Ultramar Diamond Shamrock Cuts Fleet Costs by $500,000

Commercial fleets can substantially cut their cost of operation by adopting the fleet utilization practices employed by daily rent-a-car operations. At least this is what Randy Burwell thought after he was hired as the fleet administrator for Ultramar Diamond Shamrock, a refining and marketing company headquartered in San Antonio, TX, which operates a leased fleet of 1,509 units.

Prior to getting the fleet administrator job, Burwell worked a number of years in the daily rental industry; first as a city manager for Hertz, and later as a district manager for Advantage Rent-a-Car. “I've taken the rent-a-car utilization concept and brought it to Ultramar Diamond Shamrock,” said Burwell. “We’re in a competitive environment and all departments have to get their unit cost down, which includes fleet. I try to run the fleet operation like it were my own business.”

After studying fleet utilization with his fleet management company, PHH/Arval, Burwell came to the conclusion that Ultramar Diamond Shamrock could lower its lease payment by $21,000 a month by simply reamortizing its truck fleet.

“Since we utilize open-end leases, this is not a pure $21,000 per month savings as funds would have been netted at the end of the lease,” said Burwell. “The net present value of the money did represent a yearly savings of $22,300.” Based on his study of the vehicle usage patterns of the oil company’s fleet, three separate lease terms were developed in order to optimize amortization of these trucks. They are: 45, 50, and 60 months.

“If a truck is running 2,200 miles per month, I will put the truck on a 60-month lease,” he said. “If it is running 3,500 –3,900 miles a month, I will amortize it at 45 months.” Typically, Ultramar Dia-mond Shamrock will not keep light-duty trucks in service for more than 85,000 miles.

In the past, Ultramar Diamond Shamrock used the same 40-month amortization rate for all of its trucks, regardless of mileage.

Right-Sizing the Fleet

Ultramar Diamond Shamrock’s fleet is divided into three areas: pipeline operations, refineries, and retail operations.

Approximately one-third of Ultramar Diamond Shamrock’s fleet is utilized for pipeline maintenance. Another third of the fleet is used at its six refineries in the U.S. and one in Canada, and about 450 vehicles are used for the company’s retail operations.

Previously, the retail operations utilized minivans as its company vehicles. Burwell re-examined the necessity for area managers and salespeople in retail operations to be assigned minivans.

“In the past, the area managers used to haul around items from store to store, which today is no longer the case,” said Burwell. As a result of the change in responsibilities by area managers, Burwell recommended that retail operations switch from using minivans to Impalas.

“This represented a savings of $234,000 per year after calculating life-cycle cost provided by PHH/Arval.” Also, Burwell felt that sedans were less inclined to experience soft resale values as opposed to minivans, which increasingly were being bypassed by used vehicle buyers who were more interested in acquiring sport/utility vehicles.

In some cases, another problem would occur with minivans when the managers would remove the third seat from the van to give them more cargo-carrying capacity. “But when it came time for resale, invariably, no one could find the removed third seat, which reduced the minivan’s resale value,” added Burwell.

The switch from minivans to sedans has been gradual through vehicle attrition. “As a minivan is retired from service, it is replaced by a passenger car,” said Burwell.

Sedans are amortized at 50 months.

Tweaking the Selector

When developing the company’s new-model selector each year, Burwell pays close attention to vehicle fuel economy, as well as total lifecycle cost.

“Our fleet travels 25 million miles a year. If I can save a penny per mile, that’s a savings of $250,000 per year,” said Burwell. In addition, he has sought to reduce fleet costs by continuing the company’s past practice of ordering the majority of new fleet units in the fall. Burwell’s goal is to order 75 percent of his new units by early fall each year. For the 2001-model year, PHH/Arval documented for Ultramar Diamond Shamrock more than $100,000 savings by replacing units in the fall. By ordering early they were also able to take advantage of additional incentives offered by General Motors, its sole source fleet vehicle supplier, including free AC for the pickups.

Second, by ordering early, Burwell remarkets his out-of-service units prior to Nov. 15, which is when resale values usually begin to plummet following the seasonal slackening in used-vehicle demand by dealers. By utilizing fleet planning when ordering, our goal of acquiring fewer than 1 percent of vehicles out of stock is reached.

“In addition, if you delay in selling used vehicles after Jan. 1, you end up paying the entire year’s property tax to the lease company,” said Burwell.

Balancing Fleet Utilization

Whenever economically feasible, vehicles are reassigned to maximize a return on the investment. A good used truck may be assigned to a refinery or products terminal where acquiring a new vehicle is not justified.

Another example of balancing fleet utilization was when a company project required the use of 11 vehicles for a four month period. “Instead of renting the units, existing vehicles were selected from the fleet whose lease payments were already satisfied and which had been fully depreciated,” said Burwell.