Wheeler Dealers

irtually every federal operation is threatened these days by the prospect of budget cuts, downsizing and privatization. The vehicle fleet management division of the General Services Administration, which manages 149,000 cars, trucks and vans for agencies, is more vulnerable than most. That's because this big, highly centralized government operation has direct competitors in the private sector.

But the leaders of the Interagency Fleet Management System (IFMS), as the division of GSA is officially known, are trying to turn the federal budget situation to their advantage. They say that they leverage the purchasing power of the dozens of agencies they serve to save the government money.

Two years ago, GSA commissioned a study of its fleet management system by Arthur Andersen, one of the country's largest accounting firms. The study showed that in all but one category, IFMS' costs were lower, sometimes substantially lower, than its private-sector competitors.

In the late 1980s, the Army struck an agreement with GSA to turn over control of tens of thousands of its noncombat vehicles to GSA. Since 1993, the agency has assumed responsibility for 10,000 additional vehicles, and has agreements to add about that many more in the coming years.

IFMS director Les Gray says during the last decade the division has averaged 6 percent annual growth in revenues, while holding cost increases to customers to 1.6 percent a year.

Nevertheless, "a fair amount of people say we should privatize the whole thing," says GSA Administrator David Barram. "And we should continue to ask ourselves whether we should do that. But as long as we can do it better than the private sector, we ought to do it."

GSA's critics and competitors in the private sector are far from convinced. They argue that IFMS is too big and unwieldy.

"I don't think the federal government even knows how many vehicles it has," says Alfred Cavalli, a fleet management consultant and former president of the National Association of Fleet Administrators.

Boom Years

Federal officials, though, say they know full well the size and scope of the fleet they have to manage. Executive branch agencies, they report, operate some 380,000 vehicles. (The Postal Service has another 205,000). Agencies aren't required to use IFMS' services, but enough do that it controls 40 percent of the non-postal fleet.

The fleet operation, including new vehicle purchases, is funded entirely through fees charged to the agencies which are its customers. It receives no annual appropriation.

IFMS' boom years started in the mid-1980s. During a GSA-wide reassessment of operations, senior executives determined that fleet management was one of the agency's central missions and something it did well, so more attention was given to managing it more efficiently.

The Army agreement kicked IFMS' growth into high gear. From 1987 to 1992, the Army turned over 48,000 non-tactical vehicles in the United States, virtually eliminating a $100 million vehicle procurement appropriation and cutting 1,000 civilian jobs.

The thinking behind the Army's decision then was similar to what many agencies are facing now. The heady spending of the Reagan defense buildup was cresting. Facilities were closing. The Army was losing civilian jobs. Army leaders were looking for functions they could eliminate to compensate for the lost jobs and to save money, says William Neal, assistant director for transportation for the Army Deputy Chief of Staff for Logistics.

"It came down to a question of core competencies," Neal says. "The Army's core competency is to fight and win the nation's wars. GSA's core competency is managing a fleet."

Many agencies have come to share the Army's desire to shed functions, such as fleet management, not at the core of their missions. Some, though, still view their fleet operations as integral to their purpose and are not willing to relinquish control to GSA. For example, the Air Force continues to manage most of its own fleet of 107,000 non-tactical vehicles at bases around the country and overseas.

The Air Force uses some private management companies at training and research sites, says Col. Carm Walgamott, chief of the vehicle and equipment division in the service's Directorate of Transportation. But the service views the vehicles it maintains on bases in the United States as essential to its capability to provide air defense around the world.

"Contrary to the Army, we use our vehicles as part of our wartime mission," Walgamott says. "The vehicles support base operations, the purpose of which is launching airplanes."

Future Tense

Other agencies, too, have apparently decided not to make a wholesale move to GSA fleet management. IFMS' annual growth rate in terms of the number of cars it manages has slipped from a peak of 11 percent in 1990 to 1.4 percent last year.

A 1997 cost increase, the first since 1991, won't help IFMS draw new customers. The increase raises monthly rental fees between 3 percent and 8 percent, depending on the type of vehicle. For example, the most popular vehicle, the compact sedan, will cost customers $146 a month, up from $136. The mileage rate of 10.5 cents stays the same.

What's more, environmental laws at the local, state and federal levels could force GSA to increase its purchases of expensive vehicles that run on fuels other than regular gasoline.

In an effort to be responsive to such changes, GSA's fleet division has undergone a host of changes in recent years that have cut its payroll, reduced costs to customers and improved service. The fleet management division's workforce has gone from about 1,000 in 1990 to 800 today. During that same time, the number of vehicles it manages has increased more than 20 percent.

The ongoing challenge for IFMS is meeting the needs of government customers with widely varying vehicle management requirements. For example, while the Air Force considers fleet management essential to its operations, the U.S. Park Service allows each park to make its own decisions on managing vehicles.

"We come to mutually agreeable arrangements with our customers," Gray says. "We haven't had to try to mandate that people use GSA."

Keys to Success

GSA officials argue that IFMS, which has more than 70 management centers across the country, is able to give agencies the benefits of the economies of scale that come with running such a huge operation. In part because of its size, Gray says, the fleet division has been able to institute several management practices that other agencies would not be able to duplicate.

First, IFMS doesn't have to rely on an annual appropriation to buy cars and trucks. It has a revolving fund from customer fees and vehicle resales, much like a private company. The fund allows GSA to buy new vehicles more often than most agencies can, reducing costs for repairs and parts for older vehicles.

For example, the Air Force, which depends on annual appropriations to replace aging vehicles, is falling behind. "We are underfunded and we have been for the last five, six, seven years," Walgamott says. The service plans to buy 3,000 vehicles this year, compared to GSA's expected purchase of 30,000.

GSA also spends less on maintenance than do most smaller operations. The fleet division keeps a master database containing the maintenance records of every vehicle in the fleet. That allows GSA to monitor upkeep of each vehicle and notify customers when a vehicle is due for service.

Many agency officials acknowledge they would have difficulty duplicating GSA's record-keeping. The Air Force has been able to do so, but runs a fleet nearly as large as GSA's.

GSA officials also are aggressive outsourcers. Vehicle maintenance has been contracted out since the early 1980s and private auctioneers sell used government vehicles. Gray says the fleet division's view is that "if it's not a strategic function, outsource it."

Staying Competitive

Outsourcing is just one example of how IFMS uses management practices that have succeeded in the private sector. But there are vast differences between the GSA fleet division and private companies. Some work to the agency's advantage, others do not. Among the differences:

n No taxes. The federal government is exempt from paying state and local taxes, which can reduce GSA's costs significantly, depending on the locale. Even the gasoline GSA customers buy is tax-free. That saves agencies an average of 13 cents a gallon.

n Price discounts. The fleet division deals directly with manufacturers in negotiating prices for new vehicles, eliminating middleman markups. Large private fleet companies do, too, but as GSA's fleet grows, so does the size of its annual purchase and therefore the amount of its discount per vehicle.

n Lower marketing costs. Because most of its customers are aware of the services it provides, IFMS does not have to budget for marketing and advertising on the scale that a private company does.

n No profit margins. The fleet division is required to cover its costs, but it doesn't have to turn a profit, unlike private companies. Under current market conditions, fleet companies seek profit margins of 10 percent to 15 percent.

n Slow growth. On the other hand, private companies can more readily borrow money to finance new initiatives. GSA needs authority from the Federal Financing Bank, which is backed by the U.S. Treasury, to borrow money. Several years ago, GSA asked the Office of Management and Budget to allow it to seek such authority to add more cars to the fleet, but the request was denied. So the fleet operation remains dependent solely on fees.

In addition, GSA can't just add staff at will, so the growth of the fleet tends to be slow and cautious. Agencies that choose IFMS' services usually are phased in over several years so staff and information systems don't get swamped.

Gradual growth is also the norm in the private fleet industry, says Mark Reagen, assistant vice president for marketing with Wheels Inc., a national fleet management firm based in Des Plaines, Ill.

Although it is difficult to measure the pluses and minuses of so many factors, overall, the fleet division has managed to keep costs below those of its private sector competitors. At least, that's the conclusion of the 1995 Arthur Andersen study.

Auditors compared GSA's fleet operation with private companies in areas most important in that business-vehicle purchase price, operating cost per mile, maintenance and repair cost per mile, fuel cost, resales and financing rates. The audit found the GSA operation came out ahead in all areas but one, resale of compact sedans, a small portion of its operation.

IFMS' cost per mile of operating compact sedans in its fleet was 20 cents, as opposed to a 25 cent private sector average, the study found. It also showed that IFMS was able to negotiate an average purchase price for compact sedans of $10,765 in 1995. The private-sector average was $11,702.

However, some in the private sector contend the public sector has a different mind-set in accounting for the cost of running fleet operations even as they attempt to adopt private sector business practices.

Too often, public agencies focus on the initial vehicle cost, not the total cost of running the vehicle during its life. Companies now look at total system cost-purchase, operating cost and resale, says Reagen.

Reagen also says public organizations tend to ignore fixed costs, such as administration, support personnel and property costs associated with a particular operation. "They say, 'well, we already have the building,'" Reagen says. "That may be true, but the building has a cost."

Decision Points

Each agency that uses the IFMS has its own rationale for doing so, but the reasons usually are related to one of the business practices described above. For instance, with a large revolving fund built up from renting the 149,000 vehicles in its care, GSA is able to guarantee much faster replacement than other agencies. Officials at several departments say quick replacement is a key reason to keep their business at GSA.

Before the Army turned over its vehicles to IFMS, its vehicle management was decentralized. The decision to buy a new passenger van or pickup truck was up to individual installation commanders. The expense of repairs and poor mileage for aging vehicles was hidden in the installation's maintenance budgets. If a commander decided to spend more money on improving rifle ranges, vehicle replacement was put aside.

At the Army's headquarters level, new vehicles were bought with the same appropriation that funded purchases of certain tactical equipment such as communications equipment, Neal says. Keeping an aging fleet of sedans, vans and trucks on the road costs more each year. The defense budget and personnel cutbacks that began in the late 1980s only worsened the situation.

"When procurement resources began drying up, we lost the ability to purchase new vehicles," Neal says.

On the heels of its agreement to turn over its U.S. vehicle fleet, the Army recently gave GSA about 1,000 vehicles in Panama and is just starting to relinquish its 7,000-vehicle fleet in Europe.

Like the Army, Amtrak is turning over its fleet of about 1,000 light-duty vehicles to GSA, because of the promise of quicker replacement of vehicles than the railroad could afford.

"Amtrak has always had a vehicle life cycle based on age, mileage and maintenance cost," says Edward Stuhl, the railroad's automotive manager. "But we couldn't afford to keep up with our replacement schedule."

GSA's massive record-keeping system led the Army Corps of Engineers to let IFMS do the driving. Like most other federal organizations, the Corps has vehicles spread across the country, many in remote locations. Developing a maintenance tracking system similar to GSA's would be difficult and time-consuming, says Bobby Hill, chief of the Corps' Transportation Division.

"Why should we be establishing our own system when they have one already in place?" he asks. "They are able to negotiate better discounts, just because of the sheer size of their fleet operation and volume of work they are responsible for."

"A Lot of Ifs"

But transportation officials in agencies are quick to note that their loyalty is to their own organizations, not to GSA. Although they are happy with GSA's service and costs, agency officials have their own pocketbooks and missions to worry about. GSA fleet division customers would not hesitate to jump ship if a better offer came along or the fleet division couldn't meet its promises.

Hill, who begins turning over his civil engineering vehicles to GSA in 1997, says the decision was based on a disputed Army Audit Agency report. Since the auditors based their recommendation on only a fraction of the corps' 60 districts, he has adopted a wait-and-see attitude before endorsing IFMS.

"The only way we're going to know is to convert [to GSA] and compare the bills," Hill says. "It depends on how everything sorts out. There are a lot of ifs."

In addition to cost, transportation officials monitor service. The drivers of Amtrak's railroad maintenance vehicles can be tough customers, Stuhl says.

"I certainly get a lot of feedback from Amtrak drivers," Stuhl says. "Our vehicles are not something to drive down the highway to get to a certain point. They are tools used get to the job and perform your job when you get there. If your tool doesn't work, that's very important to you."

Slow growth is expected to continue within IFMS in the near term. As the fleet division begins taking control of the Army's vehicles in Europe, officials are discussing the service's noncombat fleet in the Pacific region. But other agencies, either because of their mission or the way they do business, would have difficulty relinquishing their fleet operations.

Another hurdle GSA must clear is the requirement to buy costly alternative fuel vehicles. Half the vehicles agencies buy this year and 75 percent from now on must run on electricity, natural gas or ethanol. That's up from 33 percent last year and 25 percent in 1995.

The vehicles are much more expensive and are not available in large numbers, federal officials say. Keeping up with the regulation "is getting tough," says the Air Force's Walgamott. "We pride ourselves in supporting it, but as requirements get higher and higher, it gets tougher and tougher."

Barram is realistic about the fleet division's future. He would like to see additional growth, but also acknowledges that as the trend toward privatization continues, an organization has to be prepared for all options.

IFMS needs to continue looking for savings, Barram says. If difficult times arise, GSA will use its recent experience in reinventing several of its operations in deciding where to make cutbacks.

"We know what to look at," Barram says, "as we decide when and what to expand and when and what to contract."

Bernard Adelsberger is a Washington-area freelance writer who has been covering the federal government for more than 10 years.