A prudent question is one-half of wisdom. - Francis Bacon
The beginning of wisdom is the definition of terms. - Socrates
A man begins cutting his wisdom teeth the first time he bites off more than he can chew. - Herb Caen
From the errors of others a wise man corrects his own. - Publilius Syrus
No one has ever accused me of giving up on a fight I believe in, although some of you probably say, "Quit kicking a dead horse."
I wanted to start the New Year with a new slant on an old topic (it's really a crusade): depreciation and residual values as a cost factor. You know I've harped on this for years, pleading with fleet managers to employ (and follow - that's the tough part) an honest lifecycle costing analysis.
The facts are that many truly professional fleet managers do undertake such an analysis but are then blinded by some huge incentive check that then makes his or her boss galactic with joy. That's why I know you're ready for a new perspective on this most costly of all vehicle expense.
Terry Flesia is one of those special people who's not only first-hand experienced in fleet management but knows a lot about money and is especially good about racking data into his computer. He's been my friend for many years going back to his days in running the Ingersoll Rand fleet and later, moving out west, the Wickes (furniture) fleet. He's smart, writes for us, and is a true consultant (not a guy "out of a job").
When we asked him to give our fleet manager readers a compelling article on my favorite topic, he accepted and came in with what you've seen before, but a high-level, financial and practical, case analysis that no one can ignore, in my opinion. It's so good, it will appear as a dynamite 3-part series beginning in the next issue of our sister publication, Fleet Financials.
Yes, you should be alerted, as your bosses will be reading it if you operate a large commercial fleet.
What the opus did for me was to clearly see the definitive difference between the larger commercial fleets compared to the "medium" and "smaller" size fleets. The big fleets not only get the regular "street" incentives (anyone operating 15 or more or buying 5 or more in a year) but also qualify for CAP monies. Know that CAP dollars depend on various elements; i.e., purchase volume, percentage of your fleet with one factory, etc.
It's the CAP money that fills the gap of residential loss, leading a number of fleet managers to toss the lifecycle data out the window. Unfortunately, these same fleet managers may not really know (unless you employ the Flesia analysis) if you got a good deal or not.
However, of paramount significance is that medium-and smaller-size fleet managers, who do not qualify for CAP monies, need to use the lifecycle analysis as a total bible for purchasing. No one fills the money gap for them on comparative depreciation. You have to make a pure cost-conscious buying decision.
My point is that the "big" fleet manager is required to be a negotiator. In today's environment you probably have help from a management committee or someone who works with the CFO.
The "medium" and "small" fleet manager needs to be even more professional as a buyer sifting through comparative projected residual data in making a decision. You can also pray that your fleet gets much larger to qualify for CAP, which will make your purchasing choices more of a breeze.