The search never ends. Fleet managers spend much of their time combing budgets and expense categories for savings. Using the old engineering “80-20” rule, they rightfully focus where the money is — in depreciation expense and fuel costs.
But, even experienced fleet managers, to reverse another old adage, miss the “forest looking at the trees.” Although the battle to keep depreciation and fuel costs under control never ends, that focus can cause a fleet manager to miss lost dollars available in other areas. Though time and resources might be scarce, it’s smart to take a day or two each month to look beyond depreciation and fuel, and seek missed savings opportunities.
Initiating & Terminating Lease Billing Cycles
The ubiquitous fleet open-end terminal rate adjust clause (TRAC) lease sometimes contains opportunities for savings that get lost in the shuffle. One of those opportunities lies in the language covering the initiation — and termination — of lease billings.
Typically, the standard master fleet lease agreement rules that billing is initiated on new vehicles brought into service under the agreement if the vehicle is in service prior to the 15th of a month, billing (which is in advance, that is, lessee is billed on the first of the month for the ensuing month) the lessee will be billed for two months in the first billing.
If the vehicle is in service after the 15th of a month, the first billing will be only for the single, coming month.
What does this have to do with savings? If drivers are instructed to take delivery of a new vehicle immediately prior to the 15th of any month, an entire month’s billing can be avoided on every delivery where this is done. The savings can be substantial. A fleet that has 100 new vehicles delivered in a model-year, where only half of the deliveries are taken as described previously, can avoid thousands of dollars in additional lease payments. The more vehicles delivered prior to the 15th of a month, the greater the savings will be.
Learning How to Properly Share the Wealth
Many fleets depend on their fleet management companies (FMCs) to manage the maintenance and repair of fleet vehicles. With staffing and resources as dear as they’ve ever been, maintenance management programs bring national shop networks, single-source data and billing, certified technicians to review and negotiate repairs, and state-of-the-art data mining and reporting to the table.
That said, what is generally lost under such programs is the fleet manager’s ability to negotiate pricing and discounts based on volume. The shop network is set by the FMC providing the service. With new-car warranties set at least at 36 months/36,000 miles, and as much as 10 years/100,000 miles for powertrains, most activity is simple preventive maintenance, with brakes and tires added once or twice in the life of the vehicle.
Fleet managers should consider negotiating rebates from their maintenance provider for the volume they generate. Most FMCs, in a competitive situation, will acquiesce to “sharing the wealth,” giving up some percentage of their margins on maintenance, repairs, and tires.
A corollary to this lays in accident management programs, which consist of several services, one of which is subrogation recovery. FMCs that perform subrogation for their customers do so via a contingency fee — a percentage of monies recovered. This percentage can be negotiable, and provide cost savings as well.
Searching for Hidden Fuel ‘Slippage’
As noted, fuel expense is by far the largest variable cost any fleet incurs, which is why fleet managers spend a great deal of time combing fuel data for potential savings. Much of that search is checking per gallon pricing, premium vs. regular fuel, and full- vs. self-service — all worthy efforts. But, there is other “slippage” in fuel expense that can be found, and result in reining in some lost dollars:
- Transaction amounts: if the fleet manager knows the capacity of the tank, and a transaction exceeds it (or, if a series of transactions are right at or just below that capacity), there may be fraud involved. Few drivers wait until the needle is below empty to fill up, and certainly cannot put 20 gallons into an 18-gallon tank. The fuel is going somewhere, and it may not be into the fleet vehicle tank.
- Non-fuel purchases: The large majority of fleet drivers purchase fuel at convenience store locations, where there is always the temptation to add a pack of cigarettes, a sandwich, and a soft drink, or a few lottery tickets to the transaction. Use the fleet’s fuel card program controls to lock out non-fuel purchases.
- Monday/Friday purchases: Depending on the fleet’s policy, you may not wish to pay for fuel used in personal use. Look for fleet drivers who purchase fuel every Friday, then again on Monday, a sign that the fuel is used on the weekends.
- Consistently paying inside: Drivers who pay inside, rather than at the pump, do so often because they’re trying to circumvent even the “fuel only” card control. Drivers can ask, and clerks can comply, that whatever is purchased is coded in the POS system as fuel, such that it doesn’t show up as food, tobacco, or other non-fuel purchases.
It may take some old-fashioned legwork, but there may be thousands of lost dollars to be saved by getting into fuel expenses more deeply.
Taking Advantage of Vehicle Resale Value
The process is well oiled: A new vehicle is ordered and the driver picks it up, dropping off the old car. A lessor picks up the car, trucks it to an auction, where it is run through the lane and sold. It’s (usually) a very efficient process, and is generally a good one.
But, auctions aren’t the only way to sell out-of-service fleet vehicles. Indeed, not all such vehicles are “auctionable,” that is, they may not be in good or excellent condition, may have high mileage, or not have equipment that buyers of the particular make/model are looking for. Since lessors cannot allow vehicles to languish for lack of bidders, or bids that don’t cover the book value needed, they’re sometimes sold anyway to get them “off the books.”
There are other channels, however, specializing in such vehicles, and have buyers that don’t look to auctions for what they need:
- Wholesalers: Buyers with whom a fleet manager can negotiate price directly.
- Brokers: “Middlemen” who buy on behalf of their own sources.
Fleet managers should have at the ready sources for resale beyond the auctions, for those vehicles for which markets are very narrow, but whose buyers are willing to pay prices that bidders at the auction are not.
Beyond these channels, there is the sale of vehicles to drivers and other employees. While fleet managers have been doing this for a long time, there is sometimes a lack of active marketing of vehicles, as contrasted to the mere provision of a price when requested. The sale of fleet units to drivers and employees is a win-win: Drivers get vehicles at prices they won’t find on the retail market, and the company receives more than the auction or wholesale market would return.
Actively marketing vehicles to drivers and employees will increase the number of such sales, and thus, ultimately, reduce depreciation costs. A formal “quote sheet” can be sent to every driver up for replacement. Ancillary services, such as warranty extensions, financing and leasing, and insurance programs will offer a “one-stop shopping” program, making the purchase much easier. Both pricing and convenience make marketing, rather than just selling, fleet units internally a source of cost reduction that can be missed.
Downsizing the Fleet Size for Greater Savings
The larger the fleet, the greater the chance that there are vehicles out there that shouldn’t be, or don’t need to be on the roster. If the fleet manager doesn’t track inventory carefully and regularly, there could be dozens of cars and trucks that were never turned in, were turned in but not sold, are being held by a branch office as a convenience (pool) car, even sitting in storage, unrepaired, after a snowstorm.
All of these vehicles represent money wasted. Even if a vehicle is fully amortized (and thus is not charged a lease payment), finding it and getting it sold will bring several thousand dollars back into the company coffers. And, unless a branch has formally requested, and been given, permission to keep a pool car around, such vehicles aren’t meant to be mere conveniences, they’re meant to do a job. Find them and sell them.
Along similar lines, although most lessors are efficient at picking up off-lease units that have been dropped off at a courtesy delivery dealer, there are inevitably those that fall through the cracks, and sit for weeks or months unsold. An unsold vehicle is one that is still “on the books” and may even continue to be billed a payment. Track replacement vehicle pickups and the vehicles they replace, and make certain that they are picked up promptly.
Finally, once sold, the proceeds should be applied and payment stopped. Again, FMCs are good at keeping inventories and billings up to date, but there are errors that can cost the fleet money. Track inventory regularly, and keep levels as low as the mission permits. Get rid of surplus vehicles, get proceeds applied promptly, and you may find tens of thousands of dollars in “lost” funds.
Completing and Using Condition Reports Properly
Well-run fleets require drivers to submit vehicle condition reports on some regular schedule during the year. Beyond simply knowing what condition a vehicle is in, getting these reports is only the first part of the process.
All condition reports should be completed by the driver, but also endorsed by the driver’s manager. This will enable the manager to keep track of the condition of the vehicles for which he or she is responsible. Condition reports should be required at least twice each year, more often if time and resources permit. Where are the savings in simply knowing condition? They aren’t in knowing, the savings are found in actions taken where needed to handle items that require attention:
- Body: A mere surface scratch is normal wear and tear, and will neither get worse as time goes on nor impact residual value. But, dents and other damage that breaches the finish will ultimately rust, and cost far more to repair than if handled early on. Along with the report, require any body damage to be documented with photos, and when repairs are needed, have them handled immediately.
- Tires: Tire condition is, first of all, a safety concern, so any condition requires immediate attention. Slow leaks can become fast leaks, or even a flat tire. It is much less costly to repair a slow leak than it is to replace the tire once it has failed.
- Glass: One of the most common deductions from resale value is windshield replacement. A condition report should indicate glass damage; so-called “star” breaks, or “bulls eye” breaks can be safely repaired; if not, they can spread beyond repair size and a complete replacement results.
Not unlike your health, proper use of condition reports and actions taken as a result can be the kind of “preventive medicine” that will help avoid thousands in excess costs.
Checking the Trees as well as the Forest
Sometimes it may seem that fleet managers have neither the time nor the resources to get deep into the weeds of costs; they are lucky to be able to track those big items of depreciation and fuel. But, the choice is relatively simple. Since management is constantly looking for savings, there is not much else that is as productive as doing precisely that. Even more so, a fleet manager who has been on the job for years has likely squeezed most of the excess cost out of the budget he or she inherited, Looking for lost dollars can help find even more. It’s worth the effort.
Originally posted on Fleet Financials