Managing the Financial Side of Commercial Fleets

Eliminating Hidden and Soft Fleet Costs

March 2018, by Bob Cavalli

Graphic courtesy of Getty Images.
Graphic courtesy of Getty Images.

Since the fleet management profession was in its infancy, fleet managers have needed data to maintain as efficient an operation as possible to help them find, quantify, capture, and act on the kinds of hidden and soft costs that may have vexed them. This includes data from assesing vehicle depreciation, fuel costs, and driver safety.

The acquisition, operation, and disposal of a fleet of vehicles throws off a great deal of data, which can also account for company hidden costs. Much of it has been collected from various transactions: purchase or lease of the vehicles, maintenance and repair, the purchase of fuel, and the sale of units taken out of service.

For a long time, such data was gleaned from driver expense reports (and sometimes of questionable accuracy), from receipts, from phone calls and later emails, and even word of mouth. Fleet managers scrambled to acquire, store, and view this data in a format of their own invention.

Welcome to the era of “big data.” Fleet managers have access to greater quantities of, more accurate, and more timely data than fleet managers dared to dream of as little as 15 or 20 years ago (and we’re not talking about the Stone Age of fleet management, 20 years ago was 1998).

Most fleet managers know to focus cost reduction efforts in those categories where those efforts will result in the largest return. That means the two greatest cost categories: on the fixed cost side, depreciation, and on the operating or variable cost side, fuel.

Let’s first take a look at depreciation. Most commercial fleets avail themselves of the services of a fleet management company (FMC) to acquire their vehicles. They do it either via leasing or some manner of purchase/disposal program.

There is only so much one can do on the acquisition side. Monies available for negotiation include holdback (3% of MSRP for the domestic OEMs, sometimes less for some import brands), floorplan assistance (monies provided to dealers to delay the onset of inventory finance charges), and advertising support; there can be others, but these are the most common.

But what about the back end of the life of a fleet vehicle: resale? FMCs are very good at picking up out-of-service vehicles and selling them at auction quickly. But most car veterans will tell you that there are venues beyond auctions where vehicles can be sold.

Depreciation: Alternatives to Auctions

There is little stopping a savvy fleet manager from exploring the use of alternatives to auctions for the sale of out-of-service vehicles. Brokers, wholesalers, consignment sales, all can contribute to maximizing resale proceeds.

Brokers have access to buyers for specific vehicles in specific markets; contractors for work trucks, college students and their parents for dependable vehicles to use while at school, distribution and delivery companies for box trucks all can help a fleet manager increase their resale proceeds, and thus decrease depreciation costs. A pickup truck will sell far better in Texas than, say, Florida, and a hybrid or other alternate fueled vehicle will get far more in California than in Wyoming.

Many companies have programs which enable drivers, and other employees, to purchase company vehicles being replaced. But very few actually market out-of-service vehicles to the larger employee (and family) market.

Rather than waiting for drivers to ask for a price, fleet managers should actively price out vehicles to drivers as soon as a replacement is ordered.

If the driver isn’t interested, place the vehicle on the company website, or other company communications venue, with pricing and PM records.

Your FMC may assist in developing a virtual used-vehicle market, which all employees can browse to find a unit that fits a need (it’s important; however, to put a fuse on the unit’s availability. If no buyer comes forward within two or four weeks of the replacement being shipped from the factory, pull it off the virtual market and sell it). Fleet managers who have a strong employee sale program can usually achieve hundreds of dollars more in resale, selling the vehicles “whole-tail,” pricing lower than an employee would find in the open retail market, but higher than auctions, wholesalers, or brokers will pay.

Certainly, the compression of the dollars between original cost and resale value begins with using the best vehicle for the application in the first place, but exploring using alternative markets, and a strong employee marketing program can help add dollars to the bottom line.

How Fuel Impacts Cost

There are so many ways to use data to increase fuel efficiency and reduce fuel cost that there is scarcely space here to cover them all. We’ll highlight some of the most effective.

Reduce Excessive Idling: Why do drivers leave vehicles running? Most often, it’s for driver comfort, keeping the vehicle cool in hot weather, warm in cold. Many service and delivery fleets make stops all day long, servicing or delivering company products. A very broad estimate holds that idling uses roughly 1/5 of a gallon of fuel per hour. Doesn’t sound like much, does it. But do the math; say you have a fleet of 500 vehicles, and overall accumulate 5,000 hours of idling per year (too much? Remember that a vehicle operating 8 hours/day, for 260 working days/year will be in operation for 2,080 hours per year; 5,000 idle hours is only 10 per vehicle per year). At an average of $2.65 cents per gallon, knocking that in half will save $1,325 per year; enough to cover three or four lease payments, a set or two of tires, or maybe 33 oil changes.

Improper Preventive Maintenance: Proper maintenance impacts a slew of cost categories in a typical fleet vehicle. Resale value, fuel efficiency, wear and tear — all of these send dollars down the drain, dollars that are easy to capture with some effort and timely data. The era of big data has at its foundation telematics technology, which can conduct real-time diagnostics, and send reminders to drivers and fleet managers as to when PMs are due. Fuel efficiency can be reduced by anywhere from 10 to as much as 30% when PMs aren’t performed, or performed on time.

Wear and tear on the engine can increase dramatically when oil isn’t changed regularly. Rough running engines will cause bidders at the auction to sit on their hands. Overall, there are thousands of dollars in savings by using technology to ensure that PMs are done on time.

Driver Behavior: How your drivers drive when on the job has as much impact on fuel efficiency — or lack thereof — as anything else. In the past, fleet managers had little or no ability to track driver behavior, beyond checking MVRs on some regular schedule, which can show data that may be many months old. Having daily access to driver behavior, such as jackrabbit acceleration, harsh braking, and speeding enables fleet managers to take swift action with drivers, as all of these “events” waste fuel.

Fleet Fuel Cards: Most mid-sized and large fleets use a fleet fuel card program, either directly from the issuer or through their FMC as part of an overall bundled solution. Such programs offer users a wide variety of account and card structures, as well as direct transaction controls and exception reporting.

Too many companies, however, take full advantage of these controls. For example, while a fleet manager may put a dollar limit on daily, weekly, or monthly purchases, they may not place geographic limits, by zip code, for example, for drivers assigned territories. Swipe limits are popular, but time of day/day of week controls less so. Make certain that you’re taking full advantage of all of your control and setup options; the more you can control, the more you can save.

Reduce Accidents with Safe Driving

Accident Reduction: It’s a common rule of thumb that the average fleet will have a number of accidents equal to about 20% of the fleet size, i.e., a 500 unit fleet will have 100 accidents per year. Each one will carry a hard cost of several thousand dollars in repairs (or total loss), and the soft cost of down time.

The best ways to reduce accident frequency are to check MVRs regularly (not just on hire, but for existing drivers during the year), and implement a safety program.

Sure, most drivers know they shouldn’t speed, tailgate, or ignore traffic controls, but in the bustle of a work day, as often as not getting to the next sale, service, or delivery is what is on the driver’s mind. Communicating safety, and training, keeps safety fresh in the forefront of a driver’s mind while behind the wheel.

Again, if our fleet manager can reduce accident frequency by a mere 3% — from 20% down to 17% — at an average net cost (net of subrogation recovery, say, 50%) of $2,500 each, a whopping $37,500 drops right down to the bottom line (100 down to 85 = 15 fewer accidents, multiplied by $2,500 each = $37,500). Downtime calculations will of course depend upon the cost of putting a driver behind the wheel (vehicle cost, driver salaries, and benefits), but it’s a soft cost that is quantifiable and justifiable to your manager.

Avoiding Liability: A tragic accident where someone is seriously injured or even killed can hit a company to the tune of millions in liability costs. Like it or not, your company is a “deep pocket” that will be the major target of a smart lawyer. Not only does checking MVRs help avoid accidents, but big data can assess risk in new hires, and in drivers during the year. Telematics can record and report evidence of unsafe driving: speeding, harsh braking and acceleration are all contributing factors to accidents and potential liability. Risk cannot be entirely eliminated, but tracking driver behavior as well as avoiding new hires with violations on a driving record can go a long way toward reducing the risk an incidence of big payouts for liability.

Productivity: One of the most important so called ‘soft costs’ is a lack of or weak productivity. Here is another area where big data, captured via telematics, can help. One of the first capabilities telematics brought to fleets was GPS mapping and navigation. Fleet managers could use this to track where their vehicles were at all times, better enabling them to bring service to their customers more quickly and efficiently.

Drivers were now able to navigate from point A to point B, including traffic warnings and detours. Both of these, in and of themselves, can do much to increase productivity, by decreasing down and wasted time. Not to mention that knowing where they’re going is important to driving safely, especially for new hires or transfers who may not be familiar with the territory assigned to them.

Big Telematics Data Digs Deeper

It’s clear that what has brought the fleet industry, and the economy in general, into the era of ‘big data’ is telematics technology. From its origins in GPS navigation to real-time performance and component monitoring, routing, PM reminders, driver behavior tracking, telematics has given fleet managers more data than they can quite frankly even begin to use.

But that data helps fleet managers dig deeper into what makes their fleet tick, and can reveal many thousands of dollars in hidden and soft costs that can be eliminated or reduced. What is important, however, in the midst of this tsunami of information, is for a fleet manager to separate true, actionable data from that which is interesting, but useless. Once the big fleet cost reductions have been covered (negotiating lease rates, capitalization, fleet management program fees), this data is the natural next step for fleet managers looking for those hidden and soft costs that can keep management happy. 

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