By Steve Saltzgiver
As a Fleet Manager, you are often faced with challenges regarding which vehicle should I keep or eliminate an underutilized vehicle? Most fleet vehicles are purchased/owned (or leased) with the intent to fully maximize utilization (i.e., 10-20,000 miles). This means a vehicle like an F-150 is acquired and placed on a depreciation schedule for 7 years to recoup the capital costs incurred. According to Edmunds,[1] the average cost of an F-150 is around $60,000, where depreciation expense alone is around $7,700[2] annually.
Since traditionally, the largest cost in the fleet of vehicles is depreciation expense versus others such as fuel, then constantly reviewing vehicle utilization makes sense. But let’s see how we should go about this task to save your fleet operation as much money as possible.
The chart on the right represents an exception report of 22 of a 150 Ford F-150s with the lowest annual use in age, ranging between 4.3 and 5.0 years old[3]. At first glance, viewing this utilization graph showing each unit’s mileage (1 to 22 in ascending order), one would normally target for elimination the four units on the lower end of the spectrum (< 1,000 miles) outlined in the pink rectangle. This would be especially, true if your organization regards you as the unenviable “Car Czar” role versus a preferred Stakeholder Satisfaction provider. You may be forced to act and eliminate this seemingly underutilized vehicle.
But is it really this easy?
A common problem-solving technique in analysis which includes data sets is to start asking, “WHY?”. Most often, by the time one asks “WHY” five times they better understand the issues and are more apt to solve the problem. Keep in mind that every question does not necessarily start with the word “WHY”, other interrogatives could also start with “WHAT”, “HOW”, WHICH”, WHERE, “WHEN”, “WHO”, etc.
Let’s start with unit #1, which has 23 logged miles for a 12-month period:
Answer: Operates on Campus in the upper Midwest and used by trade workers (i.e., Electrician) in the Student Housing Buildings as a rolling toolbox.
Answer: 6 months of the year this vehicle is operated in colder weather i.e., needs heater).
Answer: The unit logged 1,050 short trips, or an average of 4.2 jobs per day during the year. (Each job averaged 2/10th of a mile.)
Answer: This unit is assigned to a trade worker and is used to hold tools.
Answer: Search the fleet market for options.
So, after asking yourself these five questions, should this unit be retained or eliminated? First, it’s clearly obvious this unit is necessary for the trade worker to perform his/her job on campus since the vehicle houses their tools and each work order takes an average of about two hours during a normal workday to complete. Upon further analysis, you’re probably asking other questions like:
Answer: Likely, something like a small enclosed electric golfcart or a more specialized electric vehicle like the Tropos Motors[4] vehicle recently seen at the Government Fleet Expo (GFX), or others.
Answer: This would require a complete return-on-investment (ROI) analysis to be completed and is really outside the fleet realm of responsibility.
Now, let’s look at the other end of the use spectrum at unit #22 with an average of 5,114 miles a year with 87 days of logged use, zero trips tracked by users with no indication the vehicle is critical (e.g., rolling toolbox) to the operation. Absence clear usage factors like the previous example, this unit with markedly more miles should be a candidate for elimination. Let’s ask the five “WHY” questions once again and see how this unit fares.
Answer: Unknown, need to conduct a deeper investigation.
Answer: Unit is assigned to an individual supervisor and will not be replaced.
Answer: Type of vehicle is not operationally critical and it may be less expensive to provide alternative transportation solution.
Answer: Since the type of vehicle (e.g., Ford F-150) is not critical for the operation, the company elected to pay this individual for personally owned vehicle (POV) mileage reimbursement at the Internal Revenue Service rate[5], which is significantly less than the previous depreciation expense. If one does the math, the savings to reimburse at the IRS rate is about $1,860 annually.
Answer: Place the vehicle on a surplus list and sell using company processes. Remove from finance book of record and realize a gain/loss on sell and eliminate future depreciation expenses.
As can be seen, these analyses are not as cut and dry as one might expect. The key to being able to conduct these analyses is to have the data necessary to organize into a structured reporting format to begin posing the five “WHY” questions causing management to act appropriately. Moreover, having the data at your fingertips to create an “exception report” as shown reviewing only a small subset of the data affords adequate time to make informed decisions. Exception reporting is a tool used by many fleet professionals to avoid paralysis by analysis and only look at the most pertinent data.
Lastly, imagine simply acting on the raw data collected in a spreadsheet without other parameters like customer, vehicle application, vehicle demographics, etc., to arrive at a satisfactory answer to every stakeholder. Obviously, acting in such a capricious manner to remove a vehicle without customer facts and knowledge can cause severe impacts to a customer’s overall mission.
Hence, the need for a robust Fleet Management Information System (FMIS) to house the necessary data sets to arrive at these optimal analytical conclusions. Your reputation as a fleet management organization depends on your ability to use data and interact with stakeholders to reach an optimal outcome that benefits both the stakeholder and the company at-large. In these analyses, the fleet management team was poised to reduce the total costs by over $10,000 by simply right-typing (+ right-fueling) and downsizing the lowest mileage vehicle (i.e., rolling toolbox) used by the trade worker along with eliminating the supervisor’s Ford F-150 in favor of POV mileage reimbursement.
The quick decisions demonstrated in these examples are just a few of the many that can be made having the accurate data housed in one of the industry’s best FMIS applications, such as the RTA system.
[1] https://www.edmunds.com/ford/f-150/
[2] Depreciation expense equals average of $60,000 purchase price minus expected residual value (10%) divided by 84 months (7 years) equates to ~$7,700 annually.
[3] Data used was from a previous consulting project and any entity names have been omitted intentionally.
[4] RTA has no affiliation with Tropos Motors of Golfcart companies. This reference is just an example, there may be other manufactures in this market to consider.
[5] The fully loaded AAA vehicle cost for an 1/2/Ton Truck (F-150) with an expected use of 10,000 miles per year is $0.9887 cents-per-mile or $9,887 or $5,056.21 for 5,114 miles. Compared to the IRS rate of $0.625 for 5,114 miles equals $3,196.25. Savings is greater than $1,860 to pay reimbursements versus own a fulltime vehicle.