier based on metrics and standards.
Technology enabled much more sophisticated and granular decision making, while also allowing much greater flexibility in fleet policy — all resulting in much more cost-effective operations, and, not least important, speed. Where in the past fleet policies were locked in for at least an annual cycle, changes can now be made almost instantaneously to take advantage of changing circumstances and new opportunities.[PAGEBREAK]
And, finally, there are cost pressures. Starting with the inflation of the 1980s and ultimately compounded by the crisis of 2008, cost reduction has taken on an ever more important role in fleet management. As fleet managers partner with strategic sourcing and the tools that sourcing brings to the relationship, fleet management becomes ever more effective and valuable. And, as fleet management companies have dramatically improved their products and insight, the effectiveness of the fleet manager is leveraged even more as a manager of suppliers and their capabilities.
AF: What do you feel were the proudest accomplishments of Wheels during its first 75 years? What have been your proudest accomplishments since being named president?
J. FRANK: I believe it can objectively be said that the fleet management industry is recognized as one that provides great value to our clients, and I am proud of the fact that Wheels has provided leadership and helped set an example of professionalism, integrity, innovation, and commitment to client success.
As the CEO of Wheels, I am proud of our ability to understand and embrace the changing business environment in which our clients compete and to adapt our business model and services to be responsive and supportive of our customers' requirements. But, most importantly, I would suggest that my greatest contribution has been nurturing and developing an organization of incredible Wheels individuals who understand that our mission and focus is to support and contribute to the success of our clients.
Dan Frank of Wheels Looks Forward
AF: How do you see the fleet management industry evolving in the next decade?
D. FRANK: Fundamentally, our core responsibilities of keeping drivers safe, productive, and satisfied while remaining cost effective and helping our clients meet their corporate objectives has stayed pretty much the same over our first 75 years and we
expect that to continue. However, the tools and technologies we have to accomplish that continue to improve. There is such an enormous proliferation of technologies in everything, from telematics to mobile to materials to powertrains. Our industry will become increasingly driven by technology and our ability to understand and harness it.
Our clients are continually expecting us to do more for them and for us to provide them with the tools to allow them to be more productive and more strategic. Many of them are taking on additional responsibilities and need to outsource more administrative tasks. They are getting involved in logistics, safety, budgeting and accounting, sourcing, DOT compliance, and other areas. As the vehicle becomes more connected and integrated with the job, I believe the fleet manager role will continue to become more complex and strategic.
Finally, while our industry has come a long way in managing vehicles, we believe there are still a lot of possibilities to expand how we manage drivers and driver behavior. Wheels has been actively implementing tools to help our clients better communicate with and educate their drivers, understand their behaviors and how those effect fleet costs and compliance, and help motivate those drivers to take appropriate action. Our early results with our Driver Outreach and ChangeDriver programs have been very exciting.
AF: What impact will the upcoming CAFE requirements have on the fleet management industry?
D. FRANK: On the positive side, the CAFE requirements should have many of their intended effects. Fleets should see a growing selection of more fuel-efficient vehicles and alternate-fuel sources, reducing the cost of fuel and lowering carbon emissions. We have already seen a dramatic improvement in the last several years, particularly for sedans.
Of course, the CAFE standards will also create some challenges as well. Some of the technologies required to improve fuel economy further will have tradeoffs. Clearly some of them, including lighter materials, such as carbon fiber, have a significantly higher cost. Other trade-offs may include reducing the size of the vehicles, removing features, such as spare tires, which add significant cost and weight, and reducing power, as we've seen in the move from six-to four-cylinder vehicles.
The OEMs have been incredibly innovative in designing more fuel-efficient vehicles. At the end of the day, there is no requirement to buy the vehicles they make and they will need to design vehicles that both meet the CAFE standards while still meeting the cost and performance requirements of consumers and fleet customers.
Nevertheless, we may be faced with more difficult choices than we have in the past. OEMs may need to manage pricing to discourage use of less fuel-efficient vehicles, even though certain fleet applications will continue to require larger and more powerful vehicles.[PAGEBREAK]
Fleet managers may need to be more selective in how they deploy vehicles and develop their selectors. For example, four wheel or all-wheel-drive vehicles may only be made available to drivers in regions with a certain amount of snowfall. Fleets where some drivers, but not all, need cargo space for equipment, tools, or samples may want to provide larger vehicles only to those drivers who need them. We've seen other fleets go so far as to change their service delivery model entirely so that sales or service reps no longer have to carry these materials. Instead, they dedicate specific vehicles just for delivery and reduce the number of larger vehicles required. Fleet managers may need to get more involved in the logistics of how the sales or service is delivered in their organization, just as their roles may have expanded to include procurement, safety, or other responsibilities.
Wheels will continue to work with our clients to assess the practicality of these new vehicle choices and alternate fuels, the safety and performance of smaller vehicles, and get more involved in strategic issues such as job and territory design. We will probably all need to be open to analyzing a broader set of vehicle options and more diverse selectors.
AF: With the dramatic advancements in technology, which technologies do you feel will have the greatest impact on the future of fleet management?
D. FRANK: It's probably one we haven't even thought of yet! Technology is evolving extremely quickly around us and Wheels is continually exploring new ideas we can bring to our clients.
Clearly, telematics offer an enormous number of possibilities that many fleets have yet to enjoy. As the cost continues to come down, more of these features will become economically viable. Whether it is routing and dispatch, vehicle diagnostics, safety monitoring, odometer reporting, DOT compliance, inventory tracking, or a whole host of other features, we will continue to see their acceptance spread. Some of the manufacturers are moving to make the vehicle more of an "app" platform, just as the smartphone makers have, and this is likely to unleash a whole new round of possibilities.
I believe we will continue to see advancements in payment technologies. We are already seeing transponders used for tolling, parking, and variable-priced HOV lane payments. Credit cards are likely to ultimately move to pay by phone, RFID, or other mobile systems, creating better driver convenience and fraud resistance.
On the flip side, governments are using technology to find ever more ways to charge us as they look for enhanced enforcement and increased revenues. Red-light and speeding cameras, electronic tolling, and other electronic enforcement continues to proliferate. We are seeing expanded use of toll lanes that are variable priced based on traffic volume. More municipalities are accepting online payment for registration and violations. The pressure for governments to cut costs, improve enforcement, and generate more revenue will likely continue to push innovations in these areas.
Perhaps the area that is seeing the most innovation is safety technologies. Lane departure warnings, blind-spot detection, frontal crash avoidance, greater use of air bags, stronger and lighter materials, backup cameras, telematics, and electronic stability control — the list is extensive. Despite all that, we still see more than 30,000 people killed on our roads each year and hundreds of thousands injured. Long term, we are starting to see some of the technologies that could come close to eliminating many of these accidents.
Of course, the amount of data all these technologies generate will continue to increase exponentially, and the analysis tools required to make sense of the data and drive better decisions will need to keep pace with it. Wheels is continually investing in technologies that not only allow us to understand all this data, but to take action on it.
Lastly, mobile technologies continue to change the way we work. Whether it's enabling drivers to find vendors, make better decisions, and more efficiently complete tasks, or its providing fleet and branch managers with more information on the go and the ability to work remotely, our mobile tools will continue to make us smarter and more efficient.
AF: Fleet safety is a top concern with many senior managers, especially with the growing incidents of distracted driving, particularly as more drivers use their personal devices in their company vehicles. What is the best way for fleets to address this issue to mitigate its impact on fleet operations?
D. FRANK: Fleet safety is a concern for every manager. We all want to see our employees, clients, and their families come home safely at the end of the day. We all want to avoid the cost of property damage, downtime, negative publicity, and liability associated with accidents. While we all enjoy the convenience and productivity provided by mobile devices, it's important to understand the risks associated with their use, so companies can ensure they are used responsibly.
The first step is to assemble the appropriate facts and to create a policy around mobile device use that best fits the company and job requirements. There are still many misperceptions around the safety of handheld or hands-free devices, the productivity benefits or lack thereof in trying to work while driving, and options in managing mobile devices.
Once a policy has been crafted, it is critical to get buy-in from senior management. Ultimately, safety is a matter of corporate culture. If management doesn't both endorse and follow the safety policy, it becomes very difficult to get anyone else to go along. Many CEOs and other senior managers are happy to endorse corporate safety and many see it as Job 1. While many fear that policies around mobile devices may be seen negatively, I think people are often surprised by the positive reception they get when they realize the company cares about their safety.
As with any new policy, communication and ongoing training and awareness campaigns help employees understand the reason for the policy and the behavior expected of them. Fleet management companies can provide the tools to help implement and enforce these programs.
Long term, technology will probably help us solve this problem. Whether it's the safety features of "self-driving" type vehicles, software that locks a phone while driving, or new technologies that don't create the same level of driver distraction, I believe that the benefit of mobile productivity is one that people will want to enjoy and we will find a way to do so without the negative repercussions of a either physically or cognitively distracted driver.