By Steve Saltzgiver
The likely single largest expense of owning and operating a fleet of vehicles is in fact the liability costs associated with vehicle accidents. However, this is often a overlooked expense because it is often regarded as a Risk issue, meaning Fleet and Risk departments need to work closely together on mitigating the organization's total exposure. It's no secret we live in a very litigious society and law suits are more common place than households with two vehicles. In today's world, lawyers are monitoring police channels trying to get a jump on their next pay check.
It is estimated that 12-13% of all accidents each year are the result of a vehicle mechanical failure and since six million car accidents occur annually in the United States this issue becomes ever more paramount. It is estimated that a person dies every 12 minutes in a vehicle accident and crashes kill 40,000 people a year. The occurrence of vehicle accidents is now the leading cause of death for individuals between 2 and 34 years old and someone is injured in a vehicle accident every 14 seconds and two million suffer permanent injuries.
These statistics make vehicle accident liability due to mechanical failure hard to ignore if you are a responsible Fleet Manager.
• Over 25% of all drivers were involved in an auto accident in a five-year period.
• Excessive speed is the second most common cause of deadly auto accidents, which accounts for about 30% of fatal accidents.
• Car crashes cost each American more than $1,000 a year; $164.2 billion is the total cost each year across the United States.
• Car accidents are the leading cause of death for kids between 2 and 14; About 2,000 children die each year from injuries caused by car accidents.
• Each year, almost 250,000 children are injured in car crashes, meaning nearly 700 kids are harmed every day.
• Car accidents are the leading cause of acquired disability nationwide.
2008 Car Accident Statistics
• In 2008, the number of overall traffic fatalities reached a record low since 1961, and that number continued to decrease in the first few months of 2009.
• The number of car crash deaths in 2008, 37,261, dropped 9.7% from the number of deaths in 2007; this is the largest annual reduction since 1982.
• The 2008 passenger car occupant fatalities have decreased for the sixth year in a row, accounting for 25,351 deaths. This is the lowest number since 1975 when the NHTSA began collecting fatality crash data.
• Motor vehicle traffic crashes injured about 2.35 million people in 2008, which is the lowest number the NHTSA has seen since it began collecting injury data in 1988.
• In 2008, there were a total of over 5.8 million car crashes, 1,630,000 causing injury, 4,146,000 resulting in property-damage only, and 34,017 ending in death.
• There were 15,983 urban crash fatalities in 2008, decreasing 11% from 2007.
• Car accident deaths in rural crashes totaled 20,905, a 10% decrease from 2007.
Bottom line: Properly maintaining your vehicles and controlling driver behaviors to reduce accidents can substantially reduce your fleet management costs.
Monday, April 26, 2010
Friday, April 9, 2010
The Cost of Not Replacing Vehicles
By Steve Saltzgiver
It's always baffled me how decision-makers (especially those with financial backgrounds) never seem to understand the cause and effect relationship of not replacing vehicles in a timely fashion. In simple terms, vehicles are just a tool used accomplish an organization's various mission tasks. When vehicles are not replaced timely this action sets several unintended consequences in motion throughout an organization.
First, vehicle breakdown frequency increases vehicle unreliability and decreases driver/employee productivity, raising the organizations' indirect costs of operation. Unfortunately, these indirect costs often amount to more budget dollars than the organization is trying to save by postponing vehicle replacement. This usually happens because a divide exists by which organizations budget for replacement expenses. Most organizations purchase vehicles using capital appropriation funds (which can become extremely political) versus the use of an ongoing replacement (or sinking) fund. When separate funds are set aside such as appropriated replacement dollars they become easy targets for politicians and company executives to use for what they deem more important projects. This happens generally because everyone owns and operates a vehicle and believes they can simply replace the vehicle at the next budget cycle. However, the problem is they don’t operate the vehicles they are postponing for replacement and when the next budget cycle arrives it has been forgotten. What they don't realize is they are sending a message of fiscal frivolity to their employees. This manifests itself in the form of idle vehicles and agencies engaging in hoarding behaviors to hang onto vehicles for spares. Both unwise practices leading to increased fleet size and decreased residual values.
In my travels, I often encounter those who justify keeping idle vehicles used only a few miles a year because they rationalize they are not costing them anything to retain. One such agency told me they keep their idle vehicle because it is cheaper to run errands a few times a month than pay someone mileage reimbursement. Unfortunately they are not making their decision based on total costs or they would realize that paying insurance, real estate for parking, and employee time to monitor the vehicle cost more than the actual use.
So what is the remedy to correct this situation?
The answer is simple and comes down to employing the best practice of setting up a cost center, capturing the total vehicle costs and employing a charge back system to recover these expenses to replenish a replacement fund. This practice ensures the organization tracks all direct and indirect, and fixed and variable costs which can lead to better replacement decision-making.
Additionally, the added benefit of using this preferred methodology is its unique cause and effect relationship on controlling driver (and organization) behavior. For example, most people paying car payments understand when life changes occur and the car is no longer necessary, the only logical decision is to discontinue paying a car payment. This is because we innately know that a vehicle is worth more today than tomorrow and we can recoup some of its remaining residual value if we act quickly and sell the vehicle. Thus, we are all motivated to look at other transportation options which generally include using less costly options (e.g., mass transit, short-term rentals, reimbursement, etc.) to avoid paying for an idle vehicles or indirect costs (e.g., parking space, insurance, etc.). This happens because by nature most of us are accountable and when we see waste we generally act decisively to correct the situation.
In summary, when organizations continue to make poor financial decisions related to vehicles, it is generally due to leadership failing to recognize the total cost of the operation. The answer is simple, organizations should manage their vehicle operations like individuals manage their vehicle operations which is to budget for a vehicle and when it's no longer needed, get rid of it!
It's always baffled me how decision-makers (especially those with financial backgrounds) never seem to understand the cause and effect relationship of not replacing vehicles in a timely fashion. In simple terms, vehicles are just a tool used accomplish an organization's various mission tasks. When vehicles are not replaced timely this action sets several unintended consequences in motion throughout an organization.
First, vehicle breakdown frequency increases vehicle unreliability and decreases driver/employee productivity, raising the organizations' indirect costs of operation. Unfortunately, these indirect costs often amount to more budget dollars than the organization is trying to save by postponing vehicle replacement. This usually happens because a divide exists by which organizations budget for replacement expenses. Most organizations purchase vehicles using capital appropriation funds (which can become extremely political) versus the use of an ongoing replacement (or sinking) fund. When separate funds are set aside such as appropriated replacement dollars they become easy targets for politicians and company executives to use for what they deem more important projects. This happens generally because everyone owns and operates a vehicle and believes they can simply replace the vehicle at the next budget cycle. However, the problem is they don’t operate the vehicles they are postponing for replacement and when the next budget cycle arrives it has been forgotten. What they don't realize is they are sending a message of fiscal frivolity to their employees. This manifests itself in the form of idle vehicles and agencies engaging in hoarding behaviors to hang onto vehicles for spares. Both unwise practices leading to increased fleet size and decreased residual values.
In my travels, I often encounter those who justify keeping idle vehicles used only a few miles a year because they rationalize they are not costing them anything to retain. One such agency told me they keep their idle vehicle because it is cheaper to run errands a few times a month than pay someone mileage reimbursement. Unfortunately they are not making their decision based on total costs or they would realize that paying insurance, real estate for parking, and employee time to monitor the vehicle cost more than the actual use.
So what is the remedy to correct this situation?
The answer is simple and comes down to employing the best practice of setting up a cost center, capturing the total vehicle costs and employing a charge back system to recover these expenses to replenish a replacement fund. This practice ensures the organization tracks all direct and indirect, and fixed and variable costs which can lead to better replacement decision-making.
Additionally, the added benefit of using this preferred methodology is its unique cause and effect relationship on controlling driver (and organization) behavior. For example, most people paying car payments understand when life changes occur and the car is no longer necessary, the only logical decision is to discontinue paying a car payment. This is because we innately know that a vehicle is worth more today than tomorrow and we can recoup some of its remaining residual value if we act quickly and sell the vehicle. Thus, we are all motivated to look at other transportation options which generally include using less costly options (e.g., mass transit, short-term rentals, reimbursement, etc.) to avoid paying for an idle vehicles or indirect costs (e.g., parking space, insurance, etc.). This happens because by nature most of us are accountable and when we see waste we generally act decisively to correct the situation.
In summary, when organizations continue to make poor financial decisions related to vehicles, it is generally due to leadership failing to recognize the total cost of the operation. The answer is simple, organizations should manage their vehicle operations like individuals manage their vehicle operations which is to budget for a vehicle and when it's no longer needed, get rid of it!
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