Defining fleet management is the methodology through which a company car plan operates; fleet management, as practiced by PHH and other leading lessors, is a definite method and, if approached on a scientific basis, can save you money while increasing the efficiency and effectiveness of your entire operation.
There was a time not too long ago when fleet management was a relatively simple field. Those involved could afford to be unscientific - even unprofessional. There weren't too many car models to choose from; gasoline was 35c a gallon; new cars cost about $3,000; and the used car market, even though it had its ups and downs, was reasonably predictable. Those days are gone; probably forever.
Today, there exists what can only be called an almost infinite array of sizes and shapes - luxury, full size, intermediates, compacts, sub-compacts and specialty cars for just about every name plate; as the retail market shrinks, everyone, but everyone is in the "fleet" business; gasoline is now 55c a gallon and, with pollution controls reducing the miles per gallon, operating costs are close to 5c per mile. The typical fleet car costs $4,000 or more - there has been a $1,000 increase just in the last year!
Predictability no longer describes the almost random fluctuation of the used car market. In October of last year, a three year old used car brought a higher price than it would have when it was only two years old! The point is that our industry is changing so rapidly that a car plan cannot survive without an organized, intelligent, and "scientific" approach. Now, more than ever before, fleets must be managed scientifically - by professionals. You can't afford too many mistakes; they're just too costly.
By using the services provided by a professional fleet management firm, you can eliminate costly mistakes, develop the kind of organized plan needed to effectively control fleet costs and still maintain some degree of control ever fleet policy.
And a distinction should be made between the professional company able to provide a wide range of fleet management services and the lessor who's only out to put new units on his books. A professional fleet management company should be able to provide you with the following services:
1-New car purchasing at uniform, competitive prices nationwide.
2-Used car merchandising at the best available dollar and regardless of whether the used units are trades, surplus cars or wrecks.
3-Administration of motor company fleet rebate programs.
4-Warranty claims services.
5-Service assists for vehicles needing specific parts and located in remote sections of the country.
6-Expense Control programs to identify your costs so they can be controlled.
7-National accounts purchase programs for tires and maintenance.
8-A coordinated maintenance management system.
9-Replacement schedules for vehicles in service.
10-Advice on car selection and equipment.
11 -Title and Tax administration in all 50 states.
12-Advice on insurance or, if you wish, the insurance coverage itself.
13-Information on trends about the automobile business and fleet management to help prevent "tunnel vision."
These are the main services. There are many more, but the whole concept can be summarized by saying that your fleet management company acts as your problem solver in the area of your corporate fleet.
But a fleet management company can't do it all for you. You have to contribute by establishing the framework within which your fleet will operate. This framework is called Your Company Car Policy.
A company car policy is important not only because it has a direct bearing on how your traveling representatives feel about their company but also because it involves a great deal of money. For instance, for every 100 cars in your fleet, you are spending about 1/2 million dollars in acquisition costs and $25,000 a month - or $300,000 a year - in operating costs. Even by today's standards, that is a lot of money.
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The Company Car Plan should answer the following questions:
1-What is the purpose of the company car - sales service tool, fringe benefit, image?
2-Who is eligible for a company car - all salesmen or only salesmen who drive more than 10,000 business miles? All corporate officers or just the President?
3-Who will administer the company car program - marketing, purchasing, personnel, traffic and transportation?
4-How will car expenses be reimbursed - according to actual expenses incurred, monthly allowance, or not at all?
5-Can the company car be used other than for business? Can wives and children drive the car? Can it be used on a cross-country vacation? Can it be used to pull a trailer?
6-How are accidents to be handled? Does the driver pay the first $100? Are accident claims the responsibility of the insurance department or the fleet administrator?
7-Should cars be leased or owned? How often should this policy be reviewed and by whom?
8-Should cars be sold to employees?
9-How are traffic violations handled?
10-Can the driver order additional equipment?
Once you've developed a company car plan to answer such questions, your next step is to create the organization or plan through which the policy can be implemented.
As mentioned earlier, fleet management is essentially a methodology, and here's where the quality of your methodology becomes crucial. Can you bring to bear in the everyday operational world those procedures, plans and policies that look so nice on paper? From a fleet management point of view the first ingredient of successful fleet management is problem and policy identification. That is, the most important step in the evolution of a sound company program is the identification of problem areas and the identification of company attitudes as they relate to these problem areas. The two go hand-in-hand and require the kind of analysis which too frequently is ignored in the day-to-day administration of company fleets.
To illustrate, let's use the problem of eligibility as an example: Let's ask who in your company should be eligible for a company car. This question can't be answered without first determining company attitudes toward field representatives and the importance of their job functions. In the old days, the typical company policy was to provide a car for the president and a few vice presidents; the drummers or hired salesmen were left to fend for themselves. Today, however, company attitudes have changed radically, and corporations generally recognize that an automobile is essential to the successful coverage of a sales or service territory. Businesses realize that they can't get and keep good men unless they are provided with transportation. The problem, then, is to determine how far a company should go in providing cars. The solution to the problem - and the subsequent determination of company policy - would be easy if everyone drove the same number of miles each year. But that's not the case. Some sales and service people drive 30,000 miles a year; some drive only 3,000. Here's where detailed analysis of company attitudes plays such an important role. It's absolutely essential to identify the problem and formulate a policy before our eligibility question can be answered in a methodologically sound way.
Only after all such areas of concern and the company's current attitude with respect to these problems are identified can the company car program be developed. This development is called policy amplification. Here is where we marry the two points - identifying the problem and the company policy applicable to that problem - in order to determine just what the company's position will be or can be with respect to the specific situations.
Having amplified the policy on individual problems, the final step is systems development to spell out the mechanics, the procedures, the details of just how the amplified policy will work from day to day. These parts, taken together and in a proper sequence of development, represent the whole of comprehensive management. Fleet management is a science and to be effective it must be approached scientifically. The methodology should answer the following four questions:
1-What is your fleet problem?
2-What is your company's policy?
3-How will you combine the problem and the policy to reach a solution?
4-What type of system will you set up to handle the mechanics?
Now that we have considered the methodology of fleet management, let's take a closer look at one of the more important problem areas - financing the company fleet. If you accept the methodology as outlined, it's obvious that before the question of financing can be answered we must first determine current problems and attitudes.
Leasing does eliminate many problems of administration and makes the routine ones far simpler to handle. Leasing can indeed be an important aid to the fleet administrator. It is far easier for a leased company car program to be operated efficiently than it is to operate a company owned program. It is a credit to the ingenuity of many company owned fleet administrators that their car programs are functioning as well as they are despite the handicaps.
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Once the decision to lease has been made, a company must next consider the type of lease which will best suit its needs. Today, there are basically three types of vehicle leases available: the full maintenance lease, the net lease and the finance lease.
The finance lease is the overwhelming favorite. It is an actual cost arrangement where the lessee pays only those costs that are actually incurred. The lessee is responsible for maintenance and depreciation. However, it is the obligation of the lessor to keep those costs at a minimum. Finance leasing offers the maximum in terms of flexibility and the minimum in terms of cost.
The basic difference between a finance lease and a net lease is that under a net lease, the lessor assumes the responsibility for depreciation. In exchange for this obligation, the lessee agrees to specific time and mileage restrictions which tend to limit flexibility and, in my opinion, make the net lease a "one way street." Let's say you agree to three years with a mileage limit of 60,000 miles, you will pay a mileage penalty. On the other hand, if you turn in your car after three years with less than 60,000 miles, your lessor does not give you a credit. Costs on net leases are higher because you are asking the lessor to assume the risk of depreciation, and you are going to pay for that shift of responsibility.
The full maintenance lease is by far the most costly because it assumes the risk of maintenance in addition to depreciation. Again, it is restricted in terms of time and mileage and even maintenance. Usually the number of tires you may replace is spelled out in your contract. However, there is a place in fleet management for both the net and full maintenance leases. Companies with smaller fleets may find them to be the best arrangement.
No discussion of fleet management would be complete until we mentioned the "instant expert." In our business we seem to have more than our fair share. Just about everyone has bought a few cars in his day, and those few experiences at car selection, equipment choices, replacement timing, and price bargaining have given our friend all of his expertise. He knows what to buy, when to buy, and he can buy the new car for less and he can get you more for every used car. The instant expert may know what is good for himself or even good for his wife or his Aunt Bessie, but he has no idea what it takes to run a fleet of automobiles. Don't be misled or bullied into a bad decision by our friend, the instant expert. Instead consider the proper role of fleet management as we've examined it here today.
The role of the fleet management company able to provide clients with a leasing service as part of a complete management program is certainly a very major role. Such a company - and Peterson, Howell & Heather is certainly a good illustration - is characterized by its sincere dedication to a scientific, organized approach to solving your problems as they relate to your corporate car plan. We're your partner in increasing the efficiency and effectiveness of your entire organization and your guide through a myriad of conflicting facts and figures, choices and solutions. That's the role of today's fleet management company.
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