It is a given that when fleet managers create vehicle selectors, the most overarching criterion is that the selections can do the job they’re chosen to do. Once the vehicle is chosen, however, all of what follows should be geared toward taking that “raw material” and producing and selling the best usedvehicle product possible.
Viewing this challenge as a manufacturing or production process can help a fleet manager establish a formal process that, on a step-by-step basis, will minimize depreciation costs. Reducing the “cost of production,” as well as increasing the selling price, will do the job.
Vehicles are Raw Material
The “raw material” of the fleet selection process is the vehicle chosen to fulfill the mission. Fleet managers begin by narrowing choices to those vehicles capable of doing the job; it would be foolish to choose a two-door compact car as a job-site vehicle that must carry construction equipment or haul debris, for example.
The fleet raw material, however, comes in various colors with various equipment. Part of ensuring that the used-vehicle product will be the most marketable is choosing the proper equipment and colors that sell well. Additionally, acceptable vehicles are often available from more than one manufacturer. Much like their manufacturing counterparts, fleet managers need to carefully develop and acquire the raw materials needed for their product:
Plan the “Production”
Manufacturers consider the smooth flow of production a key element in making and selling products profitably. It is no different with a fleet manager in maximizing the value of the used-vehicle product. This step is accomplished via a formal, written fleet replacement policy.
Developing a cost-efficient vehicle replacement policy is not a complex process; however, it is a critical element in developing a used-vehicle “production schedule,” without which depreciation control is impossible.
The criteria to examine when establishing replacement includes:
Thus a fleet vehicle’s accumulated time in service is the “production” period for the used-vehicle product being produced. Keeping this production line running smoothly, as planned, will go a long way toward creating a finished product attractive to the marketplace. Disruptions, such as emergency or other purchases from dealer stock, should be kept to a minimum.
“Build” a Used Vehicle
The fleet manager has chosen the raw materials, established a production line, and now as vehicles are placed into service, the “manufacture” of the used-vehicle product can begin.
Quality control is a critical element in any production process, with zero defects the ultimate goal. The goal is no different in building a used-fleet vehicle, and the means by which to reach that goal begin with preventive maintenance. Every fleet must have a clear, detailed preventive maintenance program, vigorously enforced, to ensure every vehicle is in the best possible condition when sold. Here are the key elements to a PM program:
The preventive maintenance scheduling and follow-up process is very much like the quality control efforts used by a manufacturer; the “production line” is monitored carefully, and the “workers” (drivers) are notified when the established process is not followed.
Manufacturers also conduct careful product inspections at all stages of production; so, too, does the fleet manager inspect the used-vehicle product during its “production.” Condition reports reveal vehicle “defects” that must be corrected before the product is brought to market. Manufacturers generally inspect only selected pieces as they come down the line; fleet managers should be inspecting every vehicle regularly during its service life.
It is not entirely unusual for condition reports to be used incorrectly, or not used at all. Just as PM exceptions should involve the driver’s manager, vehicle inspection reports should as well.
The condition report begins with basic identifying information:
The report itself is divided into three primary sections, mechanical, interior, and exterior condition.
The driver should complete vehicle condition reports at least once each year (quarterly is better), and the results must be signed-off by the driver’s supervisor. Conditions requiring action should be noted by the fleet manager, and subsequent reports should reflect previous conditions acted upon.
Many fleets transfer vehicles from one driver to another, and/or one location to another. In these cases, condition reports should be received from both the current driver and the driver receiving the vehicle, both attested to by their respective supervisors. Any discrepancy (damage noted by one but not the other, or differences in the description of the condition) is a red flag. Generally, the transferor will downplay damage he or she caused.
Although the PM program is important in producing the quality used-vehicle product that will help minimize depreciation expense, it is the condition report that binds the production process together. Fleet managers deal in information, and condition reports are among the most critical sources of information.
Go to Market
The production process is now complete; the fleet manager has chosen the raw material, sent it “down the line,” and inspected it, resulting in a finished used-vehicle product to market and sell.
Marketing the used-vehicle product is another process which often gets short shrift; too often, vehicles are merely sold. But a formal marketing program will help create interest in markets that can bring higher prices. This is most true in upstream markets, that is, selling to employees and other retail-type buyers.
Selling vehicles directly to drivers is the single best method of obtaining maximum proceeds in the shortest time. Fleets have been selling fleet vehicles to drivers for many years. However, actually marketing them is a relatively new concept. Rather than simply asking a driver “Are you interested in buying your company vehicle?” — after the replacement has been ordered — the marketing process should begin from the moment the vehicle is brought into service. Drivers should be aware that they may purchase their vehicle when it is taken out of service and be confident that the price will be reasonable. They should also know that the company will provide additional products and services (extended warranty coverage, used-vehicle financing, etc.) if needed to make the sale.
In an ideal fleet world, drivers or other employees would buy all out-of-service vehicles, but realistically this will never happen. The marketing and sale of those units not purchased in upstream markets is equally important. Leased fleets most often simply permit their lessor (open end) to gather up used vehicles and sell them at auction, with little or no involvement in the process. This is a mistake that can cost many thousands of dollars in depreciation expense. A product manufacturer would be shortsighted to simply sell its product to a single customer; so, too, is the fleet that leaves remarketing to a lessor only.
Fleets can use other markets that can help further reduce depreciation expense. Selling vehicles on wholesale (non-auction) markets accomplishes two things: fleets can sell vehicle types that are weak in auction markets, and auction vendors are kept on their toes. Brokers also can be a great resource for higher mileage, rougher-condition vehicles.
The bottom line is that, like any manufacturer, seeking the widest possible market for the used-car product makes good business sense.
“Manufacture” Used Vehicles
Approaching depreciation control from a manufacturing viewpoint is a useful method of formalizing a vehicle lifecycle process and ensuring that depreciation is kept at manageable levels.