How Fleet Managers Use Innovation to Cut Costs for Their Companies
By occasionally holding over vehicles at closed-lease end, FCCI Insurance Group Fleet Administrator Cindi Armstrong lowers her rental expenses, which had averaged $1,200 to $1,400 per vehicle, per month. By shortening the lease term on the cars in the Diebold Inc. fleet, Fleet Manager Linda Taylor finally began to see some resale value on those vehicles. The above two cost-cutting measures may sound simple, but a little innovation can cut fleet costs for your company. Following are some fleet manager innovations and cost-cutting measures that you can use to impress your boss.
Pool Car System Saves Money For FCCI Insurance Fleet
At FCCI Insurance Group in Sarasota, FL, cars are needed for consultants or branch office employees who fly into Sarasota to work at the corporate head-quarters in Sarasota for extended periods of time. By working closely with the departments that are bringing in these employees, opportunities are identified to use available pool vehicles instead of renting vehicles. With vehicle rentals averaging $1,200 to $1,400 per month, Armstrong says real savings have been realized. Other times, local fleet dirivers or out-of-town fleet drivers, who come into the office for meetings, will ask Armstrong to coordinate service for their assigned vehicle and arrange for the use of a pool car, eliminating the need for a rental. “Another cost savings occurs be-cause there is no driver downtime,” Armstrong said. When she recently received a request for a two-month lease of a pool car and none was available, Armstrong came up with the idea to extend the lease on a closed-end leased vehicle that was due to be turned in to the leasing company. “It made sense to hold the leased vehicle over for a few more months to avoid a potential rental expense of about $2,800,” she said. Armstrong described how she saved money by re-negotiating with the leasing company for an additional year on a vehicle that was at (closed) lease end for a lower monthly rate. “We needed the use of an additional vehicle for very low-mileage use for one year,” she said. “We didn’t want the ex-pense of a rental, but didn’t want to continue to pay the original high-mileage lease term on the vehicle we had avail-able, either.” Armstrong recently cut the number of pool cars in the fleet from eight to six. This cut was based on pool car utilization studies that are used as a guideline for the number of pool cars that are needed. If pool cars are sitting unused in a lot, that’s a waste of money. “It’s better to occasionally pay em-ployees to drive their own cars for a business trip than to have pool cars that aren’t being fully utilized,” she said. The company pays the driver to drive his or her own car at the current IRS-approved rate for business use of a personal car. Another cost-cutting measure Armstrong has initiated is to negotiate the “turn-in conditions list” for closed-end leases. She says this approach helps reduce the turn-in charges assesed by the appraisers at lease end. At one time, Armstrong said, her fleet was charged $450 for a cigarette burn hole in a seat. The charge was eventually adjusted downward, but new negotiated contracts specifically limit charges for such occurrences. “Everything is settled upfront and incorporated into the con-tract,” she said.
Replacement Cycle Adjustment Saves Money for Diebold
Over the past two model-years, Fleet Manager Linda Taylor had seen the number of Ford Focus vehicles in her fleet at Diebold Inc. in North Canton, OH, grow from about 50 to about 400. The vehicles were on a 50-month lease, but 70,000 to 80,000 miles were being put on the vehicles in 20 months, and the vehicles were turned in early. “We were taking about a $5,000 loss on those vehi-cles because of the early turn-in time,” said Taylor, who oversees 3,400 vehicles. Meanwhile, the fleet’s vans and half-ton trucks were on a 50-month lease but were being turned in at 75,000 miles or roughly 32 months. “On the vans and trucks, we were seeing a credit come back on the resale value,” Taylor said. What Taylor decided to do sounds simple, but it cut costs for the company. She put the cars on a shorter-term lease and extended the vans to a 55-month lease. Taylor said the move takes ad-vantage of the value of the vehicles. “So you may be paying a little more for one set of vehicles and paying less for the other, but it nets out to zero at the end when we go to turn it in,” Taylor said. “We are taking advantage of our money, rather than taking the hit on some vehicles and gains on the others, we’re just taking advantage of the loss and gain at the same time. Rather than lose money on our cars, we’re paying a little more each month. And rather than gaining money on our trucks and vans, we’re paying less per month.” Another cost-cutting measure implemented by Taylor was to outsource two functions to a fleet management company: vehicle ordering and taking of driver phone calls. “It’s very unique,” Taylor said. “One of the first things I heard was that the salespeople will still call you, so we changed my number so that when they called, it would automatically go to [the fleet management company]. When you do outsourcing, you have to absolutely refuse to take phone calls. I was one person with 3,400 vehicles. A lot of companies still expect you to take phone calls, but I had the support of management. It saved a lot of effort and time. Sometimes we still have to send reminders and let people know they still have to call [the fleet management company].” Another cost-cutting measure Taylor has implemented is to negotiate three-year contracts with vehicle manufacturers. The Diebold fleet is currently on a three-year contract to do exclusive busi-ness with Ford Motor Co. Taylor said that by doing exclusive business with Ford, her fleet saves $2.5 million per model year. Dunn-Edwards Single Sources Manufacturer to Earn Rebate The fleet at Dunn-Edwards Corp. in Los Angeles has historically included vehicles from Ford, DaimlerChrysler, and General Motors. Current vehicles include the Dodge Intrepid, Dodge Cara-van, Pontiac Grand Prix, and Ford F-150. “But for 2002, that will probably change drastically,” said Dunn-Edwards Fleet Administrator Dominick Susca. When planning his 2002 selector list, Susca called his Ford, DaimlerChrysler, and GM fleet sales representatives and told them he was going to choose one manufacturer for 2002. All three of the manufacturers have responded to Susca with rebate plans. Although Susca had not chosen one as of press time, he says going with one manufacturer will save him a substantial amount per vehicle. The vehicles are on an open-end lease. “I told them I’d be buying 50 to 75 vehicles a year,” he said. “But to go to one manufacturer, I need a rebate,” said Susca, who oversees a fleet of about 320 vehicles. Crossmark Rents Vehicles Direct From Rental Car Agency Most fleet managers use their fleet management company to book and manage their rental vehicles used when their fleet vehicles need mechanical repairs or are involved in an accident. Eric Rickard, fleet manager for Crossmark in Plano, TX, recently began renting vehicles directly from a major rental car company, which resulted in reduced overall car rental expense. “I essentially cut out the middleman,” Rickard said. He said that in addition to saving money on the rental rate, that reduced expense was a major factor in his being able to factory order 100 percent of his vehicles, as opposed to the extra expense of ordering out of stock. “Lower rental expenses make it more cost effective for me to place a driver into a rental vehicle, and place a factory order, rather than pay high stock fees, and lose incentives,” Rickard said. Sara Lee Fleet Increases Focus on Maintenance Every time one of the 1,000 vehicles in the fleet of Sara Lee Coffee & Tea Food Service is due for scheduled maintenance, Fleet Specialist Carmella Walsh gets a report in the mail from her fleet management company, notifying her that the vehicle is due for scheduled maintenance. “We’re focusing more on preventive maintenance to control costs,” Walsh said. “It helps us avoid the cost of a brake job or possibly running out of oil.” Walsh said the notices from the fleet management company come in the mail, Walsh gives the notices to the drivers of the vehicles, and the drivers take the vehicles to local shops to get the repairs done. Lockheed Saves $2.3 Million By Rotating Vehicles The corporate fleet and asset management departments at Lockheed Martin started a program that involved plac-ing its surplus vehicles on the corporate Web site. Vehicles are offered for transfer between other Lockheed Martin fa-cilities before being sold to surplus vendors and the general public. Gerald Cumby, Lockheed Martin Aeronautics fleet manager and co-chair of the com-pany’s corporate fleet council, says this program has saved the corporation $2,315,712 in the last three years. “Some say that this was a cost-avoidance in lieu of savings,” Cumby said “If we have an understanding that it would have required $3,481,450 to purchase the needed vehicles new, in lieu of using the surplused vehicles, then we can readily understand and justify the docu-mented savings.” Lockheed Martin Aeronautics fleet management also implemented a vehicle rotation system for its company-owned vehicles by first identifying low-mileage and low-use vehicle assignments. The department then concluded that rotation or reassignment of those vehicles to the high-mileage and high-use vehicle-assigned departments would get the maximum use of the vehicles. Fleets Choose Fuel-Efficient Vehicles to Control Costs Although retail gasoline prices have stabilized, the high retail prices are having an impact on fleet selector lists. In addition to looking for how suitable the vehicle is for the job, fleet managers are finding themselves looking more closely at those miles-per-gallon numbers. The standard fleet car for FCCI Insurance Group in Sarasota, FL is a 4-cylinder Toyota Camry LE. “It averages 26 miles per gallon, said Fleet Administrator Cindi Armstrong. “That’s a very smart car to use for cost savings.” Dominick Susca, fleet administrator for Dunn-Edwards Corp. in Los Angeles, is in the process of deciding on which vehicle manufacturer it will use as its sole provider of vehicles. “When choosing between manufacturers, gas mileage may play a bigger part in choosing a vehicle,” Susca said. The King County, WA Department of Transportation, fleet administration, bought 30 Toyota Prius hybrid gas/electric vehicles this year. “The motivation for us is the 56 miles per gallon in the city,” said Fleet Man-ager Windell Mitchell. “That’s almost three times the mileage we were getting. “Over time, it becomes quite a cost-saving measure.” He added that he has downsized vehicles for some administrative staff, from intermediates to sub-compacts. Other agencies switched from sport/utility vehicles to pickups, in some cases saving up to $6,000 on the purchase price, in addition to the miles-per-gallon improvement. At least one utility fleet is looking to save on fuel costs. Otter Tail Power Co. in Fergus Falls, MN purchased a Toyota Prius as a pool car in January of this year. “We’ve been averaging about 44 miles per gallon on certain routes,” said Otter Tail Manager of Transportation Dean Swanson. Consolidation & Stan-dardization of Fleet Cuts Costs Before the Washington, DC Department of Public Works Fleet Management division consolidated and standardized its fleet, the average age of its vehicles was about 14 years. Jeffrey Jones, dis-trict maintenance repair manager for the department, said each separate agency purchased its own vehicles, with no standardization to their purchases. “That made it tough for us to replace the vehicles and to stock the parts needed to repair the vehicles,” Jones said. Jones said that Fleet Administrator Ron Flowers worked with the DC budget and procurement offices to not only purchase new vehicles, but also negotiate for fleet management to take control of all the vehicles throughout the department. Last year, the department received more than $16 million to purchase new vehicles. Before, that money would have been spent by the separate departments to do their own purchasing. Now, it is the agencies’ responsibility to let the fleet department know what its needs are. “Based on needs, our customers now have the option of leasing or purchasing a vehicle from us,” Jones said. In addition, fleet administration has created motor pools throughout the city, giving the agencies a third option. By spending $16 million to purchase new vehicles, the fleet’s average age is now five years, instead of 14 before. “Next year our funding for Department of Public Works equipment will be ap-proximately $8 million, instead of the $16 million we spent this year,” Jones said. “We’ve replaced about 80 percent of our mission-critical equipment. We’re not spending the big dollars to do the major repairs. Now we’re more into the preventive maintenance cycle rather than the repair cycle.” Jones said the amount of money put into parts inventory has also been reduced. Last year’s inventory was about $1.4 million. This year it is at about $850,000. 2 Public Sector Fleets Raise Minimum Stan-dards to Improve Utilization A department director at Lee County, FL, used to call Fleet Manager Marilyn Rawlings to complain that every time he went to use the car, he needed to jump start the battery. Rawlings looked into the situation and found he had only used one tank of gas in six months. “I thought we might have a problem with our software system or something, but I realized he had averaged only 22 miles a month, yet he had a county vehi-cle,” Rawlings said. After looking into vehicle utilization at all county departments, Rawlings and the fleet department decided that unless a driver drove at least 500 miles per month, he or she did not warrant having a county vehicle and the driver would be reimbursed for driving his or her own vehicle. Meanwhile, Rawlings found that because organizations these days are being asked to do more with less, she was spending a lot of time taking phone calls from various departments and defending the number of maintenance hours she was billing to the various departments. “We had to research it and then go back and talk to the mechanic to find out how much time was spent on each repair,” Rawlings said. “It got to the point where we were doing a lot of defend-ing.” The solution Rawlings came up with was to bill the departments a straight 20 cents per mile for their vehicles. But to solve the problem of those vehicles that were under-utilized, Rawlings included a 500 minimum miles per month rule. If a vehicle is driven 20 miles per month, for example, that department will still get billed for 500 miles. “If they complain, I’ll say, maybe you don’t need a vehicle,” Rawlings said. “It makes them look at how they are using a vehicle, and I’m not the bad guy. It saves big time in administrative time.” Rawlings added that the program has generated revenue for her department, enough even to offset the increased price of fuel. Another public sector fleet, the King County Department of Transportation, has also looked at the utilization levels of agencies with assigned vehicles. Fleet Manager Windell Mitchell said his de-partment assigned a minimum standard of 850 miles per month, or 10,000 miles per year for vehicle assignment. Those departments unable to meet those stan-dards must use pool vehicles. “Since last year we significantly increased pool usage and reduced 30 vehicles from the fleet,” Mitchell said. County Saves by Sharing Fleet Management Programs About three years ago, the Palm Beach County, FL fleet management division began overseeing maintenance operations for 120 support vehicles of the county’s fire and rescue department. Those vehicles include everything that’s not a fire truck. But the fire and rescue department did not have an up-to-date work order system, and couldn’t sort data or do reports. The department was looking for an automated work order system to track things such as mechanic productivity and time spent on repairs. Doug Weichman, director of Palm Beach County Fleet Management, devised a way to hook up fire and rescue to the fleet management division’s comput-erized system. “We had an automated work order fleet management system that tracks repair history, preventive maintenance, technician productivity, and other reports such as how many vehicles have had brake jobs,” Weichman said. “So they merged into our work order system and now they can track those things.” Weichman said the fleet management division already had vehicle identification numbers of the fire and rescue vehicles in its system, but the longest step in the process was getting fire and rescue’s parts and inventory system online. “So we had to load all the parts num-bers into our inventory system, and that took about six months,” Weichman said. Fire and Rescue looked at other systems, but the cost would have been $200,000 to $300,000, Weichman said. Instead, Fire and Rescue will pay the fleet management division a fee of $25,000 per year for the first two years, and $20,000 per year for the three years after that, generating income for the fleet management division while saving money for Fire and Rescue.