As a fleet manager, you probably spend a significant portion of your time looking for ways to control your operating costs. Fuel is always a big portion of a fleet’s budget, so you may be considering strategies for reducing fuel expenses.

There are many technologies, including telematics, which can reduce the total miles your fleet drives. Equipment that decreases unnecessary engine idle time might also be worth evaluating. Another big factor in the operating budget is direct vehicle maintenance costs. You may find yourself evaluating preventative maintenance policies, comparing the cost of in-house vs. outsourced maintenance, and shopping for the best buy on repair parts.

While all of these actions are worthwhile, and will probably generate some operational savings, many fleets have found that the most effective area to address in order to reduce long-term costs is vehicle acquisition. The impact of your new vehicle acquisition program can be seen in multiple areas:

  • Initial acquisition costs
  • Vehicle productivity
  • Vehicle fuel efficiency
  • Long-term maintenance costs

Acquisition Costs and Vehicle Productivity

Fleet acquisition costs include the actual costs of the vehicle and associated upfitting, as well as the overhead costs of funding the acquisition.

The first step in vehicle acquisition should involve evaluating exactly what you need the vehicle to do, and then ensuring that the design and specifications for the vehicle in question match your requirements.

As a fleet manager, you probably spend a significant portion of your time looking for ways to control your operating costs, Bob Johnson said.

Adding extra or more complex components to a vehicle may increase its productivity, but there are tradeoffs. Not only will these add-ons increase the upfront cost of the unit, but they may also increase its overall weight, which could lead to less payload and more maintenance costs. The extra weight and potentially increased engine idle time necessary to operate the equipment could also negatively impact fuel economy.

This doesn’t mean that you should never consider add-ons. Before you add components, simply be sure to calculate their long-term benefits using a net present value (NPV) life-cycle cost analysis. An NPV analysis can be used to evaluate both upgraded truck chassis components and productivity add-ons. To make such an analysis, first identify your internal cost of money (more on that later) and then determine how soon the upgrades and/or additions need to return their costs (payback period).

If you are a for-profit, tax-paying entity, you should also factor in your total effective income tax rate so that you can determine the impact of depreciation on the proposed upgrades. A vehicle investment will have a zero NPV at the end of the payback period if the payback equals your cost of money. If the return is less, the NPV will be negative; if it is earning more, the NPV will be positive.

One of the factors impacting an NPV analysis is the cost of money. Money can be obtained from multiple sources, including internal capital, direct borrowing (debt) and leasing. The question you must answer is “Which is best for me?” Your answer will be impacted by the proposed life of the asset in question, your internal cost of money, alternative opportunity costs and the market cost of debt. Just because you have always financed your new vehicles using one particular option does not mean that you should continue to do so.

Another factor for tax-paying entities is how the government treats capital investments for depreciation purposes. This is a constantly changing wildcard and should be reevaluated every year.

Before buying, another question you should ask yourself is “Do I really need that truck?” Just because a truck is currently in your fleet does not mean that it needs to be replaced. It may have been acquired initially to meet a requirement that no longer exists. Likewise, you may have multiple trucks that are performing the same basic task. Changes in demand for that task or increased productivity of the fleet through upgrades may have eliminated the need for some of the units.

The process of evaluating the need for all of your vehicles, commonly referred to as fleet “rightsizing,” should be a part of every vehicle replacement cycle’s evaluation process. Do you have a specialty unit that is only used occasionally? If so, determine if that work can be subbed out to a rented unit for these occasional requirements at a lower cost. The elimination of non-productive vehicles in you fleet will reduce your investment costs, routine maintenance and licensing costs, and potentially even allow you to reduce your maintenance labor force.