Driver compliance with fleet PM policy or fleet service price negotiations come under the “no kidding” clause of fleet cost savings. They’re obvious, common-sense actions any experienced fleet manager can pursue.

Sometimes, however, “hidden” costs get lost in the shuffle of fleet cost reduction, but could contribute to the fleet manager’s overall cost-savings efforts.

Most large and mid-sized fleets use an open-end TRAC (terminal rental adjustment clause) lease when company ownership is not the best option. These leases provide a master lease agreement under which vehicles are ordered and placed into service as the fleet requires. After a nominal minimum term, the vehicles can be terminated and replaced at any time by the lessee. These leases provide the kind of broad flexibility fleet managers need to operate widely dispersed fleets.

One common aspect of such leases is the “15th/15th” rule. Under this lease clause, vehicles brought into service prior to the 15th of a month are billed for that entire month. Vehicles serviced after the 15th are first billed the following month.

The hidden cost of this rule enters the picture when vehicles are taken in and out of service. If the fleet manager knows a particular vehicle or vehicles are to be delivered after the 15th of a month, all days in service for the remainder of the month are essentially free, as the billing does not begin again until the first of the following month. Similarly, if a vehicle is scheduled to be taken out of service prior to the 15th of a month, that month will not be billed until after the 15th.

While it may be difficult (particularly for a large fleet) to track the comings and goings for individual vehicles, communicating specific lease terms to the field can help avoid unnecessary monthly lease payments. Local management and even drivers can manage vehicle pickup and drop-off to take advantage of this master lease clause.

Another cost often hidden from day-today fleet operations is what is known variously as “deficit interest” or “actual vs. average” interest. Open-end TRAC lease rates are calculated on an average outstanding cost basis, even though vehicles are amortized on a straight-line basis. If the vehicle cap cost is $20,000 and the amortization rate is 2 percent a month, the outstanding balance declines by $400 each month. If the payment were based upon an actual balance, it would be different each month. In order to bill consistently, lessors use an annual average balance so payments are the same for each lease year. For the first six months of any year, the lessee is actually underpaying the interest due, as the average is lower than the actual balance. For the second six months, the reverse is true — the average is greater than the actual balance. Thus, the interest portion of the lease is underpaid. The bottom line is, when vehicles are terminated at any point other than a 12-month increment, the lessee is often billed for the difference between the average interest paid and the actual interest due, or “deficit interest.”

In a fiercely competitive environment, fleet lessors sometimes can be persuaded to forego additional interest charges, particularly for large fleets, when other programs are used. Savings can be substantial for large fleets (and are seldom visible to the fleet manager) if these costs are eliminated.

Another hidden cost of accidents occurs in the lack of recovery of non-damage related expense. This includes downtime, replacement rental costs, and the like.

Although your risk management department is no doubt expert in what they do, they generally have neither the time nor the resources to focus on recovering accident costs, whether hard or soft. Subrogation recovery is a little different from accounts receivable collection; the longer it takes, the less money is collected. Outsourcing subrogation recovery is one way of obtaining the expertise and resources needed to maximize recovery.

Subrogation should begin immediately upon the reporting of an accident involving a third party. The insurance carrier should be notified when the company believes fault lies with the third party. You will look to them for recovery of damages, including the non-repair costs. Accident management professionals know how to document and pursue non-repair costs, which can amount to hundreds, if not, thousands of dollars if the soft-costs accidents incur.

In some situations, the third party may offer to pay-off subrogation claims over time. If these payment agreements are not tracked, and follow-up isn’t prompt, recoveries are often only partial.

By far the largest variable cost in any fleet is fuel expense. Fuel can amount to as much as 80 percent of variable cost and involves more individual transactions than any other cost. Fuel costs have been in the forefront of the news over the past two years — beginning with the price spike resulting from Hurricane Katrina — and price volatility continues to this day.

A fleet manager can do little about pump prices beyond providing drivers tools to search for the lowest local prices. But fuel expense doesn’t only include fuel; it nearly always includes non-fuel elements buried in thousands of transactions conducted each month. Seeking out miscellaneous charges can result in tens of thousands of dollars in fuel savings.

• Excessive fuel purchases. For example, if a fleet vehicle has a fuel capacity of 18 gallons, any transaction of that much or more likely includes fuel purchased for a non-company vehicle or piece of equipment, such as a boat or lawnmower. Exception reports can flag such transactions.

  
  

• Non-fuel purchases. Drivers often purchase non-fuel items such as food, beverages, tobacco products, and more. These, too, can be captured and flagged as exceptions.

  Fuel transaction data can also be mined to find other expense that can be eliminated:
  

• Full-service fuel almost always costs more than self serve. Capturing full-service fuel purchases via exception can save substantial monies.
  

• Premium fuel can cost as much as 40 cents per gallon more than regular unleaded. In a 1,000-vehicle fleet, driving 24,000 miles per year and achieving an average of 20 miles per gallon, if only 10 percent of fuel purchases are premium fuel, $48,000 is wasted each year simply by purchasing the wrong grade of fuel.
  

• Off-hours use. Depending upon fleet policy and the driver’s mission and responsibilities, sometimes data can reveal policy violations of when drivers are permitted to drive. Many companies, although they permit personal use, do not pay for fuel purchased for that use. The “Friday–Monday” fill-up is one element to look for. Drivers who purchase a tank of fuel on Friday and then fill up again on the following Monday are obviously driving and using company-paid fuel over the weekend.
  

• Time-of-day purchases can also reveal policy violations. Companies may limit driving company vehicles to working hours. A fuel purchase at 11 p.m. indicates the vehicle is being driven past acceptable hours. Because fuel is such a large expense, relatively small policy violations or even minor fraud purchases, if discovered, can result in hundreds of thousands of dollars in these “hidden” costs saved.

  5. Watch Those Lease Billings

  
  For leased fleets, the monthly lease bill can obscure any number of savings opportunities.

  Replacing a fleet vehicle involves several routine steps:
  

• The driver picks up the new vehicle from the delivery dealer and, when not purchasing the vehicle, drops the old vehicle off.
  

• The driver signs a delivery receipt, which in turn notifies the lessor the vehicle has been dropped off.
  

• The lessor arranges for vehicle pick up, usually by an auction.
  
• The lessor collects the resale proceeds from the auction, net of expenses (cleaning, minor reconditioning if applicable, and fees), and applies the proceeds to the lessee’s lease billing.

  This process should take no more than two weeks to 30 days. It is critically important the fleet manager understand the terms of the master lease agreement regarding when the lease billings on the vehicle should be stopped, and track the leasing company’s performance in promptly completing such sales.

  For example, at what point does the master lease agreement require the lessor to remove a used vehicle from the billing? Most companies negotiate the date to be when a vehicle is turned in by the driver to the delivery dealer. Not doing so can actually end up costing the lessee a full month’s additional billing. If the vehicle was turned in on the 12th day of a month and the lessor does not remove the vehicle before the 15th of the month, one full month’s billing will ensue. The vehicle (having been turned in prior to the 15th) should not have been billed for that month. Thousands of dollars of unnecessary lease billings can result each year if the fleet manager does not track vehicle pickup and sales.

  Another hidden cost can occur when a floating interest rate is used and the lease billing does not reflect a drop in the floating rate indicator in time. Finally, make certain that resale proceeds are applied promptly to the lease. If the proceeds exceed the unamortized book value, the credit on the billing should be posted in a timely manner.

  Hidden Costs Can Be Controlled
  All in all, these and many other “hidden” costs can be uncovered and substantial money can be saved — if the fleet manager takes the time to research the data and develop a process.