Managing the Financial Side of Commercial Fleets

Identifying Missed Cost-Cutting Opportunities

Fleet managers can focus too much on the price of the products and services they buy, which can leave some cost-cutting opportunities unexplored.

January 2014, by Bob Cavalli

The demands are unceasing: Management demands to know what savings the fleet manager has found and driver management does, too. Cost reduction is one of the major components of successful fleet management, and woe to the fleet manager who misses any opportunities to do so.

Going after the “low-hanging fruit” in cost cutting generally involves pricing. Whether it is negotiating lower lease rates, rebates on fuel, or hitting manufacturers up for cap money, fleet managers can generally be successful. But, there are other opportunities that don’t necessarily involve pricing that can help a fleet manager to answer those cost-reduction demands.

Look at Ways to Downsize

One of the more common avenues fleet managers take in their cost-reduction efforts, and one that is generally well received by management, is the downsizing of the vehicles in the fleet. Smaller models with smaller powertrains can, if carefully applied, reduce costs.

However, here we’re addressing the downsizing of the fleet itself, as in reducing the number of vehicles. Particularly true in larger fleets, all fleets end up with excess vehicles — pool vehicles, vehicles not turned in on time, vehicles stored at various locations, etc.

Modern technology gives fleet managers an unprecedented level of recordkeeping and control. Vehicle locations, driver information, and inventory are available and can be updated and maintained at the click of a mouse and the strike of keys on a keyboard.

But, this convenience is only effective to the promptness the fleet manager receives information from the field or from a lessor. And, this doesn’t always occur.

Some fleets suffer high levels of turnover — as high as 50 percent or more. Others undergo reorganizations during which whole locations are changed, eliminated, or moved. Still others must deal with both acquisitions and divestitures, adding or eliminating driver positions.

Whatever the reason, added to the fact that many fleet managers have little or no staff to help, vehicle inventories can become bloated with surplus or unneeded vehicles. And, these vehicles cost money.

Focusing on inventory control can lead to substantial reductions in costs — from lease payments to maintenance to fuel — and getting rid of vehicles that are no longer needed saves money. Fleet managers should make tracking inventory a priority activity by:

  • Scheduling regular inventory reports monthly or more often if time permits.
  • Obtaining inventories from the field to match against departmental inventories.
  • Requiring field managers to be responsible for notifying the fleet manager of any surplus vehicles, or pool vehicles, beyond those formally authorized.
  • Working with lessors (if leased) to ensure all turned-in vehicles are sold promptly, the proceeds applied to the billing, and lease payments stopped.
  • Having a firm policy on vehicle assignment, and make certain that it is enforced.

The larger the fleet, the more likely it is that there are unused and “lost” vehicles out in the field, and they cost money. Not looking to downsize the fleet in the normal, regular course of business can be a lost cost-savings opportunity.

Maximize Fuel Savings

Fuel is by far the largest variable cost any fleet vehicle will incur. It can be as much as 70 percent or more of fleet operating costs, and smart fleet managers “go where the money is” when looking for cost reduction.

Downsizing (as previously covered) helps reduce fuel consumption. Other techniques include reducing idling, using routing software, and the tried-and-true method of tracking exception reports to uncover drivers whose mileage deviates from the norm.

Fleet managers have been using fleet fuel card programs now for nearly 30 years, and they offer a number of advantages, which help track and manage fuel costs. However, sometimes fleet managers don’t use such programs to their maximum benefit and miss opportunities to further cut costs.

Here are some ways to get maximum value out of fuel card programs:

  • Fleet fuel cards have a multitude of card controls. Fleet managers use many of them, including day-of-the-week limits; daily, weekly, and monthly limits on purchases; and “fuel-only” limits. But, there may well be other controls available which can reduce fuel expense even further.
  • “Slippage” refers to purchases made by drivers at fuel locations unrelated to fuel, or even unrelated to the vehicle. Food, beverages, tobacco products, and other items are often lumped in together with the purchase of fuel. The previously mentioned controls can sometimes block out product codes for non-fuel items.
  • Many fuel card providers offer fuel pricing applications for smartphones that will guide drivers to the lowest pump price. Don’t simply instruct drivers to download the app; remind them regularly that the company expects them to use it.
  • Go beyond the usual exception reports,  which include variances in mpg or dollar consumption. If a company doesn’t permit weekend use — or if it does, but does not pay for fuel used on weekends — look for the “Friday-Monday” full fuel-up, where drivers fill up late on a Friday, and again on Monday morning.

Making the most of a fleet fuel card program, and the cards’ capabilities themselves, can help a fleet manager to go beyond the norm, and find savings that otherwise might be missed.  

Ensure Proper Maintenance & Repair

Next to fuel, preventive maintenance (PM) and predictable repairs (such as brakes) can be a fertile area to find missed savings.

PM schedules are most often developed around oil and filter changes. One of the “standards” of fleet management is that oil/filter changes should be done on a regular schedule at either 3,000- or 5,000-mile increments; however, this may result in the over-maintenance of the fleet, and incur needless costs.

Not only are 2013-MY and newer vehicles better made with far better materials than they were back when the 3,000/5,000-mile rules were established, but so, too, are the synthetic oils and state-of-the-art filters.

Extending the mileage increment from 5,000 to 7,500 miles can save one oil/filter change per car, per year, which can add up to tens of thousands of dollars in large fleets without endangering engine condition or performance. Be certain, however, to follow the manufacturer’s recommended schedule to ensure warranty adherence.

Also, many fleets operate in a number of geographic areas — urban, suburban, rural — and vehicles in each of these areas accumulate mileage differently. An urban vehicle may only run 10,000 or 15,000 miles per year, while a rural vehicle might run double that mileage.

Establish the PM schedule first for the highest mileage accumulation, then extend it as annual mileage decreases. Matching a PM schedule to annual mileage, rather than a “one-size-fits-all” schedule, for all vehicles can result in hidden savings.

Vehicle brake replacement, although not needed more than two or three times in the life of a vehicle, is another area where savings can be found. Shops like to sell brake “overhauls,” which include changing pads and/or linings, resurfacing rotors and brake drums, rebuilding calipers and cylinders (which then requires bleeding air out of the system), and adding new springs and other hardware, which can cost more than $200.

But, are all of these items necessary from a safety standpoint? Not necessarily. Brakes can safely be serviced by replacing pads and linings, and resurfacing the rotors and drums. A vehicle having brakes done at 30,000-40,000 miles does not necessarily need to have calipers or cylinders rebuilt, nor does the hardware (springs, clips, etc.) need to be replaced. Not doing so can save $100 or more when brakes are serviced.

Hidden savings in maintenance and repair isn’t just a matter of doing less, or not doing at all, however. Consider using local shops, rather than national chains, where a branch office can negotiate discounts, or where pricing may be lower. Check with a maintenance management supplier to see if drivers can use a local sale price, rather than published national pricing.

Finally, train drivers to be conscious of their vehicles and listen for sounds that may be precursors to problems.

Keep it Clean

Most fleets will ask drivers to wash their vehicles, but they don’t always do it. They may think, “So what, customers will just see a dirty vehicle, right?” Yes, but there are other consequences that are costing your fleet money.

The popular TV show “Mythbusters” tested the dirty vs. clean car myth — that dirt on a car actually results in better gas mileage. The result was a 2-mpg advantage for the clean car. Certainly, fleet managers shouldn’t be looking to TV shows to make decisions about their fleet vehicles, but it does make sense that excessive dirt on the exterior of a vehicle can disrupt the air flow over the body, increase resistance, and ultimately cost money.

More importantly, during winter months, drivers should be instructed to clear their vehicles completely of snow before driving. Light, dry snow weighs approximately 7 pounds per cubic foot; and wet snow can weigh as much as 15 pounds per cubic foot. This means that a vehicle covered in snow can carry an additional 200 pounds or more. And, every 100 pounds of extra weight reduces fuel mileage by approximately 2 percent. So, a vehicle covered in snow with a 4-percent mpg reduction would reduce mileage from 20 mpg to 19.2 mpg, not a trivial reduction, especially for a fleet.

Keep vehicles clean, free of snow, and other additional weight, and you’ll see savings.

Ensure Maximum Resale

On the fixed-cost side, the “counterpart” to fuel costs is depreciation, the difference between the original cost of the vehicle and what it brings in proceeds when it is sold.

Historically, fleets have used auctions to sell the majority of vehicles (primarily because their lessors do). Auctions are an excellent venue for resale. They expose vehicles to a large number of buyers, competitive bidding, and professional sellers. Many lessors have representatives when their vehicles arrive at the auction lane to further encourage bidders.

Another popular sale method is to remarket vehicles to drivers and other employees. When new orders are placed, drivers can obtain a price for their vehicle and purchase it themselves when the replacement is delivered. So, fleet managers who sell to employees, and lacking such a sale, run their vehicles through the auction, are getting the most bang for the buck in resale — right?

Again, not necessarily. There are a number of things a fleet manager can do to find hidden depreciation savings.

Don’t just sell to employees, market to them. Employee sales are usually the most lucrative to the company, while simultaneously offering employee pricing that is better than retail. Send a price to every driver; don’t wait to be asked for one.

Partner with a supplier who can offer the driver financing, leasing, insurance, an extended warranty program, and other ancillary services that can help make the sale simple and fast. When the price is sent, include all of the above and allow drivers to choose what, if any, of these programs they like.

Remarketing professionals will tell you that not all vehicles are “auctionable.” The best auction vehicles are those that have relatively low mileage, are well-equipped, and in top condition. Work trucks that have accumulated high mileage are sometimes better sold via brokers and wholesalers, which are experts at finding niche markets for vehicles that don’t bring many bids at the auction lane.

That said, fleet managers should be capable of directing vehicles to that marketing channel (employees, auctions, brokers, wholesalers) where they will bring the most in proceeds.

Another area where fleet managers can sometimes find hidden savings is in the equipment they spec their fleet vehicles with. Not all options add value; some merely add cost, and that often depends upon the trim level of the model ordered.

Look carefully at specs, and match them against used vehicle guides to see if they truly add value on resale. If not, and if the option isn’t necessary for the mission, leave it out.

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