Mobility Management Versus Driver Reimbursement

Mobility management has been a concept floating around the U.S. and Canadian fleet markets for the past several years. The idea has gained some popularity in the European fleet environment and has been a topic of the “fleet futurist” crowd here in North America. 

It is an approach that is born out of the global societal trend away from individual ownership of dedicated vehicles. Vehicle manufacturers have for years now been adjusting their strategies and diversifying their value to deal with this trend. 

As our industry looks for best practices and opportunities to create more efficiencies in fleet management, we also should be looking at this trend away from vehicle ownership to understand how we might develop a tool and apply it in our commercial and government fleet contexts. 

Not all business models will be able to utilize this approach. If your business requires a specific vehicle equipped with upfit or containing specific tools that are essential to the job, then it is unlikely that either reimbursement or mobility management will be a viable alternative to the traditional fleet owned vehicle approach. Mobility management, like reimbursement, will be reserved for those more standard consumer vehicles used to simply convey the employee and their equipment to accomplish the job. A good rule of thumb is that if an employee reports both personal and business use for tax purposes, then that vehicle’s use may be a candidate for mobility management. What follows is an overview of reimbursement in order to contrast it with a mobility managed approach.

For fleet vehicles that serve as both the commercial vehicle and the consumer vehicle for the employee, many are familiar with the employee reimbursement concept, either in the form of a simple mileage expense rate, or the FAVR (fixed and variable rate) method. In this approach, the burden of ownership is shifted to the employee driver, and the company allows for a reimbursement to them for the use of that vehicle in the course of business. This type of structure has long been preferred by an enterprise that is looking for an “asset light” approach to fleet management—one in which the company’s balance sheet is not burdened by company vehicle ownership. 

Reimbursement is a relatively efficient way to manage the need for vehicles in a business model since it does not need or require active fleet management. This benefit, however, comes with a cost to productivity. A reimbursement approach eliminates the ability to leverage the buying power that an actively managed fleet can have across the supply chain. 

The productivity is perhaps most evident at the point of acquisition. There is a substantial difference between the retail acquisition price for a new vehicle and a fleet cost, that benefits from fleet pricing and competitive assistance programs. The productivity loss manifests itself across the entire fleet supply chain, from insurance costs, fuel costs, preventive maintenance, and even wearables expenses like brakes and tires. Shifting the vehicle burden to the driver will create more costs. 

Further, a reimbursing fleet does not benefit from any active fleet management on the part of the fleet manager, thus eliminating the possibility of continuous improvement in fleet productivity. The sacrifice is that by moving to a reimbursement model, the fleet is giving up some control over fleet expenses and allowing the driver to manage the costs themselves. 

Productivity adjustments to the company expenses can be made by altering the rate at which reimbursement is provided, a blunt instrument that while effective, may lead to employee engagement issues. For this reason, many fleets will avoid a uniform reimbursement approach across the entire fleet, instead using it as a tool for certain employees for which the vehicle is not required as significantly for the employee to do his or her job. 

This blended approach allows the fleet to leverage the buying power and control of fleet policy to lower the total cost of ownership for vehicles that are essential to the business model, and use reimbursement as a tool when the amount of vehicle use on the job does not justify the full fleet management effort. In any reimbursement scheme, a dedicated vehicle is still required, ownership is simply transferred to the employee, who is in turn given compensation for the assets business use. 

Mobility management is different from reimbursement. In accordance with the trend away from dedicated vehicle ownership, it is not asset based at all, but rather focused on the managed acquisition of transportation, or mobility, itself. An analogy can be made to the management of expenses associated with a fleet driver who travels out of his or her geography for business, where it is not feasible to take the company vehicle. 

They may use a rideshare company to get to the airport to save the parking expense on the company car, fly to their destination using their prearranged flight discounts associated with their T&E card purchase, rent a car at the destination using the business rate negotiated by their sourcing team, purchase fuel for the vehicle and then return home using the same process. In this model, there is no vehicle to manage, but with the right tools a fleet manager could manage each of those purchases to both increase driver satisfaction and lower the cost of transportation for that trip. 

Now imagine that the driver employee lives in an area where all the transportation they need is readily available for purchase on a trip by trip basis, making a company car superfluous. Corporate or government fleet management would shift to a management of these transactions in order to allow for the employee to seamlessly accomplish their work tasks and for the fleet manager to build the rules and policies by which the employee can purchase these transactions. In this sense, the fleet manager shifts from managing the asset, or reimbursing the asset, to managing the mobility of the employee. Rules can be set to determine when mobility is authorized, where it can occur, at what cost, and what vendors are authorized to provide the transportation. 

Four-Step Process to Rolling Out a Mobility Management Pilot Program

Engage the right stakeholders: The fleet manager will need to partner with the Travel & Expense management team within their organization. They will have the purchasing tools, the key vendor relationships, the software systems and knowledge of the company’s expense policy and processes that would be the essential ingredients of a mobility managed policy. Developing a process with rules for use should be done with this team. Further, Financial Planning and Analysis (FP&A) resources could be used to help validate the thesis and identify the best cases for a managed mobility approach.

Build the business case: Using fleet data such as business and personal mileage reporting, telematics data, cost per mile, and other employee specific data the fleet manager can build a threshold of where and at what costs a mobility managed approach would be more efficient than either a reimbursement scheme or an assigned company car. A fleet manager will build and manage this model to focus on the best use cases for mobility management.

Survey the drivers: Are there any in the organization that have been identified in step 2 that would welcome this change because they see the company car as more of a challenge than a perk? These individuals could be used as the subjects of any pilot program, since these drivers would embrace and not resist the change in policy to move away from a dedicated car.

Run a pilot: Create two groups of employees in the same geography where you can minimize the impact of all variables besides the mobility managed approach versus fleet or reimbursement managed approach. Measure the costs as well as driver satisfaction with both approaches over a cycle that makes sense for your business. Key metrics might be fleet cost per mile versus mobility cost per mile, as well as driver satisfaction metrics. The results of this experiment can be used to determine if this approach will work for your business, and add to the business case to modify policy in certain geographies. 

Once the business case is proven, this can be rolled out in the use cases that are targeted by the threshold analysis. And with this tool now established in the fleet managers toolkit, their business will be poised to take advantage of the accelerating trend away from vehicle ownership. For as significant investment in the vehicle space around Connected, Shared, Autonomous, and Electrified vehicles begins to bear fruit, the applicability of a mobility approach will grow. 

Additonal Perks of Mobility

This approach also has obvious sustainability benefits as well. Since there is no dedicated vehicle asset, the carbon footprint is reduced. The fleet who employs this application also can show tangibly what it is doing to reduce traffic congestion and contribute to the “Smart City” mobility vision in the cities that it serves. A mobility managed process will also cater to the small but growing number of employees who no longer see an assigned vehicle as a perk.

It is unlikely that this approach will work for all or even a majority of fleet users in the environment that most fleet managers find themselves today, as there simply is not yet the infrastructure in every fleet geography to make these purchases possible. And where it is possible, variables such as the amount of travel required among employees and the cost of that transportation, will have an impact on whether or not this approach is cost effective versus a dedicated fleet vehicle approach. 

But, just as reimbursement can be a cost- effective tool for some fleet use cases, the fleet manager who develops a mobility managed alternative, can realize fleet benefits in certain use cases today, and also will be laying the framework for a significant competitive advantage as the market evolves and the number of use cases grows.

The fleet manager who has already laid the groundwork in their business for a mobility policy will get more than their share of benefit.

About the Author: Brian Wright is a 25-year veteran of the commercial fleet management industry. He has a diverse background in business strategy, product development, marketing, and operational effectiveness.