Bright Ideas for Controlling Fleet Costs

Poring over the monthly cost report from his leasing firm for a late-model Chevrolet, the fleet manager realized that something was wrong. For two months in a row, this particular Chevy had been averaging just nine miles per gallon of gas. That was only about half the car's EPA-designated mileage. When the manager decided to investigate, what he found was an unpleasant surprise.

The Chevy's driver, it seemed, had been buying gas at a service station owned by one of his friends. Every time the driver "bought" $20 worth of fuel on the credit card furnished by the leasing company, he asked his friend to pump just half that amount. Then they split the difference in cash.

Thanks to the monthly breakout recording the "poor" mileage, the manager was able to expose the scam and save his company some money.

Though not involving a major amount, that story illustrates the way fleet managers and leasing companies can - and should - work in tandem to monitor costs and control expenses. And its lesson of careful scrutiny applies whether your fleet contracts in some way with a leasing firm - or owns and operates its own vehicles.

"The key to controlling costs is to come up with a good, workable program which everyone involved can understand," says Robert Jack of the Pittsburgh-based National Mine Services Co. "It's important that you have confidence in the cost controlling program. And it's crucial that the program is communicated clearly to your drivers... and that it doesn't overburden them."

As treasurer and fleet manager of National Mine, Jack should know.

With 51 percent of its assets owned by a Scottish firm called Anderson-Strathelyde, Jack's company manufactures and distributes all kinds of equipment used in the underground mining of such minerals as gold, potash, and coal. In addition to nearly a score of U.S. offices and distributor locations, National maintains branches in South Africa, Australia, Mexico, the Caribbean, and Europe. The 39-year-old firm boasts some 1200 employees, and its '84 sales approached $100 million.

Working out of National's office in Indiana, PA, Jack has charge of a company fleet that includes 209 vehicles. One hundred-twenty-one of those are cars, most of them manufactured by General Motors. National's top executives drive the Buick LeSabre and the Olds 88; middle managers are given the Chevy Caprice Classic; and field personnel have the Chevy Impala. The fleet's 87 light trucks are divided primarily between Chevys and Fords (mostly the latter), some of them flat-beds, some with stake-beds. While the firm operates one tractor-trailer rig, outside carriers are normally retained to haul its heaviest loads.

All the National vehicles fall under a full maintenance and management lease agreement with Pittsburgh's LMV Leasing, Inc. - an arrangement the mining firm has retained for some 20 years. Indeed, fleet manager Jack cities the affiliation with LMV as a major reason for National's traditional ability to hold down costs.

"Back in '64 or '65 - before the rise of computers - we had computer capability at our office here in Indiana," says Jack, now in his thirty-fifth year with the company.

"At that time, we set up our own, tailor-made fleet-management program in conjunction with LMV. It allowed us to know exactly how much we were spending on our cars at any particular time.

"The program has grown more sophisticated over the years, but the principles remain the same. Whenever our costs-per-mile exceed a certain amount, a red flag goes up, and we know we may soon have a problem."

National has set the cost-per-mile standard at two and a half cent for cars, and five cents for trucks. "If we get past two-and-a-half cents into three or four cents a mile on our cars we begin to take a hard look at what might be causing the increase," Jack says. "With the trucks, the flags are coming up at 8, 9, 10 or 11 cents a mile - usually when they're well up in odometer mileage. We look at the history, and we may decide it's time to get rid of the vehicle."

The main tool National uses to control expenses is LMV's computerized, quarterly-issued vehicle report - a detailed breakdown of costs in a dozen different categories. Figuring cost-per-mile for such expenses as lubrication, chassis engine, transmission, brakes, and tires, the reports are based on data gathered by LMV itself. The leasing company is able to track the data for a simple reason: it approves and pays any vehicle purchase-order over $50 out of an "escrow" fund established quarterly by both parties.

"We pay a certain amount into the fund for each unit each month," Jack explains. "Then at the end of the quarter we see whether our costs have exceeded our original contribution. If they have, we pay LMV the difference. If they haven't, LMV pays us. We've been getting mostly refunds with our cars. But with the higher-mileage trucks, we often wind up paying LMV.

I'm looking right now at our most recent quarterly report on four vehicles," the fleet manager goes on. "The cost-per-mile figures read .0166, .0237, .0136 and .0103. That indicates we're running just a shade over two cents per mile for one of those cars. So there's no problem with any of them."

But how does LMV's involvement with the purchase order keep costs down? "That $50 cutoff gives the leasing company the opportunity to review the vehicle entire record," Jack replies. "If a driver says, 'I need a tuneup,' or 'I need to get my brakes relined,' LMV might say, 'Hey, you just had that done a month ago. What's the problem?' Or LMV might say, 'You need a complete new transmission? Maybe it's time to just surplus your vehicle.'

Since National Mine is divided into three business units - each responsible for its own performance - there's ample incentive to keep outlays to a minimum. And much of that effort, Jack says, depends on good communication between the company administration and the drivers themselves.

"Quarterly vehicle reports are broken down and forwarded to the drivers' supervisors with my comments," the fleet manager explains. "Then it's the supervisor's responsibility to talk to the driver about whether costs are in line, or excessive, or whatever. But I've also found that the fleet manger must make sure the message gets through to the driver. To avoid miscommunication, the fleet manager has to follow up."

One expense National Mine track itself is fuel, issuing credit cards for gas in the company's name through most of the major oil companies. Jack has encouraged his drivers to be "cost-conscious" gas-buyers, however - even to the point of paying cash in return for discounts.

Not unexpectedly, costs also figure in National Mine's policies for selection and replacement. LMV handles all purchasing direct from the manufacturer, sharpening their pencils to obtain the best values possible. That means National's car fleet mix has undergone some changes over the years. When problems developed with a line of Ford sedans, for instance, Fords were phased out. When Chrysler cars turned into "gas hogs," LMV and National looked for an alternative. When Chevy wagons were significantly downsized, another product was sought more suited to the company's needs.

The mining firm's replacement rule is similarly subject to review."Our current policy for cars is three years or 75,000 miles," says Jack. "Except for the management vehicles, they're mostly reaching the 75,000 mark before the three years are up. Our replacement policy used to be 55,000 miles. And right now we're taking a hard look at the 75,000 rule. Maybe 60,000 or 65,000 might be more practical in the future. With the increasingly strong enforcement of odometer laws, vehicles with higher mileage are worth less on the used-car market.

"For trucks," Jack continues "our policy is simply to replace them as necessary - before they start to run high on maintenance costs. That varies from location to location, of course. A truck won't last as long on the mountain roads of West Virginia as it will on the highways of Illinois."

What additional advice would Jack offer fleet-managers seeking to hold down costs? "Work with your drivers," he replies. "Encourage them to take good care of the vehicles - to keep them clean. Even that can result in savings at resale time.

"I would also recommend that managers investigate the benefits of a good, solid maintenance program," Jack concludes. "Talk to different lease companies, and rule out those which don't offer something suited to your particular needs. Find a program you can have confidence in. And, most importantly, follow through on whatever you set up."