Recently, AF Editor Mike Antich was in Toronto to attend a remarketing conference. While in Toronto, he took the opportunity to visit the corporate headquarters of Element Financial Corp., the parent company of Element Fleet Management. During his visit, Antich interviewed Brad Nullmeyer, CEO of Element Fleet Management Corp., and Kristi Webb, president and CEO of Element Fleet Management, North America, to get an update on the integration of the fleet business of GE Capital, which it acquired Sept. 1, 2015, and their vision of the future of Element Fleet Management.
What follows are excerpts from the interview:
Webb: It’s almost been exactly a year since we sat down and last talked. I can tell you that we are on track with the integration. As a matter of fact, when we spoke last September, we said it would take 12 to 18 months. We’re ahead of schedule. One of the big milestones that we still have is the migration to our new unified technology platform and launch of the next-generation Element Xcelerate fleet management system by the end of the year.
(Editor’s note: We are planning an in-depth examination of the Element Xcelerate technology platform in the November 2016 issue.)
AF: Could you provide more details on how you integrated the different fleet services. Using safety as an example, Element had an in-house safety program, while GE used an outsourced program. How did you harmonize those two different approaches?
Nullmeyer: We used what we sometimes call “zipper” integration methodology. We took the best of both companies and melded them together. Our senior management team was picked very quickly and we used that zipper methodology, whether it’s a system, a process, or a call center technology, to meld together our different cultures. It has gone exceedingly well. We very quickly put these companies together seamlessly, with respect to the people and processes.
Webb: It was an exhaustive process. We had an opportunity to take these really terrific companies, bring them together, and pick what was the best.
In some cases, we said we can do better and we created something entirely new. When we started a year ago our goal for Element Fleet Management was to be a catalyst for innovation for products, services, technology, and processes. In the case of safety, which takes us back to your original question, I believed at the time that we had the best of both models, so we are continuing to offer both an in-house program and the partnership.
Nullmeyer: In other examples where the old PHH was doing it differently than GE, we picked one or the other of those two and are transitioning the customers into that. When you get to our size and scale, all of a sudden, one model may have an advantage over another just because of the scale.
It has been an interesting experience to say to people, forget how you used to do it, figure out which one you think is best. Bring that forward as a solution.
We can offer a dual track for certain services, such as having an in-house and outsourced solution, because our size and scale allows us to do that.
AF: The selection of the leadership team was extremely well received by your clients. Did this level of integration extend further down the organizational chart?
Webb: On Sept. 1 we closed. Ten days later, on Sept. 10, I announced the leadership team. It was representative of the tone that I wanted to set at the beginning in order to have it spread throughout the organization. It would not be enough if it were just the leadership team.
So each member of the leadership team took that same approach and blended their teams. We said we’re going to have leaders in Eden Prairie (the former GE Fleet HQ) or leaders in Sparks (the former PHH HQ), and they’re going to have a team in both Eden Prairie and Sparks. It was a way to bring the two cultures and organizations together into one system.
AF: In one of the early investor calls, it was said merging the two companies would result in substantial fiscal efficiencies. Has that been achieved?
Nullmeyer: Early on in the acquisition, we identified integration savings of between $90 and $95 million. These savings fell in three buckets. One was a cost of funds initiative, whereby we’d have lower cost of funds for our clients. That’s been achieved through size and scale and our credit rating.
The second part was to be accomplished by maximizing the efficiencies of our supplier contracts. By putting together our supplier partner base and GE’s supplier partner base, we now had twice the volume to drive to our suppliers.
This created a second bucket of savings, which has been achieved. Those contractual arrangements with suppliers were all redone by Jan. 1, and are now in place. This was another win-win because not only was it an operational saving for the Element, but it really did save our customers cost. Our suppliers are exceedingly happy with the new amount of volume and relationships we have with them.
The last bucket was the integration savings with respect to the technology changes. That’s coming in October/November of this year. We don’t want to disrupt our clients’ lives, so we still are running the GE system and the existing Element system. Once we migrate from GE systems to a unified Element platform, then that will be the third bucket of those savings, which will come, from a stakeholder point of view, in early 2017.
The integration has gone exceedingly well. It’s been a win for our clients because they’re getting better service and lower cost. It’s been a win for our partners because they’re getting more volume driven to them.
AF: Looking beyond the integration, what is top of mind for your customers?
Webb: Fleet managers right now are feeling the shift in the industry. On any given day, fleet managers are interfacing with operations, HR, legal, treasury, finance, and procurement. So literally they’re a touch-point across the organization.
In many cases, fleet managers are working either alone or with a very small team to manage a very large fleet. They are looking for tools and technology that make it easy for them to do their jobs, which includes cost, safety, compliance, and uptime, which all translates to the bottom line of their companies.
They’re looking for us to help them make their job easier. This is an industry that embraces technology. What we’re doing is helping them embrace it even faster. I think that is top of mind.
One of the other things that I would say, which never goes out of style, is making sure you’re doing the basics really well. So despite us talking about technology and all of the cool things that are happening, you’ve got to do the blocking and tackling really well. We will never stop doing that for our customers every day.
They want to make sure while we’re going into this brand new world that we’re doing all those things really well. We’re going to use technology to make it faster and better.
AF: Are there other broader trends you see happening in the industry that are going to drive your corporate strategy in both the near-term and long-term?
Nullmeyer: The biggest trend today is the rate of change in technology. This is not only new to our industry, but it’s new to our lives. When you compare what we can do today and couldn’t do yesterday, this rate of change has occurred much faster and deeper than many people envisioned.
This Internet of Things (IoT) is a new world. You’ll read articles about multi-billion-dollar industries that will develop around the connected car. There are all kinds of applications and hundreds of players in all those spaces. You’ll see some consolidation happening there, but this isn’t about us trying to pick the winning technology. This is about us knowing what’s core to our customers and making their life easier by improving safety, compliance, and total cost of ownership.
We see major changes coming in how fleet managers will do their daily jobs. If, at some point, a driverless car becomes available so the technician can sit and do his or her paperwork while traveling between appointments, we will be there, we will be part of it. It’s all about providing services to our customers. There will still be a vehicle that needs funding, new tires, ongoing preventive maintenance, and needs to be up 100% of the time.
Part of our role is to separate the signal from the noise. We’re not making an app just for the sake of having an app. It has to help the fleet be safer and smarter. And help the driver be more efficient and productive.
AF: You mentioned technology is accelerating with changes coming faster and deeper than we anticipate. Obviously, that’s going to impact your clients. Conversely, it’s also going to impact you. How do you see these changes influencing the business model of Element, and the broader fleet management company industry?
Webb: One trend that will either disrupt a business model or potentially disrupt the players in the industry is urban mobility. That’s where we see Uber and Lyft coming in. Does it go further into fleets and company drivers? Might there be a better way for us to do that? What role can we as a fleet management company play in providing urban mobility services? We could be a provider to that service. We have a lot of vehicles, a lot of knowledge around those vehicles, and a lot of knowledge around drivers.
Then, if you think about connectivity and connected vehicles, how do you bring all of this data together? Telematics is one piece of it, but there’s an awful lot more data besides just that. Then you need to benchmark this data by vehicle across all industries. What are the best practices?
The other trend is autonomous driving. All of the auto OEMs are now looking at autonomous vehicles and these vehicles will find themselves in the fleet industry. Autonomous vehicles will disrupt the fleet industry. It will disrupt business models, but in a really good way. Imagine a driver who does service calls and who can now do eight calls instead of only six calls because they can do their paperwork while being driven. Fleet sits right in the middle of the IoT – there is nothing more connected than a car.
AF: How are you looking to adjust or position yourself for that in the future?
Nullmeyer: We’re in the front edge of this change. I think we will pivot to a business services company, driven by technology. These technologies will absolutely be disruptive, but we will be a provider of those services. We’ll be the one who will be offering these technologies to our clients — whether we develop them, or whether someone else develops it, or whether we partner — we’ll be the ones offering an application to increase business productivity.
That’s what it’s all about. We will take that application and prove how it will be a better business model for them. We’ll be on the leading edge of that, as a technology-driven company, while continuing to do our blocking and tackling behind the scenes.
As business people, we had two choices in addressing technological change. We could have put our head in the sand and grind down our costs and try to get the maximum out of our portfolio. We’re doing the exact opposite. We’re out in front of that. We know it’s changing. A lot of the things you read about in the industry of what people are doing, we already have those pioneered inside certain clients. We’re seeing a change in our clients that more of them want to try solutions and we want to provide these products to them.
It’s all about business efficiency. How do you get someone to do eight service calls a day versus six? How do you make sure the vehicle is always available to support those service calls? We think we can help our customers with that. We know we can help them with that.
Webb: We think about it as traditional fleet management with sustained and disruptive innovation. This is how we view our role.
Sustained innovation over time becomes traditional fleet management. So if you aren’t sustaining innovation, what you find is your value proposition gets left behind. You need to constantly refresh your value proposition.
Disruptive innovation is when you get into things such as autonomous driving and the shared economy. What will they do to our business? We’re starting to look at each of those things and how that could actually disrupt us or the industry.
The sharing economy is going to be part of our landscape. Certainly in high-density urban settings, where you’ve got parking issues and vehicles have difficulty navigating in traffic. In these situations, a sharing economy will benefit drivers, who will find it makes them more productive.
Nullmeyer: I agree with that entirely. The shared economy is already here in some form. The question is how our clients will participate in a sharing economy to help them do their business better.
(Note: As of Oct. 3, 2016, Element Financial Corporation separated into two publicly traded companies - Element Fleet Management, the world’s largest publicly traded fleet management company - and ECN Capital, a leading commercial finance company.)
Editor's note: This article first appeared in the October 2016 issue of Automotive Fleet.