By Steve Saltzgiver
We are all discriminating consumers by nature, meaning we are always looking for the next great bargain. This innate gift allows us to go after the best deal we can find whenever we make a purchase. In addition most of us are frugal and would not waste money if it were brought to our attention. After all, the value of money is what drives most of us in this capitalistic society.
This being said, I have come to realize first hand that these same motivators exist in the world of fleet management. The power of informed consumers shapes personal behavior for good or for bad when it comes to decision-making relating to vehicle operation. If we perceive we are spending wisely then we make the best decision we can regarding vehicle operation.
But what if we make a decision without all of the pieces of the puzzle laid out before us? Or what if we don't see the entire picture of costs when we make a justified decision?
Unfortunately, this happens every day when an organization using fleet vehicles to accomplish its mission disregards the total cost of operation. Unknowingly, organizations ignore millions in monetary waste as they fail to recognize the total cost of a vehicle.
Many fleets do not capture their costs in a centralized "Cost Center" which prohibits them from seeing the total costs related to managing vehicles. What this causes is a disconnect between consumers and decision-making best practices which leads to wasteful behaviors.
How do we engage in wasteful and unwise behaviors? By hoarding vehicles destined to sit idle when no longer mission critical. Many delude themselves into thinking they are saving money because the vehicle is not incurring costs when it sits idle. I recently heard a manager justify the retention of an idle vehicle because they needed it to run to the bank and it only impacted their budget when they put gas into the tank. Professional fleet managers refer to this as exhibiting a "sunk cost mentality" which takes place when a vehicle is purchased in totality before it drives a single mile. The disconnect occurs when total costs are ignored and confused with operation costs. (i.e., fuel, repair, etc)
Looking at an incomplete picture causes people to make poor decisions. I always use this opportunity to educate people about fleet management best practices. I ask them if they vehicle is insured, tracked in a database, taking up a parking space, garage space, having to be mowed around, or subject to safety inspections to ensure safe driveability after an extended periods of idleness.
Inevitably the answer is always "Yes", meaning they are incurring indirect or real costs associated with keeping idle vehicles. At the very least having to keep track of a asset that is no longer needed occupies unnecessary mental focus that could be redirected toward other more important mission critical activities.
Few of us, if any, would purchase a new vehicle and then allow it sit idle when it is no longer needed to perform its intended purpose. Most of this would see this as a huge waste of money, especially if it impacts our household budget. For example, if a member of the traditional two car American family loses their job due to a poor economy (which is now a reality) and can't find work for a long period of time, then they become motivated to sell one of their cars. This is simply common sense, especially when they see the car sitting idle in the driveway continuing to depreciate. After a period of time they start asking ourselves what would the car be worth if it were sold?
Why?
Because most people understand the time value of money and the way it affects our lives on a daily basis. The proceeds from an idle vehicle could be used to supplement a household's budget and get them by with much needed funds until they regain employment and are able to purchase another vehicle.
This same practice holds true in fleet management. Idle vehicles cost money! Any fleet holding onto a vehicle until the economy or their budget situation improves is forgoing a huge opportunity cost to recoup the best value of selling a depreciating asset. Vehicles are an expendable asset that rarely become more valuable as they age. Exception may be classic cars but it takes several decades to become a classic and by the time they become a classic sitting idle exposed to the elements diminishes its value. Idle vehicles rust and are destroyed over time diminishing their value. If you don't believe a vehicle deteriates, try leaving a one outside for a year and then take a look at its condition. You would likely find the tires flat, paint faded, seals leaking, battery dead, upholstery sun damaged, moving parts frozen, exterior vandalized, parts missing and/or at the very least the interior and exterior covered with dust, dirt mold or worse. Idle vehicle cost money in ways most people can't imagine!
Simply put, a vehicle is depreciating asset that is worth more today than tomorrow and it is in the organization's best interest to recognize idle vehicles immediately and sell them as soon as possible.
So how can fleet management organizations foster prudent behavior when it comes to providing incentives to user agencies to become more accountable to sell idle vehicles?
Simple. The best practice is to charge user agencies for the total cost of operating a vehicle.
As mentioned previously most of us know this to be true when we pay car payments and we seriously look at our opportunity costs to keep a vehicle versus continue to pay a car payment when not necessary helps us make wise decisions. Likewise, an agency charged a monthly car payment against their current expense budget is highly motivated to sell a vehicle when they see it sit idle month after month.
Agencies need to revisit the way they manage their vehicles if they are not using a cost center to track the total costs of a vehicle operation during its intended life cycle. Using the best fleet management practice to pay for vehicles as you go aids in promoting responsible behavior. This is even true in government organizations because most understand they are taxpayers and retaining an idle vehicle that continues to depreciate in value and incur unnecessary costs results in a wasted tax dollars that could be used for other programs.
In this economy there is not enough money to fund worthwhile endeavors making the cost of idle vehicles even more detrimental for organizations to ignore.
Keeping employees, programs or idle vehicles? Not really a difficult decision when you think about it.
Lets begin looking at the total costs of vehicle operation and remember every wasted dollar affects us all, even if it's an organization like a company or government who ultimately pass these costs back in consumer prices or taxes.
Monday, May 31, 2010
Monday, April 26, 2010
Hidden Cost of Not Replacing Vehicles - Accidents?
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.
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.
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!
Friday, March 19, 2010
Using Fleet Management Data for Continuous Improvement
By Steve Saltzgiver
I'm always amazed at the fleet professionals that spend thousands of dollars to capture vehicle data and yet fail to use the data effectively. You would think this is a no brainer! There are a number of fleet professionals that I speak with who have lots of data but have no idea how to put it to good use. Below are some tips to consider:
First, determine what data you have available. The easiest way to think about the data you have available is to divide into manageable segments. For example, you might consider using these four elementary categories as a starting point: 1. Inventory data, 2. Maintenance data, 3. Fuel data, and 4. Mileage data. These four data components allow you to create the following thirteen core metrics which are useful to begin benchmarking your fleet - at a high level - against industry, peers, and most importantly your own organization.
1. Total vehicles
2. Total fuel cost
3. Total Maintenance cost
4. Total fuel gallons
5. Total miles per period (i.e. month, year, life, etc.)
6. Percent use versus set utilization standards or expectations (i.e. 12,000 miles a year, etc)
7. Cost per mile fuel
8. Cost per month fuel (Useful if you fleet mileage is problematic)
9. Cost per mile maintenance
10. Cost per month maintenance
11. Fuel miles per gallon
12. Combined cost per mile (fuel and maintenance)
13. Combined cost per month
Obviously there are numerous other metrics useful in managing a fleet operation,but without core metrics you cannot even begin to start benchmarking your fleet performance.
Second, review each of the vehicles in your "inventory" and determine which vehicles have the other three components (i.e. maintenance, fuel and mileage). During this initial stage keep in mind the capture of any data is good. I like to tell people that bad data is better than no data! You can always improve bad data but you can't improve data you don't capture.
Third, organize the data by user departments, agencies or cost centers to evaluate and determine where gaps exist. I have found that some departments, users and agencies are better than others when it comes to data entry and capture. If you use an outsource maintenance and/or fuel contractor - and have an automated interface - this may or may not be an issue. Especially if the data is downloaded to your Fleet Management Information System (FMIS) on a routine basis. I recommend you determine the percent of vehicles with data by cost center. For example, if an agency has 10 vehicles and they all have fuel data then they have 100% of fuel data, etc. Obviously this is not absolutely empirical but it stands to reason if a vehicle has some data that the agency is making an effort to capture this data.
Fourth, create a data profile using a spreadsheet and color code or grade the data so you can determine where gaps exist. Personally, I prefer using a color coding scheme where green is "Acceptable", "yellow" equals "needs improvement" and red means "unacceptable". This way you can determine at a glance where to begin the continuous improvement process. Then by systematically working on the "red" data you can begin improving the quality and quantity of your data. Your goal is obviously to get 100% data compliance in all four categories by working on the worse to first.
Finally, once you organize the data into manageable categories you can easily convert your spreadsheet into pivot tables and better analyze how each of the metrics shape up to begin looking at comparisons. Placing metrics in this format allows you to easily compare your metrics to known benchmarking publications for comparison.
Give this a try. More to come...
Friday, February 12, 2010
Who’s looking out for your best interests?
By Steve Saltzgiver
Recently I took my personal car into a well known national vendor to get the brakes repaired. This experience reminded me why I’m such an advocate of using an outsourced maintenance contractor to reduce vehicle costs. Many agencies tell me they cannot afford the fees charged by outsourced contractors (like ARI) to help them manage vehicle repairs. My usual response through the years has unequivocally been, “You can’t afford not to!” Why?
Simply put, with few exceptions repair shops are not looking out for your agency’s best interests when it comes to repairing vehicles. Using a contractor increases the likelihood that your agency will not pay any more than absolutely necessary for vehicle repairs and service.
How can a contractor guarantee this?
Easy, because you pay the contractor to work for you and it’s in his best interest to save your agency money! It has been said, “He who represents himself in court, has a fool for a client”. The same logic applies to the average person trying to navigate through the complex repair process when dealing with shrewd, fast-talking, and merciless repair vendors. Few people would place themselves on the mercy of the legal system without the benefit of having a seasoned lawyer or legal advocate by their side. Likewise, contractors employ trained and certified technicians capable of speaking the complex lingo spoken by automotive professionals. In essence, a contractor acts as your personal advocate (on retainer for a monthly fee) to ensure your best interests are always served.
Why is this important?
These are difficult economic times and unfortunately many vendors are motivated by profit to serve their own selfish interests. Countless repair shops bank on the fact that the average person knows very little about the vehicle repair business. Consequently, vendors aggressively engage in an unfair tactic fleet professionals call, “upselling”.
Upselling is simply a practice where a vendor tries to take advantage of a consumer’s ignorance when it comes to basic knowledge of car repair. This generally takes place in the form of self-serving recommendations to purchase unnecessary parts and services to enhance their profit margins. Often times these recommendations urge customers to repair unreported complaints (discovered by the mechanic) under the guise they are doing you a big favor and looking out for your safety.
As an example, you respond to a promotion like, “free brake inspection” or you simply take your vehicle in for a specific problem and they provide you with a laundry list of problems needing attention like, ball joints, struts, shocks, and so forth. This is especially true when someone does not (or cannot) challenge each repair recommendation provided by these unscrupulous repair shops.
How do people fall prey to these upselling tactics?
Think about this…Most of us have experienced firsthand sitting in a waiting room full of customers waiting for our vehicle to be serviced, then prancing confidently off the shop floor, the mechanic shows up in the waiting area with an air filter for us to inspect. As this is happening several questions run though your mind.
How do I know if the air filter is bad?
When was the last time the air filter was changed?
Does it really need to be changed now?
What if I don’t change the filter?
There you are right in front of the other customers and now you have to act like you know what you’re doing. The pressure is on! If you cannot answer these seemingly simple questions you probably do what most people do and tell the mechanic to go ahead and change the air filter. As you submit to this common upselling tactic, thinking you are erring on the side of wisdom and caution you just increased your agency’s repair bill by about $25 dollars.
When you have fleets as large as the States these upselling tactics really add up to a lot of unnecessary expenses. (e.g. 20,000 vehicles x $25 = $500,000) Especially when you consider the average state vehicle travels about 12,000 miles and each may encounter at a minimum three air filter inspections a year.
How can your agency put the brakes on unnecessary vehicle costs?
My recent brake experience demonstrates why it’s important to level the playing field by having someone on your side when making difficult repair decisions. I have been in the fleet management business well over twenty years, starting out as a mechanic and then moving into fleet administration. Sufficed to say, I have a fair amount of experience dealing with vendor tricks of the trade. This being said, like most I don’t have time to repair my own vehicles. So consequently, I take my cars to repair shops like everyone else. With one exception, I’m usually armed to do battle with vendors when confronted with this upselling ruse.
Back to the brake story
My wife reported the truck was making a grinding noise as she applied the brakes coming to a stop. Immediately, my fleet experience tells me that this means the brake pads (and rotor) need to be replaced. So like anyone, I drove the truck over to a well-known vendor advertizing to repair brakes for $99 in most cases. By the way, the words “in most cases” are really legal jargon required by the consumer protection agency, which means $99 is not very likely.
Now I’m not naïve, I knew going in that I would probably need new brake pads, a new rotor and perhaps a few other minor parts which would make the actual repair cost somewhere in the neighborhood of about $200-300 dollars. However, about an hour later I received the dreaded phone call from the mechanic with grim news about the total cost to repair my truck. The confident mechanic said, “Mr. Saltzgiver the total estimate to repair your truck is going to be about $875 dollars”.
As I digested this news, he proceeded to explain reasons why I needed to spend this excessive amount of money to fix my truck. His inspection found the left front brake assembly was metal-on-metal consequently the rotor had been damaged beyond repair (I knew this). Further, he stated, “because the left front rotor had been damaged –by calipers hanging up- I recommend the right front and both rear rotors be replaced to ensure proper balance and wear in the braking system. In addition, he said since all four brake calipers were hanging up he strongly urged each be replaced to prevent premature failure of the newly installed brake pads. In addition, he proceeded to advise me that the brake fluid should be flushed, all four seals be changed and wheel bearings be repacked.
Now is the moment of truth! You can’t simply bluff your way through this process if you don’t have vehicle repair experience. These technicians know it! So your choice is to take the easy way out (since it’s state money anyway) and tell the technician to go ahead with the repairs he recommends.
Back to the story
First, what the mechanic didn’t know is I had the benefit of history on my side and I knew about every repair that occurred over the life of my truck. (Contractors like ARI have the vehicle history on their side as well) My truck’s odometer was over 75,000 miles and still had the original brakes with no significant problems, which indicates the calipers probably did not cause any premature brake pad failure. (i.e. 75,000 is a lot of miles for brake pads) Having knowledge about the car business on my side, I started the negotiation process by asking several “what if” questions.
What if I don’t replace all four rotors?
What if I don’t replace the four calipers?
What if I don’t repack the wheel bearings?
What if I just replace the damaged rotor?
What if I take it to your competitor? What would they charge?
Long story short
By the time I finished the negotiation process the original estimate of over $875 dollars had been whittled down to a little over $240, which as mentioned previously was about what I expected to pay in the first place (for brakes pads and rotor). By challenging the mechanic this ends up a total cost-avoidance savings of about 400%. Had I been current on my mechanic skills, I may have negotiated an even lower price, but I was satisfied this was probably the best I do under the circumstances and approved the work to be done.
Knowing the repair business
These exact encounters with repair shops happen every day. So, when you operate a large fleet of vehicles (like the states) this is why you need an experienced advocate in your corner to look out for your best interests. Certainly a contractor (like ARI) isn’t perfect and can’t prevent all upselling. However, they can catch the lion’s share which results in an overall reduction in your agency’s total fleet repair budget.
Next time you are faced with this repair decision-making challenge, I suggest you consider my personal experience as a fleet professional and consider the real value of having an expert handle repair negotiations in the future. This is especially significant when it comes to something as vital as brake repairs where someone’s safety is involved. The age old adage is applicable in this situation, “sometimes you have to spend money to save money!” Outsource contractors have proven time and time again that they can save significant repair dollars by aggressively negotiating with vendors.
Why does this matter?
This is important after all when it applies to government, because bottom line we are all taxpayers and we are really the ones paying for these exorbitant repair bills incurred on state operated vehicles.
Last year the State’s maintenance management contractor (ARI) helped avoid over $555,335 dollars in unnecessary repairs through negotiations, denials and good will adjustments. These efforts amounted to a cost-avoidance averaging $112 dollars per vehicle annually. Coincidently, the fee to place a single state vehicle on the ARI program was $111 dollars, not counting the $22 per month in average savings for administrative cost-avoidance.
Final thoughts
Several years ago an automotive company by the name of Fram Filter ran a series of television commercials showing a mechanic replacing a blown car engine (i.e. $5,000 major repair) resulting from not replacing an inexpensive oil filter. This mechanic asserted that this could have been avoided had an the filter been changed timely. Their slogan was simple, “You can pay me now, or pay me later!”
This still applies. Isn’t time you leave complex repair matters to experts who are skilled and motivated to save your state agency money?
End
Recently I took my personal car into a well known national vendor to get the brakes repaired. This experience reminded me why I’m such an advocate of using an outsourced maintenance contractor to reduce vehicle costs. Many agencies tell me they cannot afford the fees charged by outsourced contractors (like ARI) to help them manage vehicle repairs. My usual response through the years has unequivocally been, “You can’t afford not to!” Why?
Simply put, with few exceptions repair shops are not looking out for your agency’s best interests when it comes to repairing vehicles. Using a contractor increases the likelihood that your agency will not pay any more than absolutely necessary for vehicle repairs and service.
How can a contractor guarantee this?
Easy, because you pay the contractor to work for you and it’s in his best interest to save your agency money! It has been said, “He who represents himself in court, has a fool for a client”. The same logic applies to the average person trying to navigate through the complex repair process when dealing with shrewd, fast-talking, and merciless repair vendors. Few people would place themselves on the mercy of the legal system without the benefit of having a seasoned lawyer or legal advocate by their side. Likewise, contractors employ trained and certified technicians capable of speaking the complex lingo spoken by automotive professionals. In essence, a contractor acts as your personal advocate (on retainer for a monthly fee) to ensure your best interests are always served.
Why is this important?
These are difficult economic times and unfortunately many vendors are motivated by profit to serve their own selfish interests. Countless repair shops bank on the fact that the average person knows very little about the vehicle repair business. Consequently, vendors aggressively engage in an unfair tactic fleet professionals call, “upselling”.
Upselling is simply a practice where a vendor tries to take advantage of a consumer’s ignorance when it comes to basic knowledge of car repair. This generally takes place in the form of self-serving recommendations to purchase unnecessary parts and services to enhance their profit margins. Often times these recommendations urge customers to repair unreported complaints (discovered by the mechanic) under the guise they are doing you a big favor and looking out for your safety.
As an example, you respond to a promotion like, “free brake inspection” or you simply take your vehicle in for a specific problem and they provide you with a laundry list of problems needing attention like, ball joints, struts, shocks, and so forth. This is especially true when someone does not (or cannot) challenge each repair recommendation provided by these unscrupulous repair shops.
How do people fall prey to these upselling tactics?
Think about this…Most of us have experienced firsthand sitting in a waiting room full of customers waiting for our vehicle to be serviced, then prancing confidently off the shop floor, the mechanic shows up in the waiting area with an air filter for us to inspect. As this is happening several questions run though your mind.
How do I know if the air filter is bad?
When was the last time the air filter was changed?
Does it really need to be changed now?
What if I don’t change the filter?
There you are right in front of the other customers and now you have to act like you know what you’re doing. The pressure is on! If you cannot answer these seemingly simple questions you probably do what most people do and tell the mechanic to go ahead and change the air filter. As you submit to this common upselling tactic, thinking you are erring on the side of wisdom and caution you just increased your agency’s repair bill by about $25 dollars.
When you have fleets as large as the States these upselling tactics really add up to a lot of unnecessary expenses. (e.g. 20,000 vehicles x $25 = $500,000) Especially when you consider the average state vehicle travels about 12,000 miles and each may encounter at a minimum three air filter inspections a year.
How can your agency put the brakes on unnecessary vehicle costs?
My recent brake experience demonstrates why it’s important to level the playing field by having someone on your side when making difficult repair decisions. I have been in the fleet management business well over twenty years, starting out as a mechanic and then moving into fleet administration. Sufficed to say, I have a fair amount of experience dealing with vendor tricks of the trade. This being said, like most I don’t have time to repair my own vehicles. So consequently, I take my cars to repair shops like everyone else. With one exception, I’m usually armed to do battle with vendors when confronted with this upselling ruse.
Back to the brake story
My wife reported the truck was making a grinding noise as she applied the brakes coming to a stop. Immediately, my fleet experience tells me that this means the brake pads (and rotor) need to be replaced. So like anyone, I drove the truck over to a well-known vendor advertizing to repair brakes for $99 in most cases. By the way, the words “in most cases” are really legal jargon required by the consumer protection agency, which means $99 is not very likely.
Now I’m not naïve, I knew going in that I would probably need new brake pads, a new rotor and perhaps a few other minor parts which would make the actual repair cost somewhere in the neighborhood of about $200-300 dollars. However, about an hour later I received the dreaded phone call from the mechanic with grim news about the total cost to repair my truck. The confident mechanic said, “Mr. Saltzgiver the total estimate to repair your truck is going to be about $875 dollars”.
As I digested this news, he proceeded to explain reasons why I needed to spend this excessive amount of money to fix my truck. His inspection found the left front brake assembly was metal-on-metal consequently the rotor had been damaged beyond repair (I knew this). Further, he stated, “because the left front rotor had been damaged –by calipers hanging up- I recommend the right front and both rear rotors be replaced to ensure proper balance and wear in the braking system. In addition, he said since all four brake calipers were hanging up he strongly urged each be replaced to prevent premature failure of the newly installed brake pads. In addition, he proceeded to advise me that the brake fluid should be flushed, all four seals be changed and wheel bearings be repacked.
Now is the moment of truth! You can’t simply bluff your way through this process if you don’t have vehicle repair experience. These technicians know it! So your choice is to take the easy way out (since it’s state money anyway) and tell the technician to go ahead with the repairs he recommends.
Back to the story
First, what the mechanic didn’t know is I had the benefit of history on my side and I knew about every repair that occurred over the life of my truck. (Contractors like ARI have the vehicle history on their side as well) My truck’s odometer was over 75,000 miles and still had the original brakes with no significant problems, which indicates the calipers probably did not cause any premature brake pad failure. (i.e. 75,000 is a lot of miles for brake pads) Having knowledge about the car business on my side, I started the negotiation process by asking several “what if” questions.
What if I don’t replace all four rotors?
What if I don’t replace the four calipers?
What if I don’t repack the wheel bearings?
What if I just replace the damaged rotor?
What if I take it to your competitor? What would they charge?
Long story short
By the time I finished the negotiation process the original estimate of over $875 dollars had been whittled down to a little over $240, which as mentioned previously was about what I expected to pay in the first place (for brakes pads and rotor). By challenging the mechanic this ends up a total cost-avoidance savings of about 400%. Had I been current on my mechanic skills, I may have negotiated an even lower price, but I was satisfied this was probably the best I do under the circumstances and approved the work to be done.
Knowing the repair business
These exact encounters with repair shops happen every day. So, when you operate a large fleet of vehicles (like the states) this is why you need an experienced advocate in your corner to look out for your best interests. Certainly a contractor (like ARI) isn’t perfect and can’t prevent all upselling. However, they can catch the lion’s share which results in an overall reduction in your agency’s total fleet repair budget.
Next time you are faced with this repair decision-making challenge, I suggest you consider my personal experience as a fleet professional and consider the real value of having an expert handle repair negotiations in the future. This is especially significant when it comes to something as vital as brake repairs where someone’s safety is involved. The age old adage is applicable in this situation, “sometimes you have to spend money to save money!” Outsource contractors have proven time and time again that they can save significant repair dollars by aggressively negotiating with vendors.
Why does this matter?
This is important after all when it applies to government, because bottom line we are all taxpayers and we are really the ones paying for these exorbitant repair bills incurred on state operated vehicles.
Last year the State’s maintenance management contractor (ARI) helped avoid over $555,335 dollars in unnecessary repairs through negotiations, denials and good will adjustments. These efforts amounted to a cost-avoidance averaging $112 dollars per vehicle annually. Coincidently, the fee to place a single state vehicle on the ARI program was $111 dollars, not counting the $22 per month in average savings for administrative cost-avoidance.
Final thoughts
Several years ago an automotive company by the name of Fram Filter ran a series of television commercials showing a mechanic replacing a blown car engine (i.e. $5,000 major repair) resulting from not replacing an inexpensive oil filter. This mechanic asserted that this could have been avoided had an the filter been changed timely. Their slogan was simple, “You can pay me now, or pay me later!”
This still applies. Isn’t time you leave complex repair matters to experts who are skilled and motivated to save your state agency money?
End
Sunday, September 13, 2009
Outsourcing repairs, when does it make sense?
I see a lot of fleet organizations failing by trying to do everything by becoming an expert in everything. This is an impossible task in today’s world of specialization! Rather organizations should determine what they do best and stick to those core tasks.
Ask yourself, would you hire an expert electrician to sit in a cubicle waiting for an electrical breakdown to occur? The answer to this question is no. You would not waste money and time training this person, providing them with a cubicle, salary, phone, and other office accouterments in the event an electrical problem happens. You would simply outsource these repairs to a qualified and certified company that specializes in performing these services. The same applies to an outsource company who specializes in managing fleet and automotive repairs.
When do I outsource?
I have always been amazed how many non fleet experts feel they can continue to handle their vehicle repairs in-house without training or abilities to make complex decisions about vehicle repairs. The rationale for their insistence is usually very noble and stems from their insistence that the outsource company either charges too much or they will rip us off.
My question has always been this. How do you know when you don't keep up to date with the latest mechanical knowledge and expertise? Most administrators that I speak to about whether they should outsource their fleet repairs or not feel that can make these complex decisions when called upon to do so, even though they generally have no recent formal training. I have been in the fleet management business for over 30 years with experience at every level of the business starting as a journey mechanic and now an administrator. This being said, I have not had any formal mechanical trainings for many years and with all my combined experience in the automotive industry, I'm no longer certified or qualified to make any complex fleet management decisions about the repair of a vehicle. Yet, I would place my knowledge and experience up against most of the folks I see avoiding the use of outsourced repair vendors.
Why do people resist using outsourced vendors?
I think the answer to this questions stems primarily from self preservation. Most administrators faced with this question are usually the person who is involved in making the call about who repairs the vehicle. Which means, their primal instinct of whether I will still have a job or not many times plays into the decision. In addition another motivation that affects someone from outsourcing repairs is the way the organization budgets its repair dollars. For example, if the organization does not consider the total costs of the vehicle operation which a life cycle perspective in mind, it may be tempted to make myopic or shortsighted decisions when it comes to vehicle repairs. Time and time again I have watched organizations say their budget cannot afford to pay the costs for an outsourced vendor to manage their vehicles. These statements usually are unfounded when you look at the complete picture.
Ask yourself these questions:
Do I have the expertise to pit myself up against a vendor asking me complex mechanical questions and can I make the right call when asked what repair needs to be done? Most often unless you are certified technician you cannot answer this questions with any degree of certainly, which means you probably are not doing your organization any service by authorizing and approving repairs.
Do I know if the vendor is up selling or trying to rip us off?
If the answer is no, then you probably don't have any business making any repair decision on behalf of your company. Automotive vendors have made a killing over the years by over recommending unneeded repairs to consumers. Each of us has had experience with this very scenario.
Ask yourself. When I took my car into the quick lube to get my oil changed and they asked me whether I should approve them to replace the wiper blades or air filter, did I know the answer to the question or did I just tell them to do it, or not? Either answer may not have been the most cost-effective decision if you did not know the right answer. The right answer must take into consideration a historical perspective about when these components were last replaced. If you don’t know then you are gambling your company’s precious budget dollars on the vendor’s word. This is not looking out for the best interests of you company!
Not to embarrass anyone, but this is one of the simplest questions you will be asked when it comes to an auto repair.
This is why I believe these complex auto decisions need to be left up to the experts who act on your best interest as an advocate to make these decisions. This is exactly what an outsource company does! Outsource companies specialize in the science and up to date vehicle repair knowledge and ensure their technicians receive the latest training and automotive certifications. These companies are qualified to make these complex decisions and will same your organization repairs dollars.
What are the advantages of outsourcing your fleet?
First and foremost you receive the services of an industry expert working for your organization on retainer looking out for your best interests to ensure repair shops don’t take advantage of your lack of expertise. Secondly, you will receive the added benefit and peace of mind that your best interests are served by competent technicians make complex repairs decisions on your behalf.
Other benefits realized may be as follows:
1. Reduced administrative costs processing a multitude of repair invoices for vehicles. Each vehicle generally has at least 4 repair invoices a year if it is new and many more if it is aged. The cost to process a single invoice ranges from $50 to $150 dollars each from the time it is received until a check is cut and mailed to the vendor. This is synonymous to the Procurement Card (PCard) rationale that many companies turn to in order to process multiple transactions effectively. Think of your outsource vendor as a PCard processor and you have little grief justifying the costs of their services.
2. Expert trained technicians making complex decisions on your behalf using each vehicle’s repair history to ensure a vendor is not trying to make an unnecessary repair.
3. An advocate that ensures prices are negotiated at the lowest industry rates to make sure your company is not paying too much for repairs.
4. Someone who ensures if you are tax exempt (i.e. non profit or government) that you do not spend money trying to recover these costs at later date with your resources.
5. An advocate that ensures vehicle warranties are recouped and claimed during the repair process. A lot of money may be available by watching warranties on vehicles, parts and even post warranty opportunities when the general warranty is no longer in force. These third party outsource companies specialize in negotiating with vendors to ensure your company’s interests are looked after. They have a great deal of clout working with manufactures to get good will adjustments on your behalf. Ask yourself, when was the last time you had a car manufacture offer you a good will adjustment?
6. Firms that track your repair history and offers an array of online tools for your organization to better manage your fleet.
7. Reduce parts inventories, eliminate garage facilities, fleet information systems, and all costs associated with these systems.
8. Expensive tools and electronic trouble shooting devices needed to operate a shop in today's complex fleet world.
9. Training needed to keep up with government programs like EPA, OSHA, Workman's Comp etc.
10. Labor relation issues with employees in a world where technicians are becoming in short supply.
The list goes on…
What are you waiting for? It's time you outsource your repairs to those qualified to save your organization the precious budget dollars it deserves?
Finally don’t wait until you fail to accomplish everything to consider outsourcing repairs that should have happened a long time before now. If you wait until it’s too late you may find yourself completely out of a job when your entire fleet is outsourced by management because they finally get tired of the costs and lack of customer focus to core mission tasks, which brings you right back to the primary reason most fleet managers fail to embrace outsourcing in the first place, job preservation.
Tip: I found out a long time ago that when an outsource company is your partner its hard for them to be your adversary trying to get all the repair business.
Do what you do best and leave the rest to others to do what they do best. This is a winning combination.
Start using outsourcing as a tool and don’t be afraid of the control issues. Just develop tools to evaluate the outsourcing company effectively to ensure they do what you contract them to and this relationship can be a symbiotic partnership that makes everyone a hero!
Ask yourself, would you hire an expert electrician to sit in a cubicle waiting for an electrical breakdown to occur? The answer to this question is no. You would not waste money and time training this person, providing them with a cubicle, salary, phone, and other office accouterments in the event an electrical problem happens. You would simply outsource these repairs to a qualified and certified company that specializes in performing these services. The same applies to an outsource company who specializes in managing fleet and automotive repairs.
When do I outsource?
I have always been amazed how many non fleet experts feel they can continue to handle their vehicle repairs in-house without training or abilities to make complex decisions about vehicle repairs. The rationale for their insistence is usually very noble and stems from their insistence that the outsource company either charges too much or they will rip us off.
My question has always been this. How do you know when you don't keep up to date with the latest mechanical knowledge and expertise? Most administrators that I speak to about whether they should outsource their fleet repairs or not feel that can make these complex decisions when called upon to do so, even though they generally have no recent formal training. I have been in the fleet management business for over 30 years with experience at every level of the business starting as a journey mechanic and now an administrator. This being said, I have not had any formal mechanical trainings for many years and with all my combined experience in the automotive industry, I'm no longer certified or qualified to make any complex fleet management decisions about the repair of a vehicle. Yet, I would place my knowledge and experience up against most of the folks I see avoiding the use of outsourced repair vendors.
Why do people resist using outsourced vendors?
I think the answer to this questions stems primarily from self preservation. Most administrators faced with this question are usually the person who is involved in making the call about who repairs the vehicle. Which means, their primal instinct of whether I will still have a job or not many times plays into the decision. In addition another motivation that affects someone from outsourcing repairs is the way the organization budgets its repair dollars. For example, if the organization does not consider the total costs of the vehicle operation which a life cycle perspective in mind, it may be tempted to make myopic or shortsighted decisions when it comes to vehicle repairs. Time and time again I have watched organizations say their budget cannot afford to pay the costs for an outsourced vendor to manage their vehicles. These statements usually are unfounded when you look at the complete picture.
Ask yourself these questions:
Do I have the expertise to pit myself up against a vendor asking me complex mechanical questions and can I make the right call when asked what repair needs to be done? Most often unless you are certified technician you cannot answer this questions with any degree of certainly, which means you probably are not doing your organization any service by authorizing and approving repairs.
Do I know if the vendor is up selling or trying to rip us off?
If the answer is no, then you probably don't have any business making any repair decision on behalf of your company. Automotive vendors have made a killing over the years by over recommending unneeded repairs to consumers. Each of us has had experience with this very scenario.
Ask yourself. When I took my car into the quick lube to get my oil changed and they asked me whether I should approve them to replace the wiper blades or air filter, did I know the answer to the question or did I just tell them to do it, or not? Either answer may not have been the most cost-effective decision if you did not know the right answer. The right answer must take into consideration a historical perspective about when these components were last replaced. If you don’t know then you are gambling your company’s precious budget dollars on the vendor’s word. This is not looking out for the best interests of you company!
Not to embarrass anyone, but this is one of the simplest questions you will be asked when it comes to an auto repair.
This is why I believe these complex auto decisions need to be left up to the experts who act on your best interest as an advocate to make these decisions. This is exactly what an outsource company does! Outsource companies specialize in the science and up to date vehicle repair knowledge and ensure their technicians receive the latest training and automotive certifications. These companies are qualified to make these complex decisions and will same your organization repairs dollars.
What are the advantages of outsourcing your fleet?
First and foremost you receive the services of an industry expert working for your organization on retainer looking out for your best interests to ensure repair shops don’t take advantage of your lack of expertise. Secondly, you will receive the added benefit and peace of mind that your best interests are served by competent technicians make complex repairs decisions on your behalf.
Other benefits realized may be as follows:
1. Reduced administrative costs processing a multitude of repair invoices for vehicles. Each vehicle generally has at least 4 repair invoices a year if it is new and many more if it is aged. The cost to process a single invoice ranges from $50 to $150 dollars each from the time it is received until a check is cut and mailed to the vendor. This is synonymous to the Procurement Card (PCard) rationale that many companies turn to in order to process multiple transactions effectively. Think of your outsource vendor as a PCard processor and you have little grief justifying the costs of their services.
2. Expert trained technicians making complex decisions on your behalf using each vehicle’s repair history to ensure a vendor is not trying to make an unnecessary repair.
3. An advocate that ensures prices are negotiated at the lowest industry rates to make sure your company is not paying too much for repairs.
4. Someone who ensures if you are tax exempt (i.e. non profit or government) that you do not spend money trying to recover these costs at later date with your resources.
5. An advocate that ensures vehicle warranties are recouped and claimed during the repair process. A lot of money may be available by watching warranties on vehicles, parts and even post warranty opportunities when the general warranty is no longer in force. These third party outsource companies specialize in negotiating with vendors to ensure your company’s interests are looked after. They have a great deal of clout working with manufactures to get good will adjustments on your behalf. Ask yourself, when was the last time you had a car manufacture offer you a good will adjustment?
6. Firms that track your repair history and offers an array of online tools for your organization to better manage your fleet.
7. Reduce parts inventories, eliminate garage facilities, fleet information systems, and all costs associated with these systems.
8. Expensive tools and electronic trouble shooting devices needed to operate a shop in today's complex fleet world.
9. Training needed to keep up with government programs like EPA, OSHA, Workman's Comp etc.
10. Labor relation issues with employees in a world where technicians are becoming in short supply.
The list goes on…
What are you waiting for? It's time you outsource your repairs to those qualified to save your organization the precious budget dollars it deserves?
Finally don’t wait until you fail to accomplish everything to consider outsourcing repairs that should have happened a long time before now. If you wait until it’s too late you may find yourself completely out of a job when your entire fleet is outsourced by management because they finally get tired of the costs and lack of customer focus to core mission tasks, which brings you right back to the primary reason most fleet managers fail to embrace outsourcing in the first place, job preservation.
Tip: I found out a long time ago that when an outsource company is your partner its hard for them to be your adversary trying to get all the repair business.
Do what you do best and leave the rest to others to do what they do best. This is a winning combination.
Start using outsourcing as a tool and don’t be afraid of the control issues. Just develop tools to evaluate the outsourcing company effectively to ensure they do what you contract them to and this relationship can be a symbiotic partnership that makes everyone a hero!
Sunday, August 30, 2009
How do you know if a vehicle is needed?
How do I know if a vehicle is really needed in my organization?
This is a question often asked to fleet management professionals by using agencies. So what do you tell people who are not fleet management minded about the ills of hanging onto a vehicle sitting idle and why they shouldn't hoard them any longer. Below are several questions you can ask to help determine if the vehicle is really necessary to the operation:*
This is a question often asked to fleet management professionals by using agencies. So what do you tell people who are not fleet management minded about the ills of hanging onto a vehicle sitting idle and why they shouldn't hoard them any longer. Below are several questions you can ask to help determine if the vehicle is really necessary to the operation:*
- When the vehicle is out of service, do we miss it or does it affect our ability to perform our mission?
- Is the vehicle being used on a daily basis consuming fuel and accumulating miles?
- When the vehicle is down does my organization pay an employee mileage reimbursement to use their personal owned vehicle (POV)?
- When the vehicle is down does my organization lease or rent a substitute vehicle from a commercial leasing company?
- When the vehicle is down does my organization borrow a vehicle from another source (i.e. motor pool, sister agency, etc) to fulfill its mission?
- When the vehicle is down does my organization expend any funds to acquire a substitute vehicle?
- Is our vehicle equipped with special or unique equipment where a substitute vehicle cannot be easily rented at a moment's notice? (e.g. Firetrucks, police cars, refuse trucks, waste collectors, command posts, etc.)
- When the vehicle sits idle and is not used does my organization incur an interruption in the core services it performs?
- Is my vehicle new, safe, and reliable and do employees avoid using the vehicle in favor of other modes of transportation?
- When you removed the tree growing up through the cab of the vehicle could it be savaged and placed back in service?
- When you removed your vehicles out of storage and paid the fees did they still run?
- After your vehicle sat idle for several months because it was damaged or in need of repair did you miss it?
If the answers are "NO" to any of these questions then it should be a hint that the vehicle is no longer needed in your organization and you as the fleet manager can recommend disposing the vehicle. Disposing vehicles quickly helps your organization recoup precious funds that can be used elsewhere to fund other important programs.
Some of these situations are real but names have been withheld to protect the guilty. :)
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