Managing the Financial Side of Commercial Fleets

10 Ways to Reduce Fleet Costs

Operating a cost-effective and efficient fleet often requires relying on the knowledge and expertise of fleet managers, but strategic direction from upper management also acts as a driving factor for such changes.

March 2014, by Gary Hatfield & Janis Christensen

Establishing key performance indicators (KPI) derived from the fleet organization, vehicle assets, and vendors, permit effective fleet performance. This allows chief decision makers to observe trends as they evolve over time.

Here are 10 specific ways to reduce fleet costs along with ratings on each method’s potential to affect the organization’s overall profitability:

1. Reduce the Fleet’s Size

Reducing the number of vehicles in any given fleet is the most proven way to reduce overall costs. The average total cost of ownership (TCO) for a light-duty vehicle (under 10,000-pounds GVWR) ranges from $5,000 to $8,000 per vehicle, per year. Eliminating 100 vehicles offers a potential savings opportunity of more than $500,000 per year. While removing these vehicles would proportionately eliminate 100 percent of fixed costs, the likely increased workload required of the remaining fleet vehicles will raise the operating costs for those vehicles slightly; however, there will still be a net decrease in overall fleet operating costs.

The reduced savings amount will vary based on mileage and usage; however, results from Mercury Associates’ studies show a reasonable expectation of 5 to 10 percent TCO reduction, although some clients have experienced savings as high as 15 percent.

Cost-Reduction Potential: Large

2. Cut Miles Traveled

The number of vehicle miles traveled is one area where fleet managers typically have limited, if any, control. Other than monitoring and enforcing personal-use policies, fleet managers are not privy to day-to-day business purpose data or have the tools to measure the reasonableness and justification for such use. Still, unnecessary trips with little business justification occur and such events drive up vehicle operating costs.

A practical solution involves greater involvement by supervisors in monitoring driver territories, business-use reports, and number of sales/service calls in relationship to mileage and time.

Also, take advantage of technology. With the interconnectivity of today’s business environment, employees can utilize teleconferencing and various media communications to eliminate the need for physical travel. In addition, GPS and other telematics solutions not only reduce unnecessary mileage by providing improved routing, but also discourage excess usage that can occur when the driver believes “no one is looking.” In fact, studies have shown that the mere notice (to employees) of mileage reporting audits have an impact that results in mileage reductions — across a range of business, personal, and reimbursement mileage — without incurring a significant investment cost.

Fleet managers should be tasked to work with driver management teams to implement practical solutions to reduce miles traveled and develop return on investment (ROI) analysis for use of telematics and other technology solutions.

Cost-Reduction Potential: Small to Moderate

3. Get More MPG

Federal government regulations have and will continue to greatly influence and impact vehicle size/weight and development of new automotive technologies. Current Corporate Average Fuel Economy (CAFE) standards of 27.3 mpg for passenger vehicles and light-duty trucks will increase to 35.5 mpg by 2016 and then rise again to 54.5 mpg by 2025. Automakers agreed to the 2025 measures, but there will be an interim assessment in 2017 to review both the cost and effectiveness of different approaches. Three strategies offer direct means for improving fuel economy and reducing fuel consumption:

1. Reduce vehicle size and weight. Vehicle downsizing and down-weighting will likely become a critical means of meeting CAFE requirements. As seen with the all-new,  aluminum-body 2015 model-year Ford F-150, lightweight materials will play a bigger role and displace traditional materials such cast iron and steel. Advanced high-strength steel, aluminum, composites, magnesium, and titanium will all be used more and more in automotive components.

Fleet managers are actively seeking to reduce vehicle size. To do so, they should invest time into better understanding the functional purposes of the vehicles that they manage. This requires spending time in the field, an undertaking that many fleet managers fail to do. Only by thoroughly understanding business requirements, can fleet managers begin to appropriately downsize vehicle models, downsize engines, and add suitable options while avoiding negatives such as mechanical failure and downtime.

2. Use Innovative Automotive Technologies. The use of existing engine technologies and the current demand for hybrids are expected to continue; however, while plug-in hybrids and electric vehicles improve fuel economy, higher acquisition costs rarely produce an ROI when using vehicle lifecycle principles. It appears these alt-fuel vehicles will continue to be a small percentage of overall vehicle production. Meanwhile, diesel engines, often regarded as the least “clean” vehicles on the market, have made advanced strides in greenhouse gas emissions and provide substantially better fuel economy than their gasoline counterparts.

Automakers are expected to accelerate their focus on engine improvements that can achieve a light-duty vehicle mileage of 40 mpg. Replacing six-cylinder engines with four-cylinder engines equipped with a turbo or super charger also improves fuel economy, while not diminishing horsepower. Other engine changes that improve efficiency are 7- or 8-speed transmissions or continuous variable transmissions.

As a side note, a number of aftermarket vendors have developed and marketed various fuel additives and devices designed to improve mpg, however, many of these products fail to provide realized performance increases when tested in laboratory settings approved by the U.S. Environmental Protection Agency (EPA).

3. Modifying driver behavior. Many organizations with fleets fail to consider the impact drivers have on vehicle fuel economy. Hard acceleration, idling, inconsistent speeds, excess use of air conditioning, and hard braking are bad driver habits that can be corrected with driver training and/or education. According to the EPA, a driver can impact fuel efficiency as much as 33 percent. Such strategic direction, however, requires collaboration on all levels of management in order to achieve driver buy-in, acceptance, and success. Some vehicle tracking systems can also monitor and report “events” such as hard acceleration, braking, or cornering, and can also reveal excessive idling time. A business case analysis can determine whether investments in these technologies are warranted.

Cost-Reduction Potential: Moderate

4. Lower Fuel Cost

Fuel is often the second largest variable expense (after depreciation) faced by fleet managers. The U.S. Department of Energy (DOE) Energy Information Administration (EIA) expects the trend for 2014 is a continued drop in fuel cost. Fleet managers, however, should remain alert for potential spikes and keep a proactive fuel management program in place at all times. Practices such as acquiring fuel-efficient technologies, vehicles weight reductions, additional transmission gears (e.g., 8- to 10-speeds), and appropriate drive types to meet business needs should be continued even when fuel prices are stable.

While certain fleets have found savings in natural gas (NGV) or propane autogas, vehicles, implementing these alternative fuels often requires long-term strategic planning. Vehicle acquisition and/or upfitting costs can exceed $10,000 per vehicle, although, recent technology improvements that have brought down the cost of NGVs to near-parity with diesel engines. Gas reserves have greatly expanded the supply and reduced the cost of natural gas. Other positive developments are increased vehicle availability (from OEMs) and the availability of support for fleet and infrastructure development.

Key NGV users include municipal fleets (e.g., refuse haulers), local utilities, state fleets, private fleets (e.g., taxis), airport shuttle buses, commercial urban delivery trucks, manufacturing facilities, transit buses, and farm-use vehicles. Studies support that the greatest savings opportunities exist with refuse and transit fleets, followed by other medium- and heavy-duty vehicle fleets such as school buses and other fixed route fleets (e.g., delivery). These fleets all share a common operational feature in that the vehicles return to a single location where they are time-filled overnight. Taxi fleets are similarly centralized.

Cost-Reduction Potential: Small

5. Reduce Lifecycle Costs

Senior-level executives may see frequent vehicle replacement as an unnecessary cost to the overall fleet budget, instead encouraging fleet managers to retain their vehicles until they reach an older asset age.

Mercury’s studies have found that many organizations retain and operate vehicles far past their optimum economic life, which can result in excessive maintenance costs, increased fuel costs as the vehicles decrease in fuel economy, and reduced utilization. This practice of utilizing an aging fleet stems from previous practices, a lack of capital funding, or failure to communicate the costs and benefits of timely fleet replacement.

Reducing vehicle lifecycle cost requires the knowledge of how to optimize replacement cycles and conforming to the correct replacement cycles. Best-in-class fleet organizations utilize economic-based replacement planning tools to empirically determine the proper lifecycles for vehicle replacement.

After considering all relevant factors (e.g., initial new vehicle cost, reasonable projected resale value, fuel mpg, planned maintenance and projected repair, personal use payments), the fleet manager can prepare short and long-term replacement plans.

Cost-Reduction Potential: Moderate to Large.

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Comments

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  1. 1. David Cameron [ July 11, 2015 @ 12:01AM ]

    Good to see the ways of reducing Fleets cost. Its very important for the vehicle owners. http://bit.ly/1SeIUa1

  2. 2. David Cameron [ July 11, 2015 @ 12:01AM ]

    Good to see the ways of reducing Fleets cost. Its very important for the vehicle owners. http://bit.ly/1SeIUa1

  3. 3. David Cameron [ July 11, 2015 @ 12:01AM ]

    Good to see the ways of reducing Fleets cost. Its very important for the vehicle owners. http://bit.ly/1SeIUa1

  4. 4. Selimo Lesotho [ October 06, 2017 @ 08:10AM ]

    Some of fleet costs we ignore them due to their levels bt ar more costly,thanks

 

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