Reduction in Fleet Costs is Temporary and Will Regress to Pre-Pandemic Levels

The COVID-19 pandemic has impacted fleet budgets in both positive and negative ways. The shelter-in-place mandates issued by state governments to inhibit the spread of the virus from March to June 2020 idled many fleet vehicles.

As overall vehicle mileages dramatically declined, it had a positive impact on fleet budgets, especially from the perspective of fuel cost due to the decreased gallons consumed and lower retail cost per gallon, both of which put downward pressure on fleet’s largest operating cost. In addition to fuel savings, fleet maintenance spend was deferred due fewer miles driven extending the time between prescribed mileage-based PM intervals, the fewer miles driven also reduced tire tread wear, and there were fewer accidents due to less time on the road and lower traffic congestion.

On the other hand, the pandemic negatively impacted fleet budgets with lower resale prices as physical auction shut down and buyer demand for used vehicles decreased. During the pandemic, fleets acquired fewer replacement vehicles because of the closure of all OEM assembly plants, forcing companies to keep older vehicles in service longer than planned.

This has increased some maintenance costs, especially for older vehicles scheduled to be replaced or increased rental expenses to fill gaps in fleet utilization. In addition, there was an increase in the theft of fuel and components, such as catalytic converters, from idled vehicles.

In the final analysis, the impact of the pandemic on fleet budgets was best summarized by one fleet manager who told me: “The impact has been positive – no fuel, no tolls, no maintenance.” 

Misperceiving an Anomaly as a Trend

Between March and June, fleet managers reported reductions in fleet spend ranging from 20% to 50% due to reduced business activity caused by the pandemic. These declines in fleet operating costs have caught the attention of those elsewhere in the company, especially in procurement, who want to establish this current level of fleet spend as the new baseline.

The decline in operating costs during the shelter-at-home mandates is being misperceived by management who assume this should be the new benchmark and not viewed as an anomaly. Fleet managers have cautioned management to not to take the lower March to June variable costs as a downward “trend” in fleet costs. These lower fleet costs were the result of the shelter-in-place mandates and will be hard to replicate when the economy fully recovers. These misconceptions are creating a headache for some fleet managers who are struggling to dispel these erroneous expectations by their management. In addition, the reduced fleet spend is resulting in adjustments to existing fleet budgets. As budget forecasts have changed so too budgets have been adjusted accordingly.

The exact financial impact of COVID-19 is yet to be determined because the pandemic is still ongoing. As business activity declined, many companies have implemented innovative ways to increase or conserve cash flow. 

Some fleets adopted non-traditional strategies, such as acquiring more used or certified pre-owned vehicles to compensate for the inability to factory order replacement vehicles and as a way to reduce fleet capital expenditures. Also, many fleet expenditures have drawn increased management scrutiny. Executive fleets are no exception and likewise have attracted increased scrutiny. At some companies, extra checks and approvals have been instituted for executive vehicles when acquisition costs are over a budgeted amount.

Impact of Back-to-Work Protocols on Fleet

Most employees continue to work remotely from their homes. During this shelter-in-place period, companies are developing back-to-work protocols. Until then, senior management at many companies have signaled that remotely working from home will continue for the balance of 2020. Many companies are struggling with how to implement social distancing in a corporate setting, especially at those businesses that have migrated to open office floorplans or where employees are required to share an elevator with co-workers to get to their offices.

Other unresolved questions include: Do employees actually have to go into the field to meet with customers? Can meetings instead be held via Zoom in place of holding an in-person meeting? Can all employee training be done online? Similarly, companies are conducting right-sizing utilization studies to determine how many fleet vehicles are actually needed to cost effectively fulfill the business application.

Fundamentals of Fleet Will Remain the Same

The balance of calendar-year 2020 will be a time for major decisions. This includes decisions on staffing levels. Decisions on remote work versus office work.  Decisions on whether a company should consider downsizing the square footage of its corporate offices due to reduced staffing needs. In addition, there will need to be decisions on a multitude of other work-place processes and procedures.

Only after these decisions are made, can fleet managers make the appropriate fleet decisions necessary to accomplish these goals. It is still unknown how pandemic will change fleet management. However, I’m inclined embrace the belief that the more things change, the more they will remain the same. Fleet procedures and protocols will inevitably evolve, but the core fundamentals of fleet management will remain the same.

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