Did you know that you have a gold mine sitting in your parking lot? If not, you may want to reconsider how you view your fleet. The vehicles a trucking company acquires will likely be their largest investment. That’s why we wanted to take a closer look at strategies a trucking company can take to protect their “investments on four wheels.”
There are essentially four benefits to optimizing fleet value:
- Improve cash flow;
- Expand operations;
- Win new customer, and;
- Better serve existing customers.
These components can be broken down into four different ways of managing fleet acquisitions:
- Choose the vehicle acquisition strategy that’s right for your business;
- Use preventative maintenance to protect your acquisitions;
- Build a comprehensive safety program to help prevent accidents, and;
- Track your assets across a variety of categories.
Let’s look at each individual aspect of these components.
Choosing Your Acquisition Strategy
The question is, should you lease or should you buy? This is a key decision that is directly tied to your long-term business strategy. There are two different ways to assess this critical first step:
- Optimize for cost: If the goal is to acquire commercial motor vehicles outright and do everything possible to make sure they last for the long-term, vehicle purchasing would be a better option.
- Optimize for lease: For other businesses, freeing up cash flow and increasing organizational flexibility coupled with the ability to trade in vehicles down the road, leasing is preferred.
The most important part of this process will be to do a careful examination of your broader business strategy. This will help inform you which fleet acquisition strategy is best.
First, calculate your costs. Look at your total cost of ownership as a good start. When you go through the financing process to acquire a commercial motor vehicle, you will often be given a side-by-side comparison so that you can make a total cost analysis.
Your total cost analysis should include:
- Interest;
- Tax;
- Maintenance;
- Emergency repairs;
- Depreciation, and;
There are specific pros and cons to leasing, as we’ve covered before, but let’s take another quick glance at them here, for context.
Leasing Pros
When you do a full-service or a la carte lease, you can hand off tasks – from maintenance to repairs and accident management – that you otherwise would have to staff or tack on an added expense for.
Leasing also doesn’t generally require any down payment. Not having to throw a huge chunk of money down frees up cash for other business investments.
Being able to swap for newer vehicles every three to five years is great for getting the most out of the latest trucking technologies. You can also expense operating lease payments for tax purposes.
Leasing Cons
When you don’t own the vehicle, you can’t build equity in the vehicle, since you must return it at the end of the term.
Leases also constrict your ability to modify the vehicle if you have more specific needs. There are also lease limitations.
If you surpass a lease limitation for mileage or wear, you might have to pay excessive penalties.
Buying Pros
Over the long-term, your total cost of ownership on a commercial motor vehicle may be lower when you buy than when you lease.
Typically, owned vehicles last longer on the road. For a purchased vehicle, the average is 7.3 years, whereas leased vehicles average 5.7 years.
It’s also nice to see that there is an end to your financing, with complete ownership being the ultimate payoff. Once the vehicles are paid off, they can be included on your balance sheet as assets.
Buying Cons
The trucking company must bear the full repair and maintenance costs. Also, the initial down payment can reflect as negative cash flow on your balance sheet.
You will also need to allocate resources to manage your fleet of vehicles. There’s a lot that goes into running a successful trucking company.
From regulatory compliance to insurance coverage, vehicle disposal and eventual resale, these are all aspects of the process that you will have to manage.
Now let’s look at the next step to protecting a trucking fleet’s value: Maintenance.
Creating an Effective Preventative Maintenance Program
One of the best ways to maximize fleet value is through top notch maintenance. Regular vehicle maintenance improves resale value, increases reliability, and decreases overall cost through less breakdowns or downtime.
A great maintenance program is also part of truck driver safety. Ensuring your trucks are in good working order enhances your fleet’s overall safety profile.
First, you want to create an inspection plan and maintenance plan. A fleet’s truck drivers and technicians must be well-trained on pre-trip and post-trip inspections. Performing mandated Driver Vehicle Inspection Reports (DVIR) should also be part of an ongoing training program.
Some fleet managers have opted to go with a DVIR management and auditing service. Outsourcing some of these tasks can help save your fleet save money in the long-run.
Track vehicle maintenance to stay up-to-date on minute-by-minute statuses for vehicles in your fleet. You want to ensure your vehicles are serviced on schedule.
Finally, if you need to, consider leveraging the use of partners, as mentioned before. Follow the recommended maintenance plan or use an Engine Control Module (ECM) monitoring device. Many ELDs now offer tracking and record-keeping options.
Once the vehicle has reached the end of its lifespan, it is important to have a plan in place to manage the full life cycle of the vehicle, which includes trade-ins. Newer vehicles require less repairs and have better fuel economy, on average.
A proper maintenance plan can cut fuel consumption by 5 to 10 percent on average, which results in up to $2,100 in annual fuel costs for a commercial motor vehicle averaging 120,000 miles a year.
Going together with a proper maintenance program is a proper safety program. Let’s now look at what makes a great safety program.
Building a Better Safety Program
Achieving a new high in added value for your vehicles comes when you put a stellar safety program in place. Remember, a single bad accident can completely wipe out a small business.
The average cost of a crash involving a heavy-duty commercial motor vehicle runs in the hundreds of thousands of dollars. Add an injury to the equation and it doubles. A fatality can put that number deep into the millions. This doesn’t take in the cost you bear having a vehicle out of service and a reputation in tatters.
The elements of a good safety program include several distinct parts. First, you want to address truck driver behavior. Your program policies should address distracted or drowsy driving, cell phone use, seat belts, driving behaviors and loading and unloading.
Goals of the program should be clearly communicated with all employees in the program. If you don’t have buy-in, the program will not be a success.
There is also great potential in the ability to leverage video and safety systems. By monitoring truck driver behavior patterns, you open new pathways to reducing aggressive driving and preventing excessive wear and tear on the vehicles.
Best practices come in the form of looking at what other fleets are doing or contacting local state trade groups or safety associations affiliated with state agencies. Once your new safety culture is in place, you can adjust policies later to meet new requirements.
The final piece of the puzzle comes in vehicle tracking. By employing advanced tracking methods, you increase efficiency and overall reputation.
Tracking Your Fleet
By knowing where your fleet is in real-time, you can run your business more effectively and reduce your overall costs and losses. Asset-tracking technologies help you do this.
There are three distinct types of tracking:
- Asset tagging;
- Real-time fleet tracking, and;
- Video monitoring.
Choosing the right one depends on the needs of your fleet.
GPS fleet tracking helps you improve overall routing, dispatch procedures and customer service. You can respond faster to last-minute schedule changes or unexpected traffic or weather conditions and identify bottlenecks faster. Increasing your level of service this way benefits everyone.
Asset tagging gives you the ability to keep a record of your vehicles through tags, either a chip or a scanned barcode. When you combine asset tagging with other aspects of a comprehensive fleet management solution, you also can get alerts when a vehicle is up for maintenance or an inspection.
Video monitoring isn’t good just for safety. Video cameras offer a complete video solution to preventing collisions and mystery damage. It also allows you to keep better watch on job sites or provide proof of delivery when it is required.
Putting It All Together
The fact is this: If you want to get the most value out of your assets, you must be comprehensive in your approach. From the beginning until the end, these vehicles are the lifeblood of a trucking company.
They allow truck drivers to have great careers and opportunity for new entrants into the market. Key to their success is in implementing rules such as we have outlined here.
There are far too many tools available today that make the job much easier. So, what are you waiting for?