Managing the Financial Side of Commercial Fleets

Does the Future Hold a P&L for Every Fleet Vehicle?

September 2008, by Staff

The information age rolls on. In today's business environment, data is king, securing its throne more and more every day.

Few functions involve data in more volume than fleet management. Each day, drivers going about the company's business conducting transactions for fuel, tolls, parking, maintenance and repair, and other fleet expense. Add the "automatic" creation of fixed cost data and the complete picture of vehicle holding costs is available in nearly real time.

Fleet management is data management; managing a far-flung company asset is impossible without easy access to data. But that's only the cost side. Is there an income side? There can be. Drivers of company vehicles create income, and that's the only element missing to create a profit and loss statement  (P&L) for each vehicle.

But is there value in developing P&L figures for individual company vehicles? Is this activity merely a matter of toying with interesting, but useless, information? Since developing vehicle-specific P&Ls hasn't been done on any widespread basis, the question is a good one.

 

Begin with Fleet Expense

It is important to begin at the beginning, with data most familiar to fleet managers. There are two primary categories of fleet expense: fixed and variable. Incurred in the acquisition and ownership (or lease) of vehicles, fixed costs include the following:

  • Depreciation – during the vehicle's time in service, the depreciation reserve; after it is sold, actual depreciation or the difference between the original cost and proceeds from its sale.
  • Insurance– includes accruals for physical damage as well as a corporate charge for liability coverage.
  • License/Title/Tax – including personal property tax when applicable, registration renewals, and inspection costs and retitling when vehicles are moved.

Variable costs are those incurred in the operation of the vehicle:

  • Fuel.
  • Maintenance/Repair.
  • Tires.
  • Oil.

Fleet expense data is captured in various forms, some tied to an outsourced fleet program, others via expense report.

Technology has enabled the electronic capture and manipulation of most fleet data. Traditionally, fleet managers have used the data in a cost/use ratio format, in cents per mile or dollars per month. A fleet vehicle's efficiency is measured against either internal or external benchmarks, and vehicle selection decisions are made using these methods.

 

Creating a Fleet Income Line

While fleet expense is familiar to a fleet manager, the factor of income is less so. A P&L cannot be established without an income line. However, such accounting can be accomplished in a number of ways.

The simplest and easiest "income" line to use for a vehicle P&L is sales, when applicable. Sales vehicles generate income as the driver goes about the job, selling company products and services. 

Another possible method applies a company's EBIT (earnings before income tax) percentage to sales, then using the resulting number. Still a third method is using the net-after-tax income rate to create the revenue line.

The net income numbers described might not be entirely accurate. In the company's income statement, vehicle expense is already accounted for and thus, the percentages are moot. The gross sales number might be more accurate. However, the purpose of a fleet P&L is simply for comparative purposes, not financial accuracy. Thus, using EBIT or net profit percentages, applied to the sales number, will make the numbers more manageable.

 

Vehicle P&L Covers Cost Efficiency

Traditional financial P&L statements incorporate several items:

  • Revenue.
  • Expense.
  • EBIT.
  • Taxes.
  • Net income.

The vehicle P&L, as simply a means to measure cost efficiency, doesn't have an established format. The important step is creating a new means to measure the cost efficiency of a particular vehicle; the format isn't as critical.

Let's say, for example, a salesman creates $100,000 in sales each year. Vehicle expense is:

Monthly Lease Cost:..$400

Insurance:................ $100

License/Title/Tax:....... $25

Fuel:......................... $400

Maintenance/Repair:.. $50

Tires/Oil:.................. $150

Total Monthly Cost: $1,125

Total Annual Cost: $13,500

 

The simple vehicle P&L for this scenario is :

Annual Income:. $100,000

Annual Expense:. $13,500

Net Income:    $86,500

 

How is this information valuable? Rather than judging the efficiency of a fleet vehicle simply on how low its overall expenses stack up, a P&L view provides a true picture of a vehicle's value to the company, and further, might be applicable to express a driver's productivity. The individual vehicle P&L is a concept that has been used in the trucking industry for some time, and the concept may be ready for application in the light-vehicle fleet industry as well.

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