Lack of Total Cost Recognition

What motivates an organization to sell unused vehicles when they fail to recognize the total costs associated with a vehicle asset? This is a question I have been searching to answer the past several months. Most of us recognize when we don't value something any longer that the time has come to to dispose of this item. For example, when we have two vehicles in our family and one is no longer being used, most of us will reassess whether this vehicle is still of value. This especially becomes the case when we are paying a monthly car payment or we are looking to sell the vehicle to receive a monetary gain on the sale.

What if these cost motivators are not present? Then what motivates someone to sell a vehicle other than it may simply be the right thing to do. This is the struggle of many fleet organizations that fail to aggregate the total costs of owning and operating vehicles. A lot of organizations then become complacent and view unused vehicles as "sunk costs" to the organization. This is a dangerous assumption!

There are ALWAYS costs associated with vehicles whether they are used or not or whether someone chooses to recognize the costs or not. Even if a vehicle is NOT being used it often incurs costs associated with management and administration (e.g. Computer tracking programs, insurance premiums, staff salary and benefits, facility space, parking space, etc.)

It is simply NEVER true that a vehicle is not costing an organization something!

Costs are most often categorized in two cost centers which are direct and indirect costs. The latter being the most ignored from my experience working with fleet management. Most people understand the direct costs of operating vehicles like vehicle purchase price, maintenance and repair, and fuel costs. Of course the largest single cost of operating vehicle is depreciation, which is estimated between 55-70% of the total costs. Next comes fuel, maintenance and so on....

However, some of the most expensive and often overlooked vehicle costs are the indirect costs. Costs like computer tracking systems, loss of employee productivity associated with vehicle downtime, safety and liability costs from failure to renew vehicles timely, costs associated with storing and parking vehicles, routine preventative maintenance, monthly insurance costs, and most commonly overlooked, the residual value from the sale of the vehicle. The vehicle disposal proceeds are ALWAYS worth more today than tomorrow which should motivate any organization to sell the vehicle the moment it is no longer being used.

But what if the sell proceeds are not retained by the organization viewing the vehicles as sunk costs? Then of course there is little motivation to sell these underused units. In addition, without true cost recognition an organization can't evaluate other transportation alternatives that offer lowest cost, like paying employee mileage reimbursements, using rental vehicles, or pooling and sharing vehicles to maximize asset utilization.

Bottom line is organizational leaders need to educate non fleet personnel about the all the true costs associated with managing and operating vehicles. Without proper cost recognition, agencies cannot operate effectively and efficiently.

Regardless how any organization chooses to view vehicle its costs, without complete and total cost recognition an organization can never truly become efficient. It is a simple fact that without total costs you can't make good fleet decisions.

All effective organizations must start recognizing the costs of vehicles to be effective and deficient! I have witnessed users of fleet vehicles allow vehicles to sit idle over and over due to the failure to properly see the total cost picture. Their rationale has been simply, this vehicle costs no more than a tank of gas should I chose to operate it. Failing completely to consider all the other direct and indirect costs associated with effective vehicle operation does not allow for good decsion-making and usually ends up costing an organization much more in the end.

If you have another opinion or how to motivate sound decision-making without total cost recognition, I would like to hear from you!