Too often, fleet-management strategies revolve around a simple strategy: Buy a vehicle at the best price, pay it off, then drive it until the wheels fall off.
To measure what owning a vehicle fleet really costs—and maximize dollars—businesses must do more than calculate the amount they paid for each vehicle at acquisition or the interest rate on the loan. With a vehicle fleet typically ranking among the top five business expenses, organizations should closely examine their fleet-related costs to get the most bang for their buck.
TOP EXPENSE DRIVERS
It’s important to identify the top expense drivers for fleets and know how to evaluate them to optimize vehicle cycles:
Depreciation: Depreciation occurs when the amount paid for a vehicle is less than what it sells for when taken out of service. Depending on the types of vehicles in a fleet and their mileage, the value of a new vehicle can drop by 20% or more in the first year of ownership. It’s a common misconception that running vehicles for 10 or more years is more cost-effective because the vehicle is paid off. The reality is that older vehicles continue to lose value every month, which is effectively the same as making a monthly payment on those vehicles.
The easiest way to reduce depreciation is to find the best time to sell the vehicles in a fleet. With a properly timed cycle point, companies can sell their vehicles when they still have significant value and invest the surplus cash into a replacement vehicle or other business needs.
The best way to determine this optimal cycle time is to assess best-in-class data on an annual basis. When deciding which vehicle types and manufacturers to choose, pay special attention to fleet and custom incentive plans, as well as residual values of the vehicles.
Maintenance: Vehicle repair prices have increased by about 20% in the past year, according to the June 2023 Consumer Price Index. Unscheduled vehicle maintenance needs cost both time and money. And unexpected repairs are needed more frequently when vehicles are past their optimum life cycle, requiring more frequent and more expensive work.
As is the case with depreciation, the best way to minimize maintenance and downtime expenses is to identify the optimum cycle point for vehicles. By selling a vehicle before it becomes a major problem, companies can take advantage of higher resale gains and more predictable maintenance expenses.
Fuel: Fuel is one of the greatest costs for a vehicle fleet. While there is little control over gasoline prices, fleet fuel expenditures can be reduced by implementing a fuel program. Detailed, custom reporting tools provide insights to make informed fuel-purchasing decisions. As fuel prices continue to rise, finding ways to control fuel costs is more important than ever.
Adopting a telematics program for a fleet is another way to reduce fuel costs. Telematics provides real-time data for vehicle and driver performance, route changes and fuel usage. Additionally, a telematics program can track idle time—an important consideration because higher idle time results in higher fuel costs that are often unnecessary.
Another way to reduce fuel spend is to make sure a fleet is the best fit for your business. Removing underutilized or problematic vehicles in the fleet can cut costs. By replacing older units with newer, more fuel-efficient vehicles, companies can see a reduction in total fuel spend by as much as 10% per vehicle.
Mileage: Identifying the optimum cycle point is the best way to ensure a fleet is operating at the lowest possible cost. By doing so, companies can minimize depreciation by taking advantage of higher resale gains, avoid costly downtime and maintenance repairs, reduce fuel spend and lower their carbon footprint by using more fuel-efficient vehicles.
OUTSOURCING FLEET MANAGEMENT
Every fleet and budget is unique, which is why outsourcing fleet-management services can offer tremendous benefits to companies aiming to enhance their operations and optimize fleet performance. By outsourcing, businesses can concentrate on their core competencies while delegating the complexities of fleet management to specialized providers who leverage their expertise.
Outsourcing can provide more control over fleet costs than anticipated, with no compromises on quality or flexibility. Companies may find that outsourcing fleet management is an excellent solution to streamline their operations and improve overall efficiency.
