Fleet Cost-Reduction Strategies: Direct Expenses
Use the right vehicle with the right equipment for the job. Feature and model creep are common causes of excess fleet vehicle depreciation. Drivers love four-wheel drive, extended cabs, plush leather seats, V-8 engines, and all kinds of other features. While providing fleet vehicles with those options may be good for morale and can be a good business decision, it will add to the depreciation cost. Trading in older vehicles for more fuel efficient fleet vehicles is also a good decision and this will be discussed further. Also, choosing fleet vehicles without regard to expected resale value can result in higher depreciation. For example, if you convert fleet vehicles from SUVs to sedans and remove some unnecessary amenities you can save up to hundreds of thousands of dollars in fleet expenses.
Negotiate well with vehicle manufacturers. After selecting the right vehicle, acquire it for the best possible price. Vehicle manufacturers compete aggressively for market share and have significantly increased purchase incentives for fleet customers who buy new vehicles. By sourcing with only one manufacturer, your fleet can improve net discounts by approximately 5%, reducing depreciation by up to $225,000 per year.
Don’t purchase dealer stock. Dealer-stock vehicles are equipped for the retail market and will typically have $1,000 to $10,000 additional features than you need for an appropriately equipped fleet vehicle. With better planning and purchasing decisions, you can reduce annual depreciation expenses by up to by $50,000.
Define optimal life cycle by vehicle application. Optimizing fleet vehicle life cycle will save at least $500 per vehicle per year. Keeping vehicles in service for the optimal time is a major cost savings. Depreciation per month declines as a vehicle ages, so replacing vehicles too soon can result in high average depreciation per month. Conversely, maintenance and repairs expenses and the probability for unscheduled downtime increase as a fleet vehicle ages, so keeping vehicles too long can result in high repair costs and lost productivity to the driver. The optimal replacement cycle is at the low point on the total operating cost curve. Calculating that point precisely for each vehicle application can be time consuming and challenging, but it can be approximated through experience and by benchmarking other similar fleet applications at other companies. Using a modern GPS fleet management system such as FieldLogix can significantly help to identify excess fleet vehicles.
Replace vehicles in the early fall. Once you have identified the optimal fleet vehicle life cycles, enhanced savings are possible by deviating somewhat from optimal replacement mileage for late spring and early winter replacements. With the introduction of new-model-year vehicles each fall, values decline sharply for newer used vehicles as they become another model year older. Market prices for typical fleet vehicle replacements typically decline $1,000 to $3,500 from September to December, but new-vehicle prices are generally constant throughout the year. Therefore replacing vehicles ahead of this decline in value reduces depreciation. It is also a good idea to push late spring replacements into the early fall to avoid placing a new vehicle into service that is technically a year old shortly afterwards. Moving part of your annual fleet vehicle replacement s into the early fall can reduce depreciation expense by up to $98,000.
To be continued in How to Save $1 Million with Better Fleet Management – Part Three….