Archive for January, 2010

What is good fleet management?

Tuesday, January 26th, 2010

Having been in this industry for over thirty years, I have seen a lot of poorly managed vehicle fleets.  This is generally because fleet responsibility falls into the hands of someone that has many other resposnsibilities.  Although I understand why this is, it is unlikely that the person that the responsibility falls on either has the time or truly understands how to properly manage a fleet.  This is no fault of their own so I figured I would give a little guidance as to how to manage a fleet.

The key to all great management begins and ends with the information.  When a manager is empowered with the right information, they will be able to make the proper decisions, instead of guesses.  The information that a fleet manager needs corresponds with the four costs areas associated with vehicles:

Acquisition: Most companies purchase their vehicles as a capital expenditure.  By moving to a leasing option, the acquisition cost becomes an expense and is much easier to get approved.  This keeps all of your vehicles on their optimal cycling points (link to last week) so that you maximize your trade-in value.  Furthermore,  a leasing program with a sound replacement plan, allows time to factory order a vehicle  and get the exact features you need while paying less than what you would off a lot.

Depreciation: This is the largest expense associated with operating the vehicle.  The key is to carefully capture the current operating costs for each vehicle so that you are able to plan for its exact optimal cycling point.  Although this may seem like a pain, it will prevent any surprises that may come from diminished value or unexpected repairs.

Maintenance: If you carefully track maintenance costs you will be able to tell when acquisition of a new vehicle is less expensive than continual upkeep.  Since we are in rough times many companies think that keeping their current vehicles will save them money.  However, studies have shown that the money that goes into maintaining these vehicles could be applied to new vehicles for a cost savings.

Fuel: When fuel prices are low it is easy to forget how much of an expense this can really be.  However, as gas prices continue to rise, it will be important to implement a good fuel management program.  By carefully monitoring expenditures and mileage, it becomes easier to implement a program to save your company money.  Many of our clients will see a savings of about 15% when they are willing to dedicate the time to this monitoring.

Although this may come off as a lot of time spent monitoring a fleet that you do not care about that much, the time will be well worth it.   Once you are empowered with accurate information, you will be able to effectively manage your fleet.

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How long should we keep our company vehicles?

Tuesday, January 19th, 2010

Everyday your employees use them to get to where they need to go.  They hop in and turn the key with little thought as to what the vehicle is costing your company.  However, as a business owner or fleet manager, you know that every mile that your employees put on is an added expense for you.  So how do you keep the cost of company vehicles to a minimum?

The answer is extremely simple: optimal cycling.  Although these words do not mean anything to you now, they should shortly.    Often companies buy a vehicle and run it into the ground because they feel it is the most economic thing to do.   A well structured lease program will actually guard against this and still provide you with all of the flexibility of ownership, plus you will be able to minimize the money you invest in your vehicle fleet, but more on that another day.

So, what is optimal cycling?  Simply put it is figuring out the point in a vehicle’s life where maintenance costs are still low  and your depreciated value and the market value of the vehicle are equal.

Let me back up for a second.  When you drive a vehicle off of the lot you immediately loose market value, which is no surprise.  From there market value will continue to plateau and drop over the life of the vehicle.  Depreciation is similar but the loss in value happens gradually over time.  However, maintenance costs start at relatively zero and then spike and rise over time.  Below is a great slide that illustrates how these three values decrease or increase over time.

The idea behind optimal cycling is to find the exact point in a vehicle’s lifespan where all three values meet.  This is the point in which keeping the vehicle any longer will require you to spend more money on maintenance then the vehicle is worth.  Although you may think you are saving your company money by not buying a new vehicle, you are actually  losing money that could come from the sale of the old vehicle and lease of a new vehicle that does not have the high cost of ownership.

To determine this point in a vehicle’s lifespan requires careful documentation of the vehicle’s history, as well as carefully track your maintenance expenses.  The two key factors to determining a vehicle’s value are mileage and condition.  By monitoring these on a consistent basis you are able to pinpoint, and plan for, the exact moment when you should get rid of the old car and bring in the new car.  And although this may sound counterintuitive, sometimes a new vehicle is the best way for your company to save money.

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How to select the correct vehicle for your company

Friday, January 8th, 2010

How did you buy your last personal car?  Did you buy it off the lot or have it built just for you?  What made you decide on the model of vehicle that you selected?  When you are looking to purchase a vehicle for your business, think about all of those things and then throw them out the window!

The fact of the matter is that buying a car for your company should be night and day from how you personally buy vehicles.  Nine times out of ten when we buy a car for ourselves we rely heavily on emotion, however, if you do this for your business you will end up spending money that you need not.  Instead, focus your decision around four key areas: fuel economy, safety, budget and image.

Fuel economy: When gas prices sky rocket this is usually the first thing that we think about.  However, even with gas prices being relatively low, you still need to think about maximizing your fuel economy.  Even if your vehicles require the carrying of a lot of equipment, you may be able to find a vehicle with a smaller engine or cargo area that will still satisfy your needs.  We call this “right sizing” with our customers and it means finding a vehicle with the maximum fuel economy that will still meet your needs.

Safety: Obviously we want our employees to remain safe but what steps are you taking to ensuring this on the road?  Is the vehicle you purchase ensuring their safety?  For us, being in the Midwest, this often means finding a vehicle that can handle the brutal winter roads.  This could also mean purchasing some extra safety features that may not come on the showroom floor model.

Budget: We often hear from clients that they want to buy the cheapest car they can find to meet their needs.  This is all well and good but what will the upkeep, insurance and fuel costs be with that cheap vehicle?  Often times people will spend more down the road (pun intended!) because they tried to save money upfront.  Also, few fleet managers consider what the resale value of the vehicle they buy will be but this is direct money in or not in your hands! The key is finding a vehicle that will be the best value in the long run, not the lowest sticker price.

Image: This is where things get fun.  What do you want your vehicles to say about your company when your employees pull in to meet a client?  Do you want them to say that you are environmentally conscious, a high-end service provider or blue-collar worker?  Every vehicle tells a story so it is important to know what you want that story to be and then figure out what vehicle will tell that story.  Whether it is what model of vehicle your employees drive or a high-end graphics package, the look of your vehicle can be very important.

So, forget everything that you know about buying a vehicle and focus on these four criteria.  When you do you will find a vehicle that is the best value for you today and down the road.

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