January 2014, Automotive Fleet - Cover Story
Photo illustration by Armie Bautista.
Without a doubt, the No. 1 challenge facing today's fleets is cost containment, according to a survey of commercial fleet managers conducted by AF.
"There is always pressure to perform well financially, but there seems to be more pressure recently," said David Meisel, senior director – transportation & aviation services for Pacific Gas & Electric Co. (PG&E) in San Francisco.
The pressure is emanating from senior management instructing fleet managers to reduce costs.
"Our challenge is keeping the fleet consumption of capital to a minimal level, which is the same challenge we have every year," said Gregg Hodgdon, CAFM, director of fleet operations for E.A. Sween Company/Deli Express in Eden Prairie, Minn.
The pressure for spend reductions is occurring at all levels within organizations, and fleet operations is simply another department requested to cut costs.
"Continuing to identify significant cost savings is a challenge when most of the big ticket items have been done. We continue to look for vehicles with lower cost and greater fuel economy," said Charles Szymanski, manager, global property casualty insurance and auto fleet for PPG Industries in Pittsburgh.
Reducing fleet costs is a constant, never-ending struggle for all fleet managers. For well-run fleets, it is increasingly difficult to squeeze out additional cost savings.
"We've exhausted most of our cost-saving opportunities," said Steven Anderson, CAFM, fleet manager for Sentry Insurance in Stevens Point, Wis. "Our average cost per mile has increased for the first time in five years, primarily driven by acquisition cost."
This sentiment was echoed by many other fleet managers, as typified by the observation made by Jim McCarthy, director, vehicle management service for Siemens Global Shared Services. "There are limited opportunities for savings. There is no low-hanging fruit left, and new technologies are driving acquisition, collision repair, and maintenance costs higher, while offering only minimal fuel and ancillary savings," he said.
Many fleet managers report they are given a specific percentage-reduction goal in annual fleet costs and it is up to them to figure out how they are going to achieve it. As a result, fleets are adopting a multipronged approach to cost containment. Industry-wide, there is ever-increasing pressure to find creative ways to cut costs without impacting productivity and employee morale. One example is Novo Nordisk.
"There is a new push at my company to contain costs, while still providing employees with the vehicles they want," said Donna Bibbo, CAFM, fleet manager for Novo Nordisk in Princeton, N.J.
A key factor driving fleet cost increases is higher vehicle acquisition costs, while capital budgets remain static, or, in some cases, have decreased. In recent years, high resale values have helped mitigate some fleet costs, in particular depreciation. However, with resale values forecast to stabilize, there is concern about the future. "I'm worried about increased budget pressures with a leveling resale market," said Shawn Dusosky, manager – fleet financial services for General Mills Inc. in Minneapolis.
"One complication deals with making TCO calculations and the uncertainty of resale market projections," said Don Trestrail, fleet manager for Intel Corp. in Santa Clara, Calif.
"The pressure is always to do more with less. We have more initiatives, but a smaller budget," said Brett Switzky, fleet, trucking, and record retention manager for American Family Mutual Insurance Co. in Madison, Wis.
The mantra directing many commercial fleets is to increase value and decrease costs while still maintaining services and customer satisfaction.
"We are looking at reducing costs wherever we can and including technology to offset head count deficiencies," said Dusosky of General Mills Inc. "This year brings specific challenges. Coming off back-to-back record cost savings years, we are now facing an upward trend in our budgets. We have been able to add driver-based benefits, such as increased vehicle choice, selector diversification, and a tolling program, but, now, I foresee having to tackle the driver eligibility issue head on for fiscal-year 2015."
Key Focus is Driver Management
Driver behavior has come to the forefront as being one of the top challenges currently facing commercial fleet managers.
"The key issue is driver compliance," said Carl Nelson, fleet manager for AM-Liner East, Inc. in Berryville, Va.
Other fleet managers cited additional concerns. "Our top priority is managing driver risk assessment as part of the hiring process," said Sue Miller, CAFS, director, fleet management services for McDonald's Corp. in Oak Brook, Ill. "This also includes managing driver behavior — particularly DUI/DWI and reckless driving. Other aspects include preventing driver fraud of gasoline purchases, having drivers respect the company vehicle — particularly at turn-in time — and managing compliance with policy."
One manifestation of driver management revolves around driver communications. This is especially the case with new drivers. "My challenge is educating drivers new to the program and working with our fleet management company to communicate this," said Michelle Thur, fleet manager for American Greetings in Cleveland, Ohio.
Companies are also implementing programs to train employees to drive their vehicles more fuel efficiently. This involves eliminating fast starts and hard stops and avoiding excessive idling. Studies have shown that fuel efficiency can be improved by as much as 19 percent simply by reducing a vehicle's idling time. Encouraging drivers to drive within the posted speed limit, especially on highways, can also help with fuel efficiency.
One solution involves technology; however, some question the efficacy of this approach, especially in terms of modifying driver behavior. "Is technology always the answer to changing driver behavior?" asked Butch Christian, fleet manager for Quanta Services in Houston.