The Car and Truck Fleet and Leasing Management Magazine

What Manager Accepts a 20% Defect Rate ?

Fleet Managers Do

September 2006, by Mike Antich - Also by this author

The accident rate for fleets averages around 20 percent, with some industries, such as pharmaceuticals, even higher. In other words, 20 percent or more of your vehicles will be involved in an accident annually. In terms of your fleet safety program, any vehicle-related accident should be viewed as a defect.

What type of company would view a 20-percent or more defect rate as acceptable? This is an important question, especially when this defect is a controllable fleet expense. Of the 20 percent of vehicles involved in an accident, about 40 percent are involved in preventable accidents resulting from driver negligence. "If 40 percent of all accidents are preventable, this presents a huge opportunity to reduce what a fleet spends on accidents-related cost," said Maurice Chenier, program manager, safety solutions for GE Commercial Finance Fleet Services. "Overall, accidents represent 14.2 percent of a fleet's total expense. If a fleet can find a way to eliminate preventable accidents through driver training and other means, it would drop the expense rate to just over 8 percent."

In today's fleet management world, few areas remain where such dramatic savings can be achieved. "Since a key part of a fleet manager's job is to reduce accident repair costs, many find it counter-intuitive that expenses can be reduced by incurring expense" said Chenier. "The real cost savings occurs when you train your drivers to drive safely. If a driver training program results in fewer accidents, the payoff is tremendous." Chenier calculates that the cost ratio between training a driver and avoiding an accident is a 70 to 1 return on investment, based on the cost of the accident versus the cost of training a driver.

Fixing Bent Metal is Expensive

There are two cost components to fleet accidents. The first is the actual repair of the vehicle. The second is liability cost, which can run the gamut from tens of thousands of dollars to potentially millions in a high-profile incident.

Even the simplest fender bender costs $500 or more. The industry average cost to repair a fleet vehicle involved in an accident is SI ,848.36. When other cost components of an accident are included, such as loss of use, liability, workers' comp, and other indirect expenses, the total cost exceeds $ 10,000 per incident.

The National Highway Traffic Safety Administration (NHTSA) estimates the costs to be even higher. According to NHTSA data, the total average cost per incident is $ 16,400. Fleet industry studies indicate a lower figure, but nonetheless still substantial. "CEI has done a number of studies based on customer-provided data. Based on this, we calculate the average total cost of a fleet-related accident is approximately $ 10,000," said Vincent Brigidi, director of strategic account services for The CEI Group. The $ 10,000 figure does not include the number of hours a driver is out of the field and the resultant productivity loss. In the pharmaceutical industry, this productivity rate is calculated at $300 per hour for a sales representative. "If a driver were to be taken out of the field for 6 to 8 hours because of an accident, this alone would represent a productivity loss of $2,400," said Brigidi.

Focus on the Driver and Not the Asset

"The goal of a driver risk management program is to prevent vehicles from colliding in the first place," said Chenier. In this vein, fleet managers may need to view accidents from a different perspective than just repairing bent metal. The true cost savings are in accident prevention and not in accident repair cost reduction.

"You can utilize a solid accident management program and squeeze every dollar you can out of a repair, but, in the end, you may not be saving anything," said Brigidi. For example, if a licet has 100 repairs in a year and it is able to reduce (or avoid) repair costs by $ 100 per repair, this would represent a $ 10,000 savings across the fleet. "But if you reduce the number of annual accidents from 100 to 90, you have $ 100,000 in savings when you factor in the savings from direct and indirect costs," said Brigidi.

The cost savings are even more phenomenal if you prevent a fatality. The average financial cost for a fatality resulting from a fleet accident is $ 100,000 to $200,000 based on industry data. Just one incident can devastate a fleet budget. "If you were able to cut $ 10,000 per year off your accident management costs over a 10-year period, a single lawsuit can erase all 10 years of cost-cutting efforts" said Brigidi.

Statistics such as these have caught the attention of fleet managers and their counterparts in risk, HR, and legal. Fleet services companies report that the focus of RFPs has shifted overwhelmingly from only accident management to inquiries that include a full suite of risk management products. Unfortunately, what motivates some fleets to focus on driver risk management is a recent fatality or very expensive liability settlement. Regardless, a 20-percent accident rate is no longer acceptable for our industry. To reduce it, we must focus on the cause (the driver) and not the symptom (the accident).

Let me know what you think.

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