Change isn't bad, it's just different, or so the old adage says. Change is the hallmark of most successful business operations, and fleet management is no exception.

Change comes in many forms: turnover in personnel, change in company policy, change in fleet procedures. Change can be small; it can be substantial. It can be implemented simply and without pain; it can be difficult and costly. Probably the most wrenching, but ultimately rewarding change any fleet operation can experience is a change in leasing company, particularly if such a change involves other fleet programs as well. 1. How will a switch impact fleet operations?
Sometimes, the sheer number of tasks a lessor performs can be overlooked. In a bundled fleet program, which includes leasing, maintenance, fuel, and accident management, a lessor provides literally dozens of services and processes both beyond and within the basic program itself. A. Leasing. A typical fleet leasing program involves a substantial number of individual processes, including, but not limited to:

• Vehicle ordering.
  

• Order status tracking.
  

• Vehicle delivery.
  

• Out-of-service vehicle pickup/sale.
  

• Application of “rifle shot” programs.
  

• Search/purchase/delivery of vehicles from dealer stock.
  

• Title retention and administration.
  

• Reporting (inventory, replacement schedules).
  These are only some of the processes lessors provide as part of the typical fleet leasing program. B. Maintenance management. This service provides a fleet the means to purchase service and repairs, technical assistance, and reporting capabilities. Maintenance management requires a great deal more interaction between driver, lessor, and fleet department. Most fleet vehicles, driving 2,000-3,000 miles per month, require service at least every other month and more often as miles are accumulated. When a bundled fleet management program is changed, the change in the maintenance program impacts the driver the most. C. Accident management. These programs involve a great deal of interaction with drivers. However, the large majority of drivers don’t use the program, and even those who do will use it no more than once in several years. The impact of changing accident management programs, therefore, is relatively negligible, once the change has been made. D. Fuel cards. Although a fleet fuel card program is used by drivers more often than any other fleet program, it requires almost no driver interaction with the provider. Drivers need fuel, they buy fuel. The exceptions occur when a card is lost, stolen, or rendered inoperative. Driver/lessor interaction is usually a telephone call and the provision of a new PIN or driver ID.
  Lessors: What to Expect
  2. How to accomplish the change
  Changing lessors involves a great deal of preliminary analysis, a bid solicitation process, decision-making, and finally implementation. The process is time-consuming, and there are no shortcuts if the result is to be successful. Fleets change lessors for a number of reasons:

• Dissatisfaction with current supplier.
  

• Solicitation from a competitor.
  

• Company or fleet policy requiring regular review and bid solicitation.
  

• Expiration of an existing agreement.
  When a change in lessors occurs for the final two reasons, the process can be planned well in advance and managed more easily than in the first two situations. When problems with an existing supplier become intractable, the required change is not as predictable. The same is true when a competitor submits an offer so enticing that it cannot be ignored. A. The first step in accomplishing a change is usually preparation and issuance of an RFP to those lessors the fleet believes would best meet its needs. Next comes review and analysis of the RFP responses, including formal presentations and the winnowing of the field. The last step is usually a visit or visits to the finalist(s) headquarters and notification of the award. This process happens over several months and is costly in terms of company resources, time and personnel.
  B. Thoroughly implement the change. Implementing a new lessor program must be done as thoroughly as possible to be effective. The process involves two strategic goals. The first concerns the lease — how will the fleet convert its vehicles from one program to another? The conversion can be accomplished one of two ways:
  

• Sale/leaseback. The new lessor purchases all existing fleet vehicles and leases them back to the fleet. This method is the faster of the two options. However, it can involve significant hard costs. The primary cost is often the sales tax payment when the vehicles are sold. The tax can add thousands of dollars or more for a large fleet. Once the vehicles are purchased from the previous lessor, the new lessor develops a depreciation schedule and lease payments for the vehicles and handles title transfer and re-registration.

• Attrition. The alternative is to replace the vehicles through attrition; as vehicles reach normal replacement mileage or time in service, they are replaced under the new contract. The benefit here is the avoidance of potential sales tax liability and the shock and confusion of a wholesale change.
  C. Management / Administration programs. The second strategic goal in implementing a change in lessors, and one which carries the potential of additional cost, is the implementation of fleet management or administrative programs. Here, too, the change can be handled in two ways:

• Service programs such as maintenance management, accident management, and fuel cards can be implemented for the entire fleet, regardless of whether the leases are converted.

• Services can also remain with the lessor from whom the vehicle is leased if the lease is converted through attrition. In contrast to lease conversions, where sale/leasebacks are relatively rare, it is not entirely unusual for fleets to implement fleet management and service programs for the entire fleet, even when the leases are converted via attrition. D. Taking the final steps. Once the contracts have been signed and approved, a detailed implementation plan should be developed. This step includes authorization processes, lines of communication, systems and reporting training, and announcement and distribution of materials.
  

• The new supplier must be provided a complete vehicle inventory so driver materials can be assembled.
  

• Addresses and contacts must also be provided, whether the materials are sent to the drivers directly or to a field office for distribution.
  

• The fleet manager should develop some form of notification (e-mail, memo, or both) that provides drivers with step-by-step instructions on how to begin using the new programs.
  

• Any and all existing materials (maintenance coupon books, cards, accident reports, etc.) related to the previous lessor’s programs should be accounted for. Drivers should be instructed either to forward them to the fleet department or destroy them. Confirmation and tracking are also important here. The fleet continues to be responsible for any charges incurred under the old program. 3. What are the Financial Costs of Switching Lessors?
  How costly is a switch of lessors? Although expenses obviously vary greatly, a fleet manager can come up with a reasonable estimate. A. Time. First, calculate the cost in fleet manager's time. The following chart assumes the change process takes 20 days.
  Fleet Manager's Time: $48/hour (salary and benefits totaling $100,000/year, 260 working days/year, 8 hours/day).
  Total hours: 160 (20 days).
  Total Cost in Time: 160 x $48 = $7,680. The same calculation can be done for any and all others in the company who dedicate time to the effort. Other costs are incurred as well in switching lessors. These include the expense involved in producing and sending out the RFP (or, as is becoming more popular, the use of an online bidding product), the incidental costs of conducting meetings (phone, other resources), and finally the cost of travel when visits are made to the finalists. These costs can add up to tens of thousands of dollars just for the RFP process alone.

  After an award has been made, a contract negotiation process takes place that can be time-consuming, and thus costly. Corporate legal and sometimes outside counsel, senior financial management, and of course, the fleet manager are usually involved, all of whose time is costly.
  B. Implementation. Implementing both the vehicle lease conversion and management program changes carries significant costs.

• Vehicle lease conversion. Of the two methods of converting vehicle leases sales/leaseback and attrition — the sales/leaseback option incurs some hard costs. For example, a fleet consists of 1,000 vehicles, which carry an average value of $10,000 on the marketplace. Sales taxes, of course, vary by state, but assuming that on average, the tax amounts to 4 percent of the vehicle’s sale price. The total fleet cost is $4,000 in sales taxes, which can be paid directly or capitalized into the vehicle’s lease value.

  Adding the tax to the lease value brings yet another additional cost: the expense incurred by applying a lease rate that includes an administrative fee and a charge for interest. The combination of these costs can total thousands of dollars as the vehicles remain in service and billings accumulate.

• Management programs. In the same manner as the RFP process, management program implementation carries costs. A number of the company’s key stakeholders (fleet, drivers, accounts payable, etc.) are involved, and the cost of their participation can be estimated in the same manner as in the RFP process — by estimating the number of hours or days involved and the cost of each.

  Other costs are incurred in implementation. Changes in the fleet policy/procedure document must be made. If these changes involve a hard-copy paper document, the change requires reprinting, at least one or more pages, at most, the entire document with dissemination to the drivers. In a larger fleet, this step can cost thousands of dollars. Inevitably, there will be a spike in communications, resulting from questions that arise regarding driver instructions and whom drivers should contact. Again, the time the fleet department staff takes in responding to calls and answering e-mails can add up quickly.

  Fleet staff must also be trained to learn the flow of information and particularly how to use the new lessor’s online fleet management system, a critical component of the program's success. Training must cover how to place orders, track status, produce cost reporting, generate replacement schedules, and make driver or vehicle changes. The lessor provides this training at no charge. However, once again, there is the cost of staff time. C. Estimating total costs. The overall costs of changing lessors and the programs they usually bring along can be estimated. The following example uses a fleet of 1,000 units and a fleet department of a fleet manager and one clerical staff.

  The cost of the fleet manager's participation in the preparation of an RFP, analysis of bid responses, and award of the business has already been estimated: $7,680. To be conservative, assume this process requires the participation of a company sourcing or purchasing professional for the same 20 days at the same cost. We’re now at $15,360 ($7,680 x 2). We can add to this amount the cost of travel to meet with two final candidates at their offices: $1,000 (airfare, one hotel night, a rental car, and meals). Finally, there is usually a senior manager’s (the fleet manager’s supervisor) input, if nothing more than a review of the decision. Assume one full working day review by a senior manager at $200,000 in annual salary and benefits. The senior manager’s cost comes to $769 ($200,000 / 260 working days / 8 hours per day, x 8 hours of review).

  The decision to change lessors has been made. Inevitably, there are negotiations surrounding the contract, which require input from corporate legal counsel. Assume one full working day (in total), 8 hours at $100/hour. Legal counsel input amounts to $800 more. Our running total is now $17,929, and not one part of the program has been implemented.

  With the contract in place, the lease program and related services must be implemented. Again, to be conservative, we assume the vehicles will be replaced through attrition as they come up for normal replacement under the new master lease agreement. There is no additional sales tax cost.

  We also assume the service programs — maintenance, accident, and fuel management — are implemented for the entire fleet, the general practice among fleet organizations. As previously described, the fleet department must gather and make available to the new provider certain information, such as a vehicle inventory and driver and contact information to distribute driver packs/materials.

  Drivers, as well as fleet staff, must learn use of the new program, new lessor contacts to handle problems, and the required communications flow (paperwork, online material, etc.).

  Estimating the cost in time and resources such information gathering and training is difficult when, as in the case of our example fleet, more than 1,000 drivers and staff are involved. Even if each spends a total of just one hour reading announcement material and learning the program basics, and assuming only $40 per hour cost of time, $40,000 is added to the overall cost. Our total so far is now $57,929. To this we can also add two-days’ travel costs for the fleet manager’s site visit with the new lessor to establish policy and procedure and for training: airfare, hotel, meals, rental car at a conservative total of $500.
  

  Measured conservatively for our sample fleet, the total financial cost of changing is $58,429.