Control the Cost of Your Fleet

June 1, 2006
How can you be sure you're getting the best return on investment on one of your largest assets the company fleet? Simple advance planning.

By Eric F. Reeves
How can you be sure you're getting the best return on investment on one of your largest assets – the company fleet? Simple advance planning. How and when you decide to acquire and dispose of vehicles in your fleet depends on many factors, such as time of year, mileage, vehicle type, age, and maintenance history. Knowing when to dispose of older vehicles — a systematic process known in the fleet management industry as "cycling" — eliminates the guesswork.

Sound planning and effective fleet management can help you better control the costs of owning and running a fleet, regardless of the size your business.

Cycling Ensures Vehicles Are in Best Possible Condition

With a motto stating, "We'll be there when you need us," Atlanta-based Estes Heating and Air Conditioning assures its customers they will receive quality, dependable service.

"Our total commitment to customer service and satisfaction demands we maintain a fleet of reliable, fully stocked service vehicles," says Brian Estes, vice president. "With 60 service vans in our fleet, having a cycling program ensures our vehicles are always in the best possible condition. In addition, having newer vehicles helps promote the company's professional image and improves employee satisfaction."

Estes explains that before instituting a coordinated cycling strategy two years ago, the company drove a vehicle until it was ready to fall apart, then stripped and detailed it before trying to sell it themselves. "In addition to investing a lot of energy and resources on older vehicles that weren't in very good shape by the time we were finished with them, we were spending valuable time trying to be used car salesmen, which isn't our area of expertise," Estes says.

Estes' cycling program has generated cost savings. Replacing vehicles on a regular basis has noticeably lowered their maintenance costs, and has enabled them to get a better price when ordering vehicles from the manufacturer.

The bottom line is that planning ahead when it comes to both the makeup of your fleet and knowing when to acquire and dispose of vehicles is an important component in helping you optimize your fleet costs.

Increase Cash Flow with Fleet Lease vs. Fleet Purchase

Another major option is to fund vehicles through a full-service fleet management company. This can make it possible for you to establish a separate line of credit and avoid tapping lines of credit at a bank to fund a fleet of vehicles, which is a rapidly depreciating asset.

While most leases don't require a complete payback of the principal balance of the vehicle, traditional forms of financing, or outright purchase, generally require a complete payback of principal. As such, leasing can free up cash that you can use to invest in equipment or personnel to increase revenues.

Not only will the monthly payments be lower with lease funding, but by working with fleet management experts to set proper residual values to avoid losses at the end of the lease, you can substantially improve your cash flow over the life of the vehicle. The amount of money that can be saved each month from leasing can have a considerable impact on your business.

In addition, with an open-end lease, you'll have a vested interest in the leased vehicle at the end of the term. When this type of lease is established on a vehicle, the vehicle is usually purchased for a specific customer and customized for the business's needs, and both the business and lessor have a mutual interest in the vehicle at the end of the lease term. If the vehicle sells for more than the reduced book value (RBV), the profit goes to the business. If the vehicle doesn't sell for an amount equal to the RBV, the business must pay the difference between the sale price and the residual.

Thus, with an open-end lease, you'll share in the benefit of the value of the vehicle at the end of the lease – or in the risk. Often, at the end of an openend lease, a knowledgeable fleet services provider will be able to sell the vehicle for an amount that is higher than the vehicle's actual worth, and the profit from that sale will go back to you.

Every Vehicle Is a Rolling Billboard

In today's marketing-driven society, every vehicle in a company's fleet is a rolling billboard. How your vans and trucks look and drive on the street is an integral part of your brand identity. And in a highly competitive marketplace, branding not only is effective in "pre-selling" your product or service to customers, it can differentiate you from your competitors.

The way you direct and control your brand is important, both externally and internally. Visually, your company's brand identity is communicated in a variety of ways, including having the right name and a great logo displayed on a fleet of vehicles.

But, branding also can be viewed from the standpoint of reducing costs and increasing productivity. In addition to influencing prospective and current customers, your brand identity can impact recruitment, retention, and overall productivity of your employees.

For example, having a fleet of newer, wellmaintained vehicles not only looks better, it can actually help you achieve the optimum return on investment in terms of avoiding frequent breakdowns, and lost revenue due to missed appointments-while vehicles are out of service. At the same time, having a clean, well-maintained fleet can also improve driver satisfaction and safety, which can translate to fewer accidents and injuries, less downtime, reduced absences, and fewer worker's compensation claims.

Despite the temptation to hold onto older vehicles, the fact is that keeping older vehicles can be counter-productive to your company's image. Whether the vehicle is being driven through traffic or parked in a customer's driveway or job site, a vehicle that shows a lot of wear and tear can present a negative image in terms of your company's financial resources, pride in workmanship, or attention to detail. Ultimately, projecting a poor image can influence current and prospective customers to choose a competitor.

Branding also can be communicated to customers through employees. And one of the best ways to instill brand values is by using the one resource that employees use on a daily basis – vehicles. Vehicles that operate efficiently, have the latest technology and safety features, and are clean and well maintained set a higher standard for job performance by letting employees know that you want them to have a positive attitude and you care about their well being. Not only does driver morale enhance driver safety, instilling pride and enhancing job satisfaction also helps to more effectively translate your company's brand promise to customers through your employees.

This article is based on the presentation, Cycling Strategies Improves Efficiencies for Business with Mid-size Fleets, which Eric Reeves gave at the 2005 Commercial Contracting Roundtable, held in Scottsdale, AZ, Oct. 25-26. The Commercial Contracting Roundtable, which also incorporates the Design/Build Seminar, is co-sponsored by the Air Conditioning Contractors of America (ACCA) and Contracting Business magazine. In 2005, the Roundtable presented 16 business management and technical sessions specifically tailored for commercial HVAC and Design/Build contractors. For more information about the 2006 Commercial Contracting Roundtable, which will be held Oct. 25-26 in Atlanta, contact Richard Ware at ACCA, 703/824-8843.

Looking for ways to control the costs of your fleet? Consider these questions:

  • Does your business have immediate funding needs that could benefit from capital in hand?
  • •Are your employees, managers or owners spending a great deal of time dealing with fleet related issues?
  • Do you have a manager on staff who can manage all maintenance issues with your fleet? Could you benefit from outsourcing this service to a professional?
  • Does your company have vehicles in its fleet with high mileage? Have you been holding on to vehicles for too long in an effort to save money on new vehicle purchases?
  • Is the downtime of your vehicles and/or vehicle image an issue?
  • Does your company have a written company car policy in place that addresses personal vehicle use and other factors?
  • Is your company at risk by not having a uniform company car policy that treats all employees equally?