Is Fleet Sovereign in a Corporate Structure?

It was Alfred P. Sloan, long-time president, chairman and CEO of General Motors Corp., one of the titans of U.S. corporate structure, who helped define how companies would be organized.

But fleet management wasn’t part of that structure until the late 1940s, and was later established as a company department in the ensuing decades of the ‘50s and early ‘60s.  

It’s important to know some history behind fleet management to best understand how it functions today, and that it has gone through an evolution like few others within the corporate structure.  

A key question to be asked is: should, and can, fleet management retain “sovereignty” as a stand-alone department within that structure today in 2020? Has that evolution dismantled fleet management as an individual discipline?  

The History of Fleet

It’s difficult, if not impossible, to determine when companies began to provide vehicles to their employees.

Certainly the first to do so were those which delivered product to customers, such as bakeries, milk producers, and others like them. Indeed, for this example, we can likely go back to horse drawn carriages, before powered transportation even existed.

These “ancient” company vehicles were followed by the company car, part utilitarian, part perk. 

For many decades, there was no formal management function to manage these vehicles; they were mostly purchased, maintained at the dealer, and rolled over each year or two.

As the fleet management function developed, other services such as leasing, maintenance management, and more began to become popular, and the fleet manager, who was generally someone with a passion for cars whose experience was gained at the dealer, began to be introduced as a formal job function at a departmental level.  

Defining Sovereignty for Fleet

So, now the question is whether or not fleet management is a sovereign department.  

What does that mean? Merriam-Webster defines “sovereignty,” in a few ways: as “freedom from external control” or “autonomy.”  

Is fleet management free from external control, is it autonomous? There is no yes or no answer, so let’s phrase this differently. Is any department sovereign, autonomous, or free from external control? What about legal, HR, or accounting? In some instances, yes, in others, no.  

Let’s look at the basic functions of fleet management. Vehicles must be selected, not only what type but what brand and considerations are to be made with how they are to be equipped for their given industry.

The vehicles must be maintained, fueled, various administrative tasks must be completed (such as registration renewals, permits, state inspections, etc.), and ultimately, they are taken out of service and sold, which then begins the overall process over again.

Then there is the development, implementation, and enforcement of company fleet policy and processes. This includes identifying which job functions qualify for fleet vehicle assignment, replacement policy, policy and processes for maintenance, repairs, considering accidents and safety, and a number of other items.  

Clearly, fleet management is a key function in any company that requires dependable transportation for qualifying employees.

Perhaps the question should be changed to “Is any corporate, department level function truly sovereign, free from external control?”  

External Control of Fleets

We’ve defined sovereignty as it pertains to a fleet function; let’s take a look at what “external control” might mean.  

Looking back over our brief list of fleet departmental functions, or responsibilities, we can divide them into two overarching groups: administrative (or operational) activity, and management activity. 

Administrative duties would include (but aren’t limited to):

• Processing new vehicle orders
• Payment of parking tickets
• Registration renewals
• Movement of vehicles (reassignment from one driver to another with any associated move)
• Review and payment of invoices/billings from fleet suppliers
• Obtaining necessary permits (usually for larger trucks)
• Communicating with drivers, their supervisors, and senior management.

These are more “day to day” activities, involving paperwork and forms, many of which are a result of outsourcing of the activity to a fleet supplier (registration renewals, for example, or obtaining driver MVRs).  

On the other hand, there are what we might call “management” activities, those which involve the use of company resources such as time, money, and people. These would include:

• Vehicle selection, including specification
• Development, implementation, and enforcement of fleet policy, including vehicle assignment and safety
• Selecting the method to be used to acquire new vehicles (lease or own)
• Repair authorization, both mechanical and physical damage
• Selection of suppliers (lessors, service program providers, fuel card issuers, etc.)

These are just a select few of many duties, but these activities involve decisions as to how, and on what, company resources are to be expended. Further, they lead to some of the administrative functions previously covered.  

Who is Truly in Charge of Fleet?

Let’s compare the fleet department to another such department: human resources.

There are, in an HR department, both administrative as well as management activities. HR staff might send out information on company benefits to new hires, for example, communicate any changes, and keep records on employee reviews and salary/wage levels assigned to various jobs.

Who, however, decides what supplier will provide these benefits; health insurance, for example, or who will administer a 401K plan or other pension benefits? 

It’s reasonable to assume that a manager at the HR department level won’t have that kind of authority. Nor would the HR department head establish salary ranges for positions. Beyond the authority of the HR department head, senior managers would be required to give approval for these and other managerial items.  

The same can be said for a fleet manager. Day-to-day activities, those we’ve labeled as administrative, are ultimately the result of managerial decisions. This includes: what vehicles to acquire, how to acquire them, setting authorization levels, selecting suppliers and a great deal more are usually not within the ultimate authority of the fleet manager; a fleet manager seldom is the one who “signs the contract.” 

There will need to be necessary approval from someone higher up the corporate ladder, such as the VP of finance, a corporate treasurer, or the VP of operations. And this has historically been the case, not only for a fleet manager but for any department level function. Indeed, in the early years of the fleet industry, fleet managers often had less autonomy than they do today.  

So why pose the question now, particularly if fleet departments are now a formal part of the corporate structure?  

Subject Matter Experts (SME)

In the past, fleet management was often an adjunct to the purchasing department. In the past decade or so, however, a new position has evolved from purchasing: “strategic sourcing.” 

The job of strategic sourcing involved surveying the company, all areas, for “spend” that can be combined to leverage discounts from a single source. The fleet manager, for example, might be asked to total up operating expense spending, the travel manager for airline, rental car, and hotel expenses, and so forth.  

Strategic sourcing would then, for example, approach a corporate credit card issuer with the total spend, and seek discounts appropriate to the volume.  Here is where the question of fleet management sovereignty is most appropriate.  Where strategic sourcing is looking primarily for volume spend, to leverage with a supplier to maximize any available discounts, fleet managers need far more in their suppliers; with different programs for the primary spend items (operating, or variable, expenses), and includes:

• Fuel
• Maintenance/repairs/tires
• Accident management

And why do fleet managers need this? It’s because of the data they can gather.

Fleet managers need a great deal of data detail on individual purchases of fuel, maintenance, repairs, and tires in order to best track and manage those items. 

This is the key reason why viewing fleet expense as merely an accumulation of dollar spend, as would strategic sourcing, is not adequate for choosing suppliers for a fleet.

Here’s also where the idea of a subject matter expert (SME) comes into play. It may be that the company has given a sourcing function full authority to choose vendors for the spend they find. 

But, if a fleet manager has been careful to develop relationships with other areas impacted by fleet, including senior management and strategic sourcing, that sourcing authority will be wise, and willing, to engage the fleet in the decision.  

The same would go for HR, accounting, and any other departmental function from which overall spend can be monitored.

Lease Versus Buy

A good example of this situation could be when a company performs a lease versus buy analysis with fleet assets (though it has nothing to do with strategic sourcing).  

Few, if any, fleet managers have the authority to initiate this important analysis and conduct the work and make the decision.

Choosing between leasing company vehicles and purchasing them has an impact far beyond fleet management. The decision is primarily a financial one, the impact primarily felt on the company balance sheet (though now, in 2020, it has changed with regards to the traditional fleet open end TRAC lease). That said, there is a great deal to be said for the impact it will have on the management of the fleet as well.  

There can be significant differences between managing a leased fleet versus one that is owned, depending upon how that ownership comes about. Most fleets of more than 100 units lease vehicles via a traditional open end, TRAC (Terminal Rental Adjustment Clause) fleet lease, which transfers residual risk from the lessor to the lessee. There are two ways a fleet can purchase/own vehicles:

• Through a “purchase/disposal” agreement with a fleet supplier, where orders are placed with the vendor, who in turn orders from the appropriate OEM.  Vehicles are built and shipped to a delivering dealer near the driver; the supplier pays the OEM (via a dealer code, as the federal government is the only entity beyond a dealer who can buy directly from an OEM), and bills the fleet. Vehicles are titled in the name of the fleet, by the delivering dealer.
• Directly through a “fleet minded” dealer. The process is very similar to the above, with orders processed by the dealer rather than an intermediary fleet supplier.  

The difference between owning and leasing can often be in the form of the various fleet services that may be required, such as maintenance, fuel cards, accident management, etc. 

Some lessors are loathe to lease only; they far prefer to bundle the lease with services into a single contract. Dealers, even national fleet-minded dealers, don’t provide these services directly, and often partner with another supplier to do so.  

The point in all of this as it relates to sovereignty is that though the fleet manager usually will be asked to participate in a lease versus ownership study, they are seldom, if ever, the decision-making function. This is usually under the authority of the corporate treasurer, head of finance, even ultimately the CEO, not the fleet manager.  

Operating Versus Decision Making

The broader questions of the sovereignty of fleet managers do not lend themselves to easy answers.  

Does the fleet department operate in a manner that is free of “external control?”

Again, this could go either way depending upon how one defines such control. A CEO, or other very senior managers in a position to do so, can simply determine it is in the company’s best interest to eliminate company vehicles altogether, which has indeed happened.  

The same holds true for benefits: the form they take, and how they’re provided, if at all. An HR department can be told that the company will no longer provide full medical insurance benefits, or will move from a defined benefit to a defined contribution pension program (which many companies have indeed also done).  

The point is that no departmental function in any company, large or small, is truly sovereign. They can be merged with other functions, structurally changed, even eliminated altogether. 

And that “freedom from external control” is literally impossible, given the fact that senior management, ownership, or another entity that is ultimately responsible to investors would ever be willing to cede complete control to a department head.  

But as we’ve pointed out, there is nuance to the question, and it is generally based in the question of operation versus. decision making.

Earlier, we went over some of the items that constitute “administrative” functions that are at the heart of most day-to-day activities in a fleet department. This includes handling phone calls, driver inquiries, processing orders, approving maintenance expenditures, monitoring billings, etc. 

It is as likely that middle or senior management isn’t very interested, nor has the time, to control these activities, as it is equally important that the fleet department must be sovereign in performing these tasks.  

Note here that there is indeed decision making in which fleet managers are generally, and should be, sovereign. Some examples include:

• Repair versus replace: When vehicles are damaged in an accident, depending upon the age and/or mileage and the company replacement cycle, the fleet manager must often determine whether to repair the damage, or declare the vehicle a total loss and replace it. As the company SME in matters of fleet operations, this generally financial fleet decision should remain with the fleet manager, free of external control.
• Mechanical repairs: One of the basic tenets of managing maintenance and repairs requires the judgement as to whether or not what a repair facility wishes to do and what is necessary, this is usually based in safety considerations along with value as a used vehicle.  The decision requires experience and knowledge that the fleet manager has within the company structure.
• Vehicle specification: One of the basic responsibilities of fleet management is vehicle selection and specification. Fleet managers, provided they have worked with driver functions to understand the job, will determine how vehicles will be equipped, including optional equipment. This is not only an operational decision, but it is also a financial one that is best left to the fleet manager’s experience and discretion, sovereign and unencumbered.  
• Outsourced versus in-house: This can be a tricky one. There are, as mentioned earlier, both administrative and management functions in any fleet department. It is best to consider outsourcing administrative functions: registration renewals, payment of parking tickets and tolls, even order processing. But those management decisions, such as the three listed previously, should remain in house. But performing any tasks in house can require staffing levels for which a department head must make the case and receive management approval. A fleet manager cannot completely control head count, so the decision between outsourcing and in-house functions is not entirely sovereign. But fleet managers must decide between the two options before the possibility of having to make a case to management for staffing levels. Sovereignty?  Not quite, but there is some here.

Do Fleet Managers Have Sovereignty?

Is the fleet function sovereign within the corporate structure? The answer, as we see, is not simple. More or less, the answer is both yes and no.

There are functions, primarily operational but in some cases financial, in which the fleet manager’s responsibility and authority is, and should be, sovereign and free from “external control.”  

But there are also those decisions where, though the fleet manager may well be the company subject matter expert, the ultimate authority is indeed external. This is mainly at the middle or senior management level, primarily due to the greater responsibility these managers have to investors and shareholders.  

It has long been recommended that fleet managers develop good relationships with all stakeholders in the fleet function, both at the operational as well as the management level.

In the search for sovereignty, fleet managers would do well to exhibit the kind of decision making skills that can create a comfort level with their judgement. The more comfortable management is with that, the greater sovereignty the fleet function can enjoy.