By Jasmine Glasheen
Fleet managers today are being asked to predict the future. Traditionally the term “rightsizing” refers to quantifying the vehicles and staff necessary to fulfill fleet functions. However, the coronavirus pandemic has made rightsizing challenging, as the delivery landscape of next week or even a few months from now remain uncertain.
There are no ready answers to the questions Fleet Managers need answered in order to right-size their fleets. Nobody knows what deliveries will be considered essential, for instance, or whether we will we find a vaccine. We also don’t know which industries will go back to business as usual, or how will certain sectors will be forever altered by the pandemic? This creates a challenging environment in which to evaluate assets.
For some, the coronavirus pandemic has led to a hold in vehicle purchasing. Jim Petrillo, Manager Treasury Services & Fleet Management, FUJIFILM Holdings America Corp., says that his team evaluated slowing down purchasing, based on a weak used car market and possible reorganization.
“The OEMs, shutdowns, model change-overs and long OTD created a natural 'pause' for purchasing,” he says. “Although the forecast back in March for the used car market was bleak, resale numbers still remain strong. We are leaning towards replacing many units this Fall.”
Many fleet agencies have also had to content with a significant increase in idle time. Charlie E. Mahoney, Business Development Manager, Derive Systems, says that many of his clients use their vehicles more today as a mobile office than ever before.
“It’s their space to handle paperwork, return calls, check in, eat, and get away from the elements,” Mahoney says. “This ultimately leads to more idle to operate necessity systems.”
Ronald S. Gitelman, Senior Fleet Administrator at Yale University, says that since Yale is a private academic institution, their vehicle usage is tied to student enrollment.
“If enrollment doesn’t return to pre-pandemic levels,” Gitelman says, “the number of vehicles and usage may need to be reviewed and aligned accordingly.”
However, Kathleen Wellik CAFM, Director of Fleet, Iowa State University says, “Covid-19 has definitely had an impact on our operations. Our department is completely self-funded and that requires that we manage everything very closely. The first major change is that we will not be adding additional vehicles.”
Tips for Fleet Rightsizing
It’s challenging to predict vehicle usage when market conditions are unknown. Fleet rightsizing has also grown more complex, as vehicle usage has been altered due to pandemic-related market fluctuation. However, Petrillo suggests you look beyond present-day vehicle usage when evaluating your fleet assets.
“Monitor past per vehicle usage (prior to March) and factor in the ramp up in use today,” Petrillo says. “If you see a flattening or decline of vehicle use, perhaps it's time to re-evaluate the need.”
Kathleen Wellik has a few tips for fleet rightsizing:
Educate your customers so they understand the benefits of rightsizing.
Have a good FIMS system that provides accurate utilization.
Make the reservation, pickup, and return procedures easy for your customers to use.
Secure an outside overflow contract for peak periods.
While Timothy Fitzgerald, Fleet Director at the District of Columbia Water and Sewer Authority, suggests that fleet leaders make specific changes to technical specifications based on usage, need and specific and where possible multi-use work applications.
“Also look at seasonal needs and understanding versatile fleet needs such as spreaders for multiple use, ex; (Salt vs. Mulch),” he says. “Look at clean idle engines, Bio-fuels and the best fit for the type of organization and the business products you provide.”
Gitelman’s number one suggestion is to track utilization and highlight vehicles that are heavily underutilized. He suggests using data to make these determinations.
“Telematics is a great source of this data, Gitelman says. “It measures not only mileage, but days driven and number of stops. If you have vehicles not being utilized or set aside as spares for when vehicles are down, then fleets need to determine whether it is worth having the vehicles in the fleet given the expenses of running a vehicle.”
Managing Assets During Budget Cuts
Extending your vehicle’s lifecycle can be an appealing option when you don’t have the available funds to acquire additional vehicles. Yet shutdowns have resulted in production lulls, and company-wide shortages of some the parts necessary for preventative maintenance. Suddenly, necessary vehicle components, such air filters and tires, are challenging acquisitions.
Charlie E. Mahoney says that at this time, we are all asked to do more with less. “Derive reinforces reducing operational costs of an asset without asking a driver to change. Items like mitigating speed have a direct savings and even more of an impact in the event of an accident.”
“Other optimizations,” Mahoney adds, “deliver gains in fuel consumption reduction and reduced wear and tear without the need for added hardware.”
Petrillo suggests re-amortizing vehicles’ lease payments to monthly cash output. Lulls in vehicle procurement can be used to reduce the principal balance on loans for your existing vehicles, so your company is better positioned for strategic investments in the future.
Fitzgerald says that his team manages through alternative shifts and priority workflows, “specifically rotating units to site work.”
“We have a web-based application in integration that allows our enterprise solution to see the when, what, where, how and how much,” Fitzgerald says.
Gitelman posits that budget cuts are not a reason to panic, but rather an opportunity for creative asset management.
“Departments that were looking to purchase vehicles may now not be able if their budgets were cut,” Gitelman says. “We can either defer the purchase or look at leasing on a small scale.”
But he adds that the tax required on vehicle leases can be a deterrent to vehicle leasing. Because of this, the advisability of a leasing strategy varies by state and by organization.
He says, “Although Yale is nonprofit property, taxes have to be paid on leased vehicles, as Yale isn’t the owner of the vehicles.”
Third-party Sources for Asset Procurement
While some fleet agencies are in the midst of a purchasing lull, others, such as government and last-mile delivery fleets, have faced a greater need for asset procurement during the crisis. The challenge lies in the fact that vehicle production companies across the U.S. are operating at reduced capacity, or they’ve come to a complete standstill altogether.
Mahoney suggests utilizing ride share for solutions to logistic problems.
“Thinking about the needs of your business than aligning with those forward-thinking organizations that can be of beneficial,” Mahoney says. “Other times, you might have to grow organically. In both situations, staying connected with your peers in associations like NAFA can save you a lot of architecture reducing your time to inception of ideas that can grow your vehicle-based business or service.”
Fitzgerald suggests looking to Sourcewell and National Automotive Fleet Purchasing for asset procurement during this time. Gitelman, on the other hand, stresses relationship-building and utilization as a solution for vehicle procurement challenges.
“FMCs can help with the process,” Gitelman adds. “I use rental companies and have built great relationships with local dealers who are usually able to locate vehicles as needed. We don’t use a FMC, so the local dealer is a key source for us. For example, I had to procure 11 vehicles by June 30th for budget and other reasons. My local dealers were and always have been a great help.”
Wellik says that the Iowa State University has become “very flexible with are car-sharing folks.”
“We have allowed them to drop for a few months, and as they return to campus, we are providing additional cleaning rules and guidance for drivers and passengers,” she adds.
Remarket Vehicles Without Cutting into Margins
In efforts to cut costs, fleet managers are facing pressure to remarket vehicles at deep discounts. According to ACT Research, the average resale price of a Class 8 truck fell to $36,954 in May compared to the May 2019 average value of $47,877.
“The margins are an issue especially with market conditions in flux,” Gitelman says. “The market drives the return on investment. The best thing a fleet leader can do is to ensure the vehicle is in great shape, well maintained, and cleaned.”
However, he adds that you shouldn’t invest too much in repair before sale unless it will increase the return to higher than the additional cost:
“The used car market looks for vehicles that are in good shape, so the better maintained the vehicle the higher the amount you may see as a return. However, with the pandemic and repossessions the market may become saturated, so for some it may be best to wait until the market is in better shape.”
Wellik says that, if possible, fleet leaders should diversify how they are selling vehicles. “Sell some vehicles on an online auction and sell some at a live auction to see were you are making more returns,” she suggests.
“You also may want to consider selling to your staff members, as they know how your vehicles have been maintained.”
Mahoney adds that you may want to take a look at your current operation and consider the risks.
“The saying that ‘This too shall pass’ is accurate,” he says. “Be rational and take a proactive approach looking at historic touchpoints from past residuals values and compare that to your vehicles’ replacement cycles. Don’t cave to peer pressure.”
While Petrillo suggests looking into other avenues to remarket vehicles other than the auction lanes. He says, “There are a lot of online used car retailers who are looking for inventory.”
Retrofitting Vehicles with Telematics
Reporting technology has taken on new significance for FMs that are learning to operate in a remote work environment. Telematics in particular can help fleets reduce operating costs to retain employees.
Petrillo says that properly managed, complete telematics information can help a Fleet Manager analyze their fleet's usage and find many ways to reduce cost from reducing idling time to addressing drivers who do not operate their vehicles efficiently. “It can also help Managers optimize a driver's route and ensure they are productive. The key to this is to have a way to properly analyze all of the data.”
Gitelman suggests that telematics help fleets reduce operating costs by helping to track vehicle usage, ensure fuel fraud isn’t occurring, and can reduce insurance costs.
“Some employees don’t like having (telematics) because they are worried, they are being tracked,” he says. “I don’t use (telematics) for tracking as much as for odometer reading, utilization, and efficiency.”
“A vehicle that is seeing a drop in fuel efficiency may need maintenance, and can save money rather than a breakdown,” Gitelman adds. “Employees appreciate the heads up as they don’t want to be broken down on the roadside.”
Fitzgerald says that telematics is an “optimal way in managing forward and trending in real-time.”
He also suggests telematics as a means to achieve “information and on demand assessments. This allows for true costs, in acquisition and disposal,” he says.
Continuing Education Empowers Decision Making
While fleet leaders are successful for a number of reasons, Mahoney says that NAFA’s certification programs can help professionals build on what they already know while helping build context for the unknown. “The result is experienced based concepts and a network of other professionals that have carried the industries torches with battles that you are sure to face in the space which is fleet.”
“The key is education,” Gitelman says. “Learning not only in a structured environment but learning from others.”
He adds, “A big source during this pandemic has been the NAFA Social Hour call every Thursday. We learn from each other about what is happening in the various fleets throughout North America. Great ideas are gleaned from interpersonal meetings.”
Wellik says that fleet is always changing and continuing to network and learn from other professionals in your field is essential.
“Having these continued conversations and educational opportunities allows for fleet managers to learn other ways that fleet professionals are handing their decisions and can learn from each other.”