Strategy

Curbing Fleet Costs

Fewer cylinders, more GPS, backup leases, and better benchmarking are just some of the ways fleet managers are outpacing rising costs.
Alix StuartSeptember 24, 2009

Paula Morisey doesn’t just have a company car, she has about 6,000. As fleet manager for Xerox, Morisey spends most of her time trying to ensure that the vehicles — mostly service vans filled with copier and printer parts — are operating as efficiently as possible, in all senses of the word efficient. Her job comprises everything from buying vehicles via reverse auctions to deciding when to replace them, as well as bottom-line efforts such as how to save money while running a top-notch fleet. Morisey says she is constantly on the lookout for improvements, and this year, she expects to see a 5% reduction in costs, year over year.

Fleet managers at all types of companies are looking for ways to reduce spending, and given the complexities of buying, selling, and maintaining thousands of vehicles, that quest can take on many forms. Xerox, for one, is switching from 6-cylinder vehicles to 4-cylinder when it can, says Morisey, who expects to save three miles per gallon of gas per vehicle by making the switch.

Charlie Szymanski, manager of global insurance and fleet for PPG, found a second company to help finance his fleet to keep lease rates flat when his primary financier increased rates. Lewis Tree Service, meanwhile, is stocking up on about two years’ worth of trucks now, ahead of a change in engine design next year that will add $6,000 to each one, according to Mike Moser, director of fleet and purchasing for the tree-clearing company.

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Surprisingly, the turbulence in the automotive markets, including the bankruptcies of General Motors and Chrysler, hasn’t made much of a dent in vehicle prices or supplier relationships. Manufacturers “have been more willing to negotiate even if they’re not getting all your business” for the past four or five years, says Morisey, and there “wasn’t necessarily a big change with the bankruptcies.” Companies that continued buying vehicles despite the bankruptcies “were concerned about vehicle delivery, model availability, residual values, and, of course, [carmakers’] long-term viability,” says Clarence Nunn, CEO of GE Capital Fleet Services. Now that GM and Chrysler have emerged from bankruptcy, “we are seeing a return to normalcy in the way [carmakers], commercial customers, and fleet-management companies interact.”

mike_moser[The] company is now installing [GPS] devices on 2,000 vehicles…in part because customers (utility companies) are starting to ask for more transparency regarding charges. — Lewis Tree Service’s Mike Moser on expanding the company’s GPS pilot project

Many companies outsource the financing and other aspects of managing a fleet, such as handling registrations and maintenance. Morisey, who outsources some functions to GE, says the relationship not only helps reduce head count, but that GE’s benchmarking data can help reduce operating costs, as well.

Taking to the Skies
Increasingly, more companies are also making investments in telematics or global positioning systems to optimize the performance of the cars, trucks, and utility vehicles. While only a handful of GE’s clients currently use these systems, Nunn expects the GPS boxes to eventually become “as commonplace as a fuel card in a driver’s pocket.” With such devices in service vehicles, managers can monitor not only where the vehicle is but also how long it idles and how aggressively employees are driving, among other things. It can also lead to more efficient dispatching.

Xerox, which just completed a pilot using GPS devices in about 200 vehicles, says that on average, each of its technicians picked up an additional service call per day while using the telematics system; a 20% to 30% increase in work volume. Szymanski says drivers of the 200 or so PPG vans that use GPS devices are being more cautious about stop signs and red lights as a result of being monitored.

Moser says an initial GPS pilot program tested on 400 vehicles was so successful that his company is now installing the devices on 2,000 vehicles that are primarily dispatched to clear trees that are obstructing utility lines. That’s in part because customers (utility companies) are starting to ask for more transparency regarding charges, and Lewis Tree Service wants to be proactive, says Moser. But he expects the system to pay for itself, and then some, within the first year, combined with the depreciation it generates.

Moser says some of the benefits derived from the in-vehicle GPS are automatic feeds of the number of hours a vehicle has been used, allowing for more-efficient maintenance scheduling; alerts when the equipment is being used during off hours, or when an engine is overheating; and fuel savings through reducing idling time. He also anticipates “at least a 1% reduction in payroll costs just due to supervisors being able to validate time cards.”

Of course, privacy issues raise some concerns, particularly when the monitoring yields personal information about employees, such as lunch-hour visits to bars, churches, or doctors’ offices. The first line of defense is to notify employees that they are being monitored, and, to the extent possible, confine the monitoring to business hours. Assuming a company does that effectively, “it’s then a question of how the company is using the information it gets,” says C. Forbes Sargent, co-chair of Sherin and Lodgen LLP’s employment law group. That can be a tricky balance. Confronting an employee about bar visits might be within the bounds of company policy, he notes, while pointing out their daily stops at fast-food joints might not be.

In general, though, using GPS devices in company cars doesn’t pose a particularly high litigation risk, says another attorney. “As long as you can tie it into a legitimate business purpose rather than voyeurism you’re going to be able to protect your interests,” counsels Christopher Litterio, an attorney at Ruberto, Israel & Weiner PC.