It’s no secret that automobiles are valued by many. Personal preferences, expertise (substantiated or not), and advice regarding all things related to vehicles are not difficult to find. This holds true for fleet managers as much (and sometimes more) than anyone. Management comes up with ideas they believe are brilliant, while other employees both offer and ask for advice.
When senior management attempts to institute edicts they believe will save money, fleet managers more often than not have little choice but to deal. Senior management may suggest ideas such as “Use smaller cars! Keep our fleet vehicles in service much longer! Why do we provide vehicles, we should reimburse our employees for using their own!” These and many other changes come down from the big offices upstairs, and fleet managers need to be prepared with an answer. Here are some ways this can be accomplished, without stepping on toes and at the same time avoiding doing things they know won’t work.
It can begin with personal preferences; most people are, to some extent, brand loyal in the products and services they use. This is as true in vehicles as anywhere else. Consumers may prefer one manufacturer over others, and sometimes, these preferences are brought to the office by senior managers who may be unconvinced that the makes and models the fleet manager has chosen for the year’s selector are as good as what they may own. These preferences are often presented to the fleet manager in the form of “Why are we using X? I’ve been using Y for a long time; they last longer, get better mileage, etc.”
While this might not be an “edict” per se, it’s pretty clear that the senior manager wants to hear back from the fleet manager as to why the company is using a specific manufacturer for business vehicles.
Depending upon the circumstances, if the fleet manager has done his or her homework, and, for example, has retained notes and analysis from the beginning of the model year showing why the selections were made, then the response from senior management should be relatively simple and quickly provided.
But what circumstances would this apply? If the senior manager has indicated a preference for an OEM that has a fleet sales function, and has models that might be reasonably used for the mission, odds are fairly good that the fleet manager’s own suggestion was rejected. Senior management should present the reasons of that decision, in reasonable detail (including cost, TCO, fleet allocation/availability, etc.) to the manager making the request.
It might be that the OEM for which the manager has indicated a preference for isn’t an option for the fleet; i.e. it doesn’t have an applicable model, powertrain, or appropriate specs, or little fleet allocation. Perhaps the OEM doesn’t have an adequate fleet sales/service staff. Whatever the reason, if the fleet manager has been carefully documenting the selector decision making process, senior managers who make their personal preferences known can be shown the logic behind the decision.
An Appropriate Anecdote
In this example, a senior manager calls a fleet manager into his office where he explains a new idea to sell company vehicles.
The fleet manager had been selling out of service vehicles via auctions, wholesalers, and an employee purchase program. Because of this, the senior manager decided that since all these replacement parts added up to a great deal more than the price of the vehicle itself, wouldn’t it be far better to sell company vehicles to junkyards?
Junkyards, seeing the substantial value of all the parts, would be able to sell off the vehicle and would pay top dollar for all the inventory the out of service vehicle would bring.
The fleet manager then explained why this wasn’t quite the revelation the senior manager believed it was. He explained that vehicles in junkyards typically sit in the yard literally for years, with parts randomly pulled off for customers when a part for that specific make, model, and model year was needed.
Seeing an opportunity to relate to the executive’s own experience and business knowledge, he explained that while the company’s own manufacturing business units seek to minimize inventory turns, keeping them within 30 days or less, inventory turns for a junkyard are years long, which is one of the reasons they don’t seek out vehicles that are undamaged, running well, and have relatively low mileage, or, in other words, fleet vehicles.
Their inventory costs are kept to a minimum by purchasing only wrecks, total losses, vehicles with serious damage, or major mechanical failures. Yes, they do sell parts for prices lower than those charged by new parts suppliers, and thus the perceived ‘value’ of fleet vehicles in good condition, along with the extraordinarily long time inventory sits on the lot, make the idea little short of ridiculous.
In this example, the fleet manager gathered together his research and presented the above to the senior executive in a subsequent meeting, leaving out the “ridiculous” descriptive.
Another relatively common subjective edict that senior management makes is that the company should use smaller and thus (in his or her mind) more cost-effective vehicles, with lower prices and better fuel efficiency. Not an entirely out of the ordinary request; most fleet managers examine the possibility of downsizing fleet vehicles on a regular basis. Sometimes, though, the request goes to impractical lengths, such as asking that subcompacts replace salespersons’ mid-size sedans. This could affect sales staff that often must entertain several customers at a time, and possibly carry point of sale materials, racks, and product.
Further, there is the competitive aspect to be considered. If, say, a competitor is offering their salespersons four-door sedans, minivans, or crossovers, it may well put the company in a difficult position in recruiting and hiring top level talent if the company is only offering a compact or subcompact company vehicle. In the case of truck fleets for example, a smaller pickup truck required to carry the same load as a larger truck will lose any fuel efficiency advantage over the larger vehicle. The load might also cause more frequent tire and brake replacement for the smaller pickup as well.
Though downsizing, or at least considering and researching it, is part and parcel of every fleet manager’s responsibilities, senior managers tend to take it to the extreme without proper consideration for the mission the vehicles are to carry out. In much the same manner that a fleet manager addresses personal make/model preferences, so too must he or she keep careful documentation of the research that is done in considering downsizing vehicles, and how it will impact both performance as well as cost efficiency, along with any effect it may have on the recruitment and retention of talent.
Nearly every fleet manager has at one time or another faced a senior executive’s “suggestion” that company vehicles be replaced with a reimbursement program, where employees are reimbursed for the use of a personal vehicle for business purposes.
Not every fleet faces this; a fleet of utility pickups or service vans cannot reasonably be replaced by reimbursing personal vehicle usage. There aren’t all that many potential employees with a utility truck in the driveway. But sales and marketing fleets are nearly always faced with the challenge of executives claiming a reimbursement program would be more cost effective than the provision of company vehicles.
A smart fleet industry pundit once said that replacing company provided vehicles with a reimbursement program merely replaces the fleet department with a reimbursement department. It is well known that reimbursements received for the use of a personal vehicle for business are treated as income, which ultimately means the employee being reimbursed will also view it as income and make certain that his or her expenses do not exceed that income.
Employees dealing with customers represent that company. A reimbursement program has little if any control over what vehicle the employees are using, how well (or not well) they’re being maintained, how they look, or how they run. Does a senior executive really consider the possibility of a driver pulling up to a customer’s place of business in a 10-year-old car as being okay? With a few dents and scratches, maybe a cracked taillight lens, and a few rust spots down by the rocker panels? What kind of image does that portray? Especially if a competitor’s representative pulls up in a crossover that is a year or two old and in good condition.
Then there is the very real issue of safety. If the reimbursed driver has run out of money before the month, maybe that nearly bald tire on the left front doesn’t get replaced right away. A safety hazard to be sure, not to mention the possibility of it going flat while heading to lunch with a key customer or a big prospect. Or maybe that star crack in the windshield begins to travel, is no longer repairable, and the driver doesn’t have his or her deductible available to replace it. These and other conditions in the personal vehicle can create safety hazards that in the extreme could cost the company a great deal of money.
Then there is the issue of the reimbursement itself. Should it be a fixed dollar amount? The IRS “safe harbor” cents per mile amount? Is that as adequate for the driver in San Francisco as it may be for the driver in Alabama? Different regions have sometimes vastly different total costs of operation for a vehicle. The cost of living in California is a great deal higher than it is in Louisiana; but Louisiana has the highest average cost of car insurance in the nation. Also, how does the company address these differences, if it considers them to begin with? The cost of fuel in New York is as much as 60 cents per gallon higher than in the aforementioned Louisiana, but the cost of insurance lower. These and other issues regarding the cost of vehicles, if the company is to be fair to all employees, must take these significant differences into consideration when setting a reimbursement program.
Finally, if the company uses a per mile reimbursement through the IRS safe harbor amount, it is guaranteed that most, if not all, drivers will overshoot their mileage numbers in order to maximize the amount reimbursed. These are only the major issues that a reimbursement program should address before being implemented.
A Stopped Clock Is Right Twice A Day
Considering previously mentioned concepts, there are occasions where an executive or senior manager will come up with ideas that are worth considering.
For example, some companies provide a company vehicle to these senior executives as a part of their overall compensation plan. Some of these companies have a “selector” from which executives can choose their vehicles.
In such cases, the executives might prefer a reimbursement plan, or at least a fixed dollar amount within which they can choose any vehicle they like. Honestly, I don’t think this is a bad idea. The vehicle is purely compensatory in nature, it doesn’t have to perform the mission the regular fleet must, and just allowing the executive to choose what they would like to drive is a good idea. It may create some additional work for the fleet manager, for example having to handle warranty and maintenance issues for a wide variety of makes and models. But this is a small price to pay to keep the senior manager on the side of the fleet manager, “chips” that can be cashed in later on.
Originally posted on Fleet Financials