Cycling and Outsourcing Your Fleet

For a business operating a fleet of vehicles, one of the most difficult decisions is determining when to dispose of aging units. Relatively few firms have the staff resources to keep up to date on depreciation schedules and residual values. Accordingly, businesses increasingly turn to professional fleet management companies to provide disciplined fleet replacement guidelines and services, commonly called cycling. For example, MMC Corp is an employee-owned holding company in Overland Park, Kan. Eighty years has brought growth to MMC Corp, which specializes in mechanical and general contracting for commercial construction. MMC Corp employs an outside supplier to manage their fleet and develop a long-term strategy for increasing the productivity of their 250 vehicles. That strategy enables MMC Corp to project financial targets for three, four and five years down the road on several factors affecting productivity. The strategy also takes into account everything from acquiring and disposing of vehicles to managing maintenance, risk management, warranties, mileage and the potential wear and tear on each vehicle in the company’s fleet. MMC Corp believes outsourcing to a professional fleet management company also alleviates the expensive and time-consuming aspects of using in-house personnel to manage company vehicles. “We have to consider more than just the hard costs of acquiring and managing a fleet,” says David Cimpl, vice president and chief financial officer for MMC Corp. “For example, we have to take into account the amount of time our people would spend managing maintenance issues, handling insurance and vehicle registration and reselling vehicles when they are no longer cost-effective to maintain. Those are all time-consuming jobs that can have a negative effect on productivity.” Besides employee productivity, getting the most value is important to MMC Corp. “By outsourcing functions like acquisition and resale, managing maintenance and monitoring fuel consumption, we have improved our efficiency and lowered our vehicle-related expenses,” Cimpl said.

From Acquisition to Resale

The fleet management company Cimpl employed developed a managed vehicle replacement, or cycling, program that ensures vehicles are acquired at the best possible price, with all possible discounts and rebates. “Cycling helps us replace vehicles at the right intervals to achieve peak performance and the best resale value,” Cimpl says. “It also is no more expensive than holding onto vehicles with high mileage that are no longer under warranty and have higher maintenance and fuel costs and more frequent breakdowns.” He emphasizes the importance of working with well-trained professionals with the expertise to identify and evaluate future capacity needs, project vehicle mileage and market value and to estimate the true cost of ownership. Those professionals also must possess a thorough knowledge of vehicle warranties, maintenance trends, fuel economy, insurance and downtime costs. Planning for the disposal of vehicles at the same time as vehicle purchase yields an important benefit under MMC Corp’s cycling program. According to Cimpl, ordering the right vehicles and the right equipment options for the job results in better-retained equity at the time of sale.

Additional Benefits

MMC Corp believes leasing vehicles through a professional fleet management company offers other advantages. For example, establishing a separate line of credit through the fleet management company alleviates using MMC Corp’s available operating capital or tapping its line of credit at the bank to purchase vehicles that depreciate quickly. In addition, MMC Corp’s maintenance program is administered by service advisers who are Automotive Service Excellence (ASE) certified. These advisers can not only arrange timely, high-quality repairs but also ensure maximum warranty benefits as well as rebates, price breaks and other opportunities to minimize expenses. One expense every business hopes to minimize is fuel costs. As a hedge against fluctuating prices, MMC Corp uses a fuel card program through which each of its drivers is assigned a separate ID number. That number is recorded electronically at the point of fuel purchase, and at the end of each month, MMC Corp receives one report from its fleet management company that traces all fuel purchases. Detailed information about each driver and vehicle, as well as exception reports that help pinpoint unauthorized purchases, help MMC Corp monitor costs. Because MMC Corp’s vehicles are located in multiple states and counties, registering vehicles would be complicated without the help of a professional fleet management company. Different states have different names for their regulatory agencies, and specific requirements and terminology for emissions, license plates, taxes and insurance frequently vary among states and counties. A national, uniform method for registering vehicles may never exist, so working with a fleet management company that knows each state’s requirements streamlines the process for MMC Corp. The company’s employees avoid the time-consuming, labor-intensive process of renewing vehicle registrations, and its drivers no longer have to stand in line at the department of motor vehicles when they could be serving customers.