The Car and Truck Fleet and Leasing Management Magazine

Industry Best Practices for Managing Fuel Costs

April 2007, by Chad Simon

Volatile fuel prices, lack of an infrastructure to support alternative fuels such as ethanol (E-85), compliance with stricter 2007 diesel emissions regulations, maintaining an environmentally conscious corporate image without overstretching the budget, and increasing mpg while satisfying drivers with vehicle selection — these concerns and more weigh on the minds of fleet managers struggling to keep their fuel expenses from spiraling out of control.

What are the Options?
Over the past couple years, fuel has been nipping at the heels of depreciation as fleet’s No. 1 cost, but just how high the peak and when will it be reached remain anyone’s guess. One way to streamline this headache is through a customizable Web-based fuel card program that provides real-time data on all fuel transactions. Proactive fleet managers can also help minimize the pain by encouraging drivers to regularly maintain their vehicles. GPS driver routing is yet another option.

Fleet managers may be surprised to learn that, in most cases, providing more fuel-efficient vehicles will not incite driver wrath. Now, more than ever, there is a plethora of models to choose from that can achieve 25 mpg or better without having to sacrifice safety, comfort, style, performance, luxury, or utility.

Boehringer Offers a Wide Selector
Based in Ridgefield, Conn., 90 percent of Boehringer Ingelheim’s 3,700-vehicle sales fleet comprises GM and Daimler-Chrysler cars, minivans, and small SUVs, according to Lee Miller, the pharmaceutical company’s manager of fleet services. In addition, the fleet operates 200 executive vehicles, including a handful of Mercedes-Benz diesels, and dabbles in the pickup truck market for the company’s animal health division. Miller added Subaru to her selector this year and, last year, added two hybrid SUVs — Ford Escape and Toyota Highlander.

Through the Wright Express fuel card program, Lee Miller (right), Boehringer’s manager of fleet services, and her team can monitor employee fuel transactions online.

All of Miller’s 2007 Chevrolet Impalas offer flex-fuel capability. “Unfortunately, ethanol is not readily available with the concentration of stations located in the Corn Belt region,” said Miller.

Stricter clean-air standards will limit the availability of the 2008 Mercedes-Benz Bluetec diesel engine in strict-emissions states, such as California and New York, until the 2008 calendar year, according to Miller.

Operating throughout the U.S., each driver logs an average of 25,000 miles annually. Lifecycles are three years or 75,000 miles, depending on the vehicle’s application.

Are Hybrids the Solution?
Miller is both interested and hesitant in purchasing more hybrids. “We are not going to partner with another manufacturer just because they make a hybrid. We are currently evaluating all manufacturers, both domestic and import, and will decide which makes and models best fit our business model and objectives,” she said.

One of Miller’s current hybrids was formerly an executive vehicle reassigned to site security and now used to patrol the pharmaceutical company’s 400-acre complex at 20-30 mph — ideal speed for maximizing hybrid mpg.

On the other hand, Miller is aware of other fleet colleagues who have obtained hybrids and experienced potentially long delivery times. Although the hybrid market has since softened, Boehringer Ingelheim instead instituted a corporate policy change from the executive branch down to increase fuel efficiency by purchasing vehicles able to achieve at least 22 mpg (combined city/highway). This effort eliminated conventional SUVs from the fleet’s selector.

“Depreciation has always been our No. 1 expenditure. But, in the event gas prices surpass $3 per gallon, fuel would become the highest expenditure,” said Miller. “We were prepared when prices went over $3 per gallon last fall. We were all on the same page with our budget people; we did some projections, monitored price trends, and revisited them in the middle of the year. Maybe we over projected a little, but we were in good shape.”

In anticipating the annual summer fuel price hike, Miller and her budget director will adjust accordingly.

Fuel Cards Keep Fleet Covered
In the early 1990s, Boehringer Ingelheim partnered with Wright Express (WEX) as its fleet fuel card provider because of WEX’s wide acceptance rate. The fleet tested the fuel card program in the worst U.S. coverage areas at the time. “We figured if we piloted the program that way, we’d be able to weed out where we would have problems. But it went really well.”

Drivers are provided a WEX fuel card and PIN number so that each transaction can be monitored online. “We receive fraud alerts as soon as something unusual occurs. We research and, in several occurrences, we turn the card off,” said Miller. “The program works. When you’ve got someone exceeding the parameters, you’re going to get an e-mail telling you there’s a problem.”

Because they cover so much ground, drivers are allowed to refuel up to three times daily. But, according to Miller, when fuel prices reached their peak last year, some of the fleet’s pickup drivers had their cards rejected because it cost them more than $100 to fill up their tanks. Many fuel stations also have maximum-dollar restrictions at the pump.

Miller states their policy restricts drivers to regular-grade-only purchases. The fleet achieves less than 7-percent premium-fuel purchases, even with executive vehicles, which, in many cases, require super-unleaded fuel.

Employee Recruitment & Retention Tools
Miller also realizes that, in order to stay competitive with her pharmaceutical competitors, she must use the company’s fleet-provided vehicles as an employee recruitment and retention tool. Otherwise, she would have to factor into her already-limited budget the added expense of training due to employee turnover.

The company recently selected the Saturn Aura mid-size sedan for its sales fleet. Miller said she took a chance on the Aura since it was Saturn’s first play into the fleet market, and the risk paid off. “We’re very pleased with the Aura. We’ve had nothing but kudos from the sales force, and now GM has announced they’re making a hybrid version. We plan to look at it as a choice for the 2008 selector,” said Miller.

“We want to make sure we offer vehicles that are not only practical, but also vehicles that drivers are going to want to take home for personal use,” Miller said. “Retaining an individual with higher-level vehicles is taken into consideration, as well as price, safety, comfort, and fuel consumption.”

In addition to employees, only spouses or civil-union partners are permitted to drive the vehicles.

Taking the Proactive Approach
Miller is also taking proactive measures to help maximize fuel efficiency. By developing an Intranet site for employees, she can discourage excessive idling and regularly remind drivers to practice preventive maintenance, rotate their tires, and check tire pressure.

“We’re trying to be repetitive and remind drivers. They may get tired of it, but it’s so important and can make such a huge difference,” said Miller. “I want to get to a point where I can give them hardcore facts. For instance, show them that if everyone regularly checks their tire pressure, here’s how much we can save. I’d like to work with our leasing company, Wheels, on something like that for the future.”

A SeviceMaster brand, Terminix drivers will be provided GPS phone capability to find the least-expensive fuel in their area.

ServiceMaster’s Diversified Fuel Card Program
In May 2004, ServiceMaster — owner of brands that include Terminix, TruGreen ChemLawn, Merry Maids, and ServiceMaster Clean — turned to Comdata for its fuel management services and has realized substantial savings through various programs, according to Tod Beers, director of energy, ServiceMaster. “We were looking for a program that was a little more diversified to provide on-site mobile fueling and better records,” said Beers.

With 2 million annual fuel transactions dispersed across 46 states, the Memphis, Tenn.-based company’s total fleet numbers approximately 19,000 vehicles, comprising mostly pickup trucks, cars, and trailers.

To limit fueling frequency, ServiceMaster’s salespeople are given a Comdata card with a PIN number and restricted to weekly fuel purchases.

“Before the fuel card program, our average salesperson burned 48-55 gallons of fuel per week; now they burn 30 gallons or less,” said Beers. “With the real-time reporting and the controls we have in place, we’re closely managing our fuel program.”

Purchasing in Bulk
Though ServiceMaster’s fleet purchases bulk fuel, it is working to reduce the number of onsite fuel tanks for improved efficiency. “We’re down to less than 20 tanks, mostly on the East Coast. What we’re seeing as far as pricing, we can do just as well through the Comdata system, and we’d like to get a consensus to get the last of them pulled out. The only advantage to having them is the reduced employee time fueling at the shop versus going to a gas station,” said Beers.

The company also participates in a fuel hedging program that has helped to minimize risk and variability. “That’s what a hedge is all about; you lock in your margins and reduce variability. Anybody who’s looking at a hedge thinking it’s going to reduce their costs, I’m not sure they’re doing the right thing. It’s not a cost-reduction tool; it’s a tool to help minimize risk,” said Beers.

GPS Phone Capability
Another cost-saving solution ServiceMaster’s fleet is working with Comdata to implement is providing drivers with GPS phone capability.

“The driver actually hits a button that says ‘find gas’ or ‘find diesel.’ The information goes into Comdata’s system and fuel optimizer program before providing the location of the cheapest gas station within a three-mile area,” said Beers.

“We’re in proof of concept and moving toward pilot. It’s working. We’ll roll out some more phones and maybe by mid-summer we’ll have launched the program.”

In a field test, Beers said he found a station selling fuel at $2.19 per gallon and, after sending data through the system, GPS found another station within two miles selling fuel at $2.03 per gallon. Beers expects to save 2-3 cents per gallon throughout the company just by informing drivers of the cheapest station to buy fuel.

“The system is not invasive to our drivers, it’s easy to use, and accounts for stations where we receive per-gallon discounts. It truly takes the driver to the cheapest location.”

The ‘Smart Truck’ Solution
Within the next five years, in addition to the GPS phone solution, Beershopes to discontinue the fleet’s fuel card program in its current implementation and work with Comdata to develop an onboard computer system that informs drivers when and where to fill up based on daily routing. When the driver pulls into the station, the fuel card would remain open long enough for the driver to complete the transaction before shutting off again.

“We’re in the process of putting ‘smart truck’ computers onboard our trucks,” said Beers. “Once the truck is routed for the following day, I’d like to take that route, send it through the fuel optimizer, and turn on the fuel card to work only at the gas station where I’d like that vehicle to be fueled. This alone could bring me 4-6 cents per gallon in savings.”

Port City Electric Obtains Gas Rebates
Among the reasons Port City Electric Co., based in Mooresville, N.C., implemented the BP Business Solutions fuel management program, issued by FleetCor, was the up to 4.5 cents-per-gallon rebate offerings for BP gasoline transactions, according to Tony Lozano, CFO, responsible for financial reporting and fleet plan implementation. He estimates the fleet’s total annual savings is $80,000, including rebates, fees, and the elimination of about 30 unnecessary fuel cards.

Port City Electric fleet drivers cover North Carolina, South Carolina, and Southern Virginia. The utility fleet spends approximately $40,000 per month in fuel.

Drivers — primarily superintendents and project managers in the company’s construction division — are given a PIN number and restricted to one transaction per day. Real-time exception reports monitor each purchase to help minimize abuse.

With a coverage area spanning North Carolina, South Carolina, and Southern Virginia, Port City Electric spends approximately $40,000 per month in fuel. The fleet has its own mechanic, which helps to manage vehicle maintenance costs and frequency.

Of the 130 users, nearly half drive company-owned trucks while the other half drive their own, said Lozano. The utility company’s 90-vehicle fleet comprises mostly Dodge, Ford, and GM trucks and vans that can achieve 20 mpg and have five-year replacement cycles.

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