The Car and Truck Fleet and Leasing Management Magazine

20 Challenges Facing Public Sector Fleets in 2005

November 2004, by Mike Antich - Also by this author

1. Trend Toward Centralization: Consolidation of Public Sector Fleet Functions

Many municipalities are seeking to flatten the manage-ment of the overall organization, which includes fleet op-erations. In the past, you may have had a police department fleet manager, a fire department fleet manager, and a public works fleet manager. At some municipalities, these func-tions are being consolidated into a single municipal fleet manager function. Also, government fleet managers are taking on addi-tional operational responsibilities such as capital improve-ment management, sanitary/sewer, and facilities manage-ment. For instance, a number of counties, including Monterey, San Diego, and Santa Clara in California, have centralized their fleet operations. These counties consolidated their general services and public sector fleets. At some public sector fleet operations, there are a growing number of turf battles over centralization of services. Some consolidation was long overdue. For instance, the City of Oceanside, Calif., with only 400 units, had three separate fleet management organizations before centraliz-ing its fleet operation.

2. Budgetary Constraints on Fleet Operations Due to Reduced Tax Revenues

For the past several years, declines in tax revenues have resulted in a shortfall in meeting capital and operating funding needs for fleet operations. As a result, vehicle and equipment replacement has been deferred. With vehicles being kept in service for longer periods, maintenance costs and downtime have increased. Decreased budgets have also meant that fewer funds are available to train in-house technicians. Hiring freezes or staff layoffs have also occurred among in-house mainte-nance personnel. Compounding this problem is that skyrocketing swings in fuel prices are consuming scarce budget dollars. Plus, these expenditures, because they are unpredictable, are often unbudgeted. One way public-sector fleets are looking to generate revenues is by maximizing warranty recovery monies since most operate in-house warranty stations. Even though the national economy is improving, the government sector typically lags the private sector in re-covery since tax revenues are collected at a later time.

3. Common Cost-Cutting Initiative is to Defer Vehicle Replacement

At public-sector fleets, the pressure has been to defer capital expenditures by postponing the purchase of re-placement vehicles. This is especially the case if a fleet depends on appropriations from its agency’s general fund instead of a fleet replacement fund. However, even if a fleet replacement fund is in place, legislators have been known to “raid” the fleet replacement fund to balance a budget. The fleet budget is not sacred at the government level, except for emergency service units, but even here many police departments are being forced to extend service lives of law enforcement units. At municipalities, the general funds are getting ham-mered. Plus, the proliferation of tax-cutting initiatives are further decreasing or threatening general funds. Public fleet managers say that even if money is in the budget to acquire new vehicles, they have to be able to absolutely and un-equivocally justify each and every vehicle purchase. They must show that it is absolutely needed and that they cannot simply repair the existing model.

4. Fleet Downsizing & Utilization

Fleet downsizing is an issue more public-sector fleets are facing. The questions being posed are: How long should vehicles be kept in service? How much should a vehicle be used to justify retention? Public sector fleet managers get an undeserved bad reputation among user groups when they have to become the “utilization police” and remove under-utilized equip-ment or vehicles.

5. High Cost of Fuel Is Straining Government Fleet Budgets

Cost of fuel is playing havoc with public sector fleet budgets. For example, Milwaukee budgeted $4 million for fuel in 2004 for the city’s 3,100 vehicles. With the 30 per-cent increase in fuel costs, the City of Milwaukee has an additional $1.2 million in unbudgeted fuel expense. For those public sector fleets that operate SUVs, there is increasing discussion from elected officials on eliminating SUVs from fleet. For instance, Contra Costa County in California recently eliminated all SUVs from its fleet.

6. Trend Toward Fleet Standardization & Its Impact on Competitive Bid Process

As part of an effort to maximize fleet maintenance and procurement budgets, there has been an effort by some public sector fleets to standardize their equipment selection. However, fleet managers report that it’s tough to standard-ize operations and at the same time receive competitive bid proposals. They say that too much standardization can lead to sup-pliers assuming they do not have to bid low to be awarded the contract. A standardized fleet causes specifications to be written in proprietary language, which telegraphs to the supplier that you are going to buy its unit regardless of cost. The counterargument to standardization is that the money that standardization can save may be lost in the bid/procurement process.

7. Increased Scrutiny of Chargeback Costs By User Groups

At governments that employ chargeback systems, there is increased scrutiny by fleet user organizations of the costs for the fleet resources and services they utilize. Users want justification for their internal charges and a comparison with costs charged by external service providers. Customers are becoming more demanding and their ex-pectations for service levels are increasing. They are de-manding quality for their money and some are also request-ing new services. Fleet managers are concerned with controlling costs and charges to customers. At the same time, the fleet manager is looking to maintain service levels and/or enhance cus-tomer services. The two objectives are often in conflict with one another.

 8. More Senior Management and Elected Officials Are Investigating Outsourcing of Fleet Functions

Fleet operations are under pressure to identify cost sav-ings to help balance budget shortfalls resulting from de-clines in tax revenues. Increasingly, upper management and elected officials are challenging public sector fleet managers to consider subletting or outsourcing some in-house services as a way to reduce costs. Fiscal problems at the City of Pittsburgh, Pa., resulted in the privatization of its entire fleet maintenance department. The City of Abilene, Texas, likewise privatized its fleet maintenance. The State of Wisconsin and the State of Georgia have conducted pilots on outsourcing maintenance management of state vehicles.

9. Privatization Initiatives and Their Impact on Government Fleet Operations

The key targets at fleet operations for privatization are:

  • Parts Department. Which is more cost-effective: an in-house parts department or outsourcing parts management?
  • Maintenance/Service Department.
  • Tire Operations.
  • Fuel Management.
  • Paint & Body Department.
  • Towing.

    10. Hiring Freezes & Retirements

    Hiring freezes prompt management to consider out-sourcing certain fleet services. Some fleet managers report that as much as 40 percent of their maintenance staff will retire in the next five years. Hiring freezes and job cuts mean more work for those remaining technicians. This impacts the level of customer services. A minimal amount of money is spent on updating diag-nostic tools due to budget constraints. This has caused some younger technicians to leave for other jobs, making it much worse for those who remain. Most likely, many vet-eran technicians would also leave but won’t do so because they have invested so many years in a non-portable retire-ment system.

    11. Using a Managed Competition to Explore Feasibility of Outsourcing

    Fleet managers are asked to justify in-house operation through costly studies. Sometimes they are required to engage in a managed competition. For those unfamiliar with the term, a managed competition is a process that uses an outside private-sector service provider to compete with the incumbent in-house service provider in performing identical services.

    12. Federal Government Must Competitively Bid With the Private Sector by Law

    As specified in the Office of Management and Budget OMB – A76, federal government agencies must competi-tively bid with the private sector those types of jobs and services that are available in the private sector. As a result of the significant federal budget deficits and the forecast that these deficits will be continuing far into the future, there is a growing belief that the pressure to out-source will become a greater factor at federal fleet opera-tions.

    13. Alternative Funding Studies

    A number of fleets are examining alternative funding strategies for vehicle procurement. For instance, at the state level, in July 2004, the State of South Carolina launched a study to explore the potential benefits of switching from ownership of its light-duty fleet to leasing vehicles from fleet lessors. The project, which covers 4,900 vehicles and pieces of equipment, will also explore the costs and bene-fits of outsourcing maintenance, fuel management, and other fleet management services. At the municipal level, in June 2004, the Town of Groton, Conn., started an evaluation of its fleet of 250 ve-hicles and equipment focusing on alternative financing, vehicle replacement planning, and chargeback rate meth-odology. At the university level, the University of Alabama is analyzing vehicle leasing options, along with the feasibility of outsourcing its maintenance and motor pool services. However, despite these numerous studies, the over-whelming majority of public-sector fleets opt to own their vehicles.

    14. Difficulty in Meeting Alt-Fuel Fleet Acquisition Mandates

    It is difficult for public-sector fleets to comply with Clean Fuel Fleet Program and EPACT new-vehicle acquisition mandates. The dilemma is how to meet federal mandates while manufacturers are decreasing the number of alt-fuel vehicles offered. Examples are Ford’s withdrawal from the CNG market and GM’s dis-continuation of certain CNG models. Another problem that public sector fleets encounter trying to meet EPACT buying mandates is that hybrids do not count toward their quota and resale values are very low for dedicated alt-fuel vehicles. Plus, there is a lack of sufficient funds at many govern-ment fleet operations to acquire the mandated number of alt-fuel vehicles. There is also an ongoing lack of an alt-fuel refueling infrastructure both for in-house fueling and at private-sector fueling stations. It is also difficult to maintain alt-fuel vehicles at in-house maintenance facilities. There is often limited mainte-nance expertise among staff in servicing alt-fuel vehicles. End-user drivers are reluctant to drive alt-fuel vehicles, which means that these vehicles are often under-utilized. These users want to drive as they have in the past, get fuel the same way, and not have to be trained on new processes. As a result, they avoid using alt-fuel vehicles and instead seek out conventionally fuel units. This means there is an under-use of clean-fuel vehicles in fleet inventory and an overuse of conventional fueled vehicles by end users. Or, if bi-fuel vehicles are in the fleet, they invariably are fueled the majority of time with gasoline because users don’t want to drive out of their way to a station selling an alt-fuel.

    15. Fleet Departments are Under-Staffed

    Time management is one of the greatest day-to-day challenges of public-sector fleet managers. Successful fleet managers are gaining additional responsibilities, but with-out an increase in staff. To streamline operations, fleet managers are reviewing internal processes to eliminate all non-value-added func-tions. Staffing and time constraints are giving increased importance to selecting the right supplier with which to partner.

    16. Internal Challenges Faced by Public Sector Fleet Managers

    A common problem is that many senior managers and elected officials do not perceive government fleet opera-tions to be a core business. Most fleet managers will tell you their number-one headache is dealing with elected of-ficials and politics. These individuals typically lack the knowledge of the intricacies of fleet management. More and more public sector fleet managers are dealing with management audits of their operations. These audits also include fleet outsourcing studies. Increasingly, fleet managers are required to justify what they do and convince senior management that what they are doing is in the best interest of the municipality.

    17. Shortage of Qualified Technicians

    The ongoing difficulty in finding qualified technicians is due to the competitive job market. This is exacerbated by the loss of in-house technicians to the private sector. The key reason for the loss is that the private sector pay tends to be higher. Government operations often lack the funds and re-sources needed to keep the in-house maintenance staff up-to-speed on automotive technological changes. In addition, there is a “graying” of fleet maintenance personnel and a concern about the increasing number of retirements. Fleet operations lose institutional knowledge with these retirements. It is difficult to replace retirees with qualified people since so few in the workforce are looking for a job. The biggest challenge facing fleet managers is maintain-ing a broad level of service for their customers in an ever-tightening labor market. However, some fleet operations welcome technician re-tirements to replace those individuals who have become obsolescent by not keeping pace with technological changes.

    18. The Technician Shortage Promises to Get Worse

    The automotive industry, in general, loses approxi-mately 60,000 technicians annually through attrition, re-tirement, promotions, or career changes. Only 2 percent of all high school students are interested in becoming an automotive technician. Ask yourself: Would you encourage your son or daughter to become an automotive technician? This is the root of the problem. Often students are discouraged from considering this field as a career. Plus, today’s automobiles have eliminated the “shade tree mechanics” of the past, so fewer teenagers are being exposed to automotive mechanics. However, an additional 35,000 new automotive service jobs will be created annually between 2005-2010. The struggle is between dealerships and public sector mainte-nance departments to fill these positions. Typically, dealers win out because they can offer more competitive salaries.

    19. New Automotive Technologies will Further Decrease the Number of Technicians

    The increasing integration of computers into automotive design is ratcheting up the skill set required by technicians. As vehicles become more high-tech, there will be fewer qualified technicians on staff. Fleets are finding it difficult and expensive to keep technicians current with rapidly changing vehicle technol-ogy. New automotive technology requires ongoing training as diagnostic methods, codes, and tools are changing annu-ally. Other market forces are also at work that promise to make the technician shortage more severe in coming years. One is the increasing integration of computers into automo-tive design, which is ratcheting up the skill set required by technicians. As vehicles become more high-tech, one con-sequence will be increased downtime and diagnostic costs, since there will be fewer qualified technicians on staff. The impact of computers, although significant up to now, will explode dramatically in the near future. Today, technicians often double as computer programmers in servicing some cars that are equipped with many high-tech devices under the hood. The job takes strong diagnostic and strong com-puter skills. Within five years, it is predicted that a laptop will be as common a tool in a technician’s toolbox as a set of socket wrenches. In coming years, in-house maintenance departments at government agencies will be required to take on new ser-vice and repair responsibilities. These include:

  • Tighter diesel emission controls.
  • Hybrid vehicles.
  • 48-volt and dual voltage systems.
  • Tire pressure-monitoring systems.
  • Adaptive lighting technology.
  • Fiber optic communication.
  • Telematics.
  • Multiplex wiring systems.
  • Long-term: electronic by-wire brake, steering, and stability systems.
  • Long-term: increase in installation of telematic devices in OEM produced vehicles.
  • Long-term: fuel cell technology. New automotive technologies will also impact a number of operational areas in fleet operations, which will create new serviceability issues. They are:
  • New parts inventory.
  • New training for technicians.
  • New diagnostic capabilities.

    20. Maintenance Impact of 2007 EPA Diesel Emission Rules
    A key concern is the future impact on maintenance ex-penses following implementation of the new diesel emis-sion standards for new diesel engines in 2007. Plus, there is concern about the additional cost for the higher-priced ultra low sulfur diesel fuel needed to fuel these low-emission engines. The maintenance concerns are that lubricating oil re-quirements will be different for the 2007 diesels. This raises the possibility of needing to use different engine oils between two generations of engines – 2007 diesels versus pre-2007 diesels. The new engines will require training users and mechanics to use the proper oil.

    Let me know if there are any other challenges I might have missed.

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