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Market Trends

Managing the Uncontrollable

February 25, 2008, by Mike Antich - Also by this author

The country’s best managed fleets are exemplified by the Top 300 commercial fleets. Operating a fleet of 1,000 vehicles or more is an expensive proposition and, with most companies, it represents the second-highest corporate expenditure after payroll.

However, these are tough times to operate a fleet. Costs are increasing. Fuel prices remain elevated, resale values have softened, acquisition costs are up, incentive dollars appear to be diminishing, and there has been an uptick in accident-related expenditures. Throughout corporate America, fleet managers are under relentless pressure from senior management to reduce expenses, make fleet operations more efficient, and maximize driver productivity at the lowest possible cost.

However, managers of well-run fleets will tell you it is getting harder and harder to find significant cost reductions. The easy fixes have been done long ago. Fleet budgets remain flat, while costs go up. “We are in a flat budget environment for our fifth consecutive year. Managing my fleet is a challenge,” said one highly respected fleet manager.

Fleet (Crisis) Management

Many outside factors, over which fleet managers have little control, conspire to thwart fleet cost reduction initiatives. This current decade is shaping up to be one of the most tumultuous in the history of fleet management.

The past eight years have revealed (at least to me) the precariousness of our control over fleet expenses. Following 9-11, there was an overnight meltdown in residual values, which took the industry three years to recover. Then Hurricane Katrina struck, causing fuel prices to skyrocket to $3 a gallon, literally overnight, where they have pretty much remained ever since.

Now, the country is in the midst of a subprime credit meltdown and a related near-collapse of the new-home construction market, both of which are impacting fleet operations. The bread-and-butter customers of out-of-service fleet vehicles are generally buyers with C and D credit, namely subprime buyers who buy from independent dealers. These dealers are having difficulty getting subprime customers financed.

In addition, uncertainty about the economy is causing many of these difficult-to-finance buyers to defer replacement vehicle purchases as long as possible. The net result is a softening in resale values for late-model, high-mileage fleet vehicles. Likewise, the dramatic and ongoing slowdown in new-home construction has decreased buyer demand for used pickups and full-size vans. The housing slowdown is hurting contractors, who generally buy these vehicles. How this will play out is anyone’s guess; however, nothing on the horizon indicates this will be a short-term phenomenon.

It’s not all doom and gloom. During this decade, the quality of fleet vehicles has improved dramatically, fuel efficiency has increased, and OEMs have extended powertrain warranties – all of which have led to decreased operating costs. However, these savings have not been enough to offset the impact of the increased cost of fuel. As a result, fleet operating costs increased 3 percent in calendar-year 2007 over the prior 12 months.

Proving Our Mettle

When the history of fleet management is written, this will be recorded not only as a very challenging decade, but one that validated the value of professional in-house fleet managers. These uncontrollable costs of doing business require the expertise of a professional fleet manager to mitigate their impact on the corporation.

In this tumultuous economic environment, fleet managers can easily save a company millions of dollars by implementing the right policies and selecting the right vehicles and suppliers. A professional fleet manager strives to reduce not only hard costs, but also soft costs. A fleet manager who reduces annual fleet expenses by $100,000 generates the equivalent of $1 million in sales, if a company operates at a 10-percent net profit margin. These fleet managers proactively seek to maximize the productivity and revenue-generating capacity of each company driver.

As such, the fleet managers of the Top 300 fleets are valuable members of the company’s management team, managing a multi-million dollar asset. They link fleet operations to the corporation’s overall mission. The fleet is a critical revenue-generation component of a company’s business plan. Successful fleet managers implement innovative initiatives, which are increasingly technology-based, to drive cost out of their fleet operations and establish the metrics to monitor performance. “Fleet Management 101” isn’t enough in today’s environment.

Exemplary fleet managers rise above the level of simply managing day-to-day work. They are proactive and anticipate the changes in their corporate environment. There is a strategic aspect of fleet management. Vehicle acquisition, replacement planning, funding alternatives, corporate green initiatives, safety programs, and sourcing alliances with manufacturers and fleet suppliers are strategic corporate decisions.

When uncontrollable market forces drive up the cost of fleet operations, it takes the expertise of a professional fleet manager to mitigate their financial impact.

It takes a professional to manage the uncontrollable.

Let me know what you think.

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Author Bio

Mike Antich

Editor and Associate Publisher

Mike has covered fleet management and remarketing for more than 20 years and entered the Fleet Hall of Fame in 2010.

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