HOW TO ACQUIRE THE FLEET’S VEHICLES
The organization has to design and implement policies for acquiring the vehicles such as the acquiring modality, the brands and range, the equipment, the type of fuel, the type of insurance, and the vehicle’s supplier.
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One of the most important decisions in fleet management is how the vehicles are acquired. There are several options, such as acquiring them as property, by renting/leasing, through a special loan destined to vehicle’s fleet, or using car sharing. Which one to choose depends on the following factors:
- The organization’s strategy.
If vehicle fleet management is the main activity of the organization (passenger transportation, packaging, shipping by land, mail services, etc.), the best solution is to acquire the vehicle as property, since it’d give the organization absolute control over the vehicle to develop the organization’s strategy.
It’d allow the company to do any modifications needed to the vehicles, repair them in their own workshops, and not having to wait for a third-party; as well as using the vehicles and dispose them from service when needed. Besides, the vehicles represent the brands image, and could have on them the organization’s publicity while being used.
If vehicle fleet management is a secondary activity in the organization (using the car for particular needs of the directives or sales associates of the organization), the best solution is to acquire the vehicles through renting/leasing or car sharing.
The organization has to consider that renting/leasing contracts usually last 2 years. If they don’t meet the 2 years contract, the renting/leasing company will penalize it. It’d could also include other services such as maintenance, change of tires, etc. which would cause the organization to have less freedom to manage the fleet and develop the general strategy of the organization.
- Vehicle’s characteristics and services to perform.
For special vehicles that require special equipment or fitting bodies in order to perform a determined service (land shipping services, mailing services, cleaning street, etc.) the best solution is to acquire them as property, because it allows the organization to make all the modifications needed. Besides, they are very difficult to sell because they have a limited second hand market, and their special equipment has a residual value that’s almost null, which would cause the renting/leasing type of acquisition even more expensive, or may not be available at all.
Vehicles used to perform a service for transporting passengers by land, and that don’t require any modifications (the directives and/or sales associates of a company, car rentals, etc) should be acquire through renting/leasing.
- Financial and fiscal considerations.
The acquisition as property requires an initial investment; on the contrary, the renting/leasing type requires a smaller financial capacity, and it’s considered an expense in the income statement.
Another possibility would be to acquire second-hand vehicles, since vehicles with young ages have practically the same benefits and costs than new vehicles, but are more affordable to acquire. For this reason, the organization needs to establish the maximum age that these vehicles can have to be acquired.
- The market where the organization operates.
If the organization operates in a market with a very variable short-middle term demand, the optimal number of needed vehicles will vary with time considerably, and for this reason, the best solution is to acquire vehicles as property since they can be retired from service and sold when needed.
If the organization operates in a very stable market with a low variability in the short-middle term demand, the optimal number of vehicles needed practically won’t vary during time, and the best solution to acquire the vehicles is through renting/leasing or car sharing.
In some public matters of municipality services such as cleaning or trash collection services, because of their own requirements and specifications the fleet must be acquired as property.
- Subcontract from the fleet.
An intermediate solution would be to acquire part of the vehicle as property under the fleet’s optimal vehicle number, and the rest of the vehicles, until the optimal number is reached, through renting/leasing to a third party. This gives the organization flexibility to adapt to the market’s demands. This practice is usually done by distribution of goods and courier companies because there’s great transportation supply from independent freelance drivers with their own vehicles.
Choosing the vehicle’s brands and ranges
A vehicle with similar capacities, size, power, fuel or functionality could be acquired in different brands such as premium, medium, or low-cost; and in ranges such as high, medium or low. The organization has to establish the vehicle’s brands, and the type of range to acquire. Choosing which one depends on the following factors:
- Acquisition costs.
The acquisition cost is one of the key factors when acquiring a vehicle. Vehicles of premium brands and/or high-end have higher acquisition costs than those of medium-low brands and range.
- Maintenance and repairing costs.
Premium brands and/or high-end vehicles have higher maintenance and repairing costs than those of medium-low brands and range. Some vehicles brands and/or models have more alternative spare parts than others, and can lower costs up to the 30-40% if the organization has a large vehicle fleet as property with its own workshop.
- Registration fee and road tax.
In Spain, the cost over registration depends on the vehicle’s emissions. The vehicles of premium brands usually have motors with higher engine displacement and power, which have higher contaminating emissions than vehicles with medium-low brands, and for this reason, the registration fee and road taxes are higher.
- Fuel consumption.
High-end vehicles usually have higher engine displacement and power than medium-low brands, and for this reason they consume more fuel for the same traveled distance.
- Vehicle’s residual value.
Some vehicle’s brands have more residual values than others, and this is due to several factors such as their brand image, reliability, low maintenance or repairing easiness.
- The organization’s image.
Premium brand and/or high-end range vehicles represent a better image for the organization than medium-low brands and/or range.
- Vehicle’s operability.
Premium brand and/or high-end range vehicles have better technology, functionality, operability, durability and reliability than medium-low brands and/or range.
- Respecting the environment.
Certain vehicles brands are more conscious of the environment than others because their vehicles emit less contaminating emissions and many of their components can be recycled.
- The organization’s targeted market.
If the organization’s performed services are directed to clients with a high acquisitive purchasing power, premium brands and/or high-end range vehicles should be acquired, and on the opposite case, medium-low brands and/or range vehicles will be acquired.
- Services provided by the organization.
If it doesn’t make a difference to the clients what vehicles are used to perform the service, then medium-low brands and/or range vehicles should be acquired, since they’re cheaper.
- Gratification system for the company’s workers.
It is recommended to acquire premium brand and/or high-end range vehicles for the organization’s executives, and for the others cases, medium-low brands and/or range should be acquired.
- The vehicle’s specialization.
The more specialized a vehicle is, the fewer the number of brands and ranges available, for which there would only be a few brands left from where to choose.
- Type of fuel.
Depending on the type of fuel a vehicle uses, it could only be acquired from certain brands and /or ranges. For example, electric vehicles are only available in high or low ranges, and can only be acquired in certain brands.
A particular case is the humanitarian scope, in which two brands such as Toyota and Nissan cover most of the total market and for this reason, the organization would have to choose between one of these brands. Besides, these brands have a high residual value in countries where they are used by NGOs for humanitarian services because of their easy maintenance and repairing.
A mixed solution would be to acquire a set of vehicles from each brand of vehicles and/or range that would be destined to different clients depending on their characteristics, use, and goals.
Choosing the type of equipment for the vehicle fleet
The organization has to establish which equipment options can be acquired, and that depends on the following factors:
- Acquisition costs.
The more equipment a vehicle has, the higher its acquisition, maintenance, and repairing costs.
- The equipment’s specialization.
The more specialized the equipment is, the higher its acquisition, maintenance, and repairing costs. Besides, its residual value is almost null.
- The equipment’s functionality.
The equipment to acquire must be useful and functional for the vehicle’s clients/users.
- The type of vehicle.
The organization must give priority to acquiring safety equipment, over any other kind of equipment.
Choosing the type of fuel for the vehicle fleet
A vehicle can be propelled by one or more (hybrid) of the following fuels: fossil fuels, hydrogen, ethanol, compressed air, natural gas, or electric. The organization has to establish the kind of fuel to use in the vehicles and it depends on the following factors:
- Acquisition costs.
For the same model, the diesel or gas versions have lower acquisition costs than the rest of the fuels. However, public administrations offer tax incentives, governmental spurs, and other types of advantages to mitigate the high acquiring price.
- Maintenance and repairing costs.
The maintenance and repairing costs for the same model in the diesel and gas versions are lower than the rest of fuels.
- Fuel cost.
The costs of certain types of fuels are less expensive than others. The energy cost of electric vehicles is much cheaper than diesel or gas vehicles.
- Registration fees.
The less contaminating emissions a vehicle has, the less expensive the registration fee is in Spain. For this reason, the registration fee is more expensive in diesel and gas vehicles than for the rest of the fuels.
- Fuel consumption.
The fuel consumption in diesel and gas vehicles is higher than for the rest of fuels.
- Fuel prices.
If the prices of diesel and gas are higher than the rest, it encourages the acquisition of vehicles that use alternative fuels. On the contrary, if the prices of diesel or gas are lower, this discourages the acquisition of vehicles that use alternative fuels. The cost of electric power is lower than the cost of fossil fuels.
- Type of vehicle.
Determined types of vehicles can only be acquired in certain fuels like heavy vehicles that work mainly with diesel or natural gas.
- Residual value.
Some fuels have higher residual values than others. Electric vehicles have lower residual values than diesel or gas vehicles due to the battery’s useful life, and their acquisition costs.
- Traveled kilometers/miles during the vehicle’s life.
For the same vehicle’s model, brand and power using different fuels, there is a determined number of kilometers/miles in which the fuels have lower cost than the vehicle’s life (TCO – Total Cost of Ownership) than others, and for this reason it has to be calculated how many kilometers/miles can be traveled for this to happen.
- Respecting the environment.
The non-fossil fuels are better for the environment because they emit less or none contaminating emissions.
- Intensive use of the vehicle.
If the vehicles are used intensively, the best option is to use diesel or gas vehicles since the fuel’s refilling time takes a little minutes, on the contrary, the refilling time for electric vehicles is longer depending on the available facilities, and can last from 20 minutes up to eight hours depending on the recharging time.
- The company’s strategy.
The fuel used in the organization’s vehicles has to help develop the company’s general strategy. If one of the company’s pillars is respecting the environment, the vehicle fleet should have vehicles that don’t contaminate such as electric cars; and if fossil fuels are used, to choose the fuel with fewer contaminating emissions or use a mix of both such as hybrid vehicles.
- Vehicle’s autonomy.
This is a key factor because the organization needs to have a minimum autonomy in order to perform the service, and for this reason, can’t use electric vehicles in the fleet if they don’t meet this minimum autonomy.
- Available infrastructure.
To be able to use certain fuels there needs to be a minimum infrastructure, if this isn’t developed enough, it limits the vehicle’s use to a geographic location. Diesel and gas vehicles have a very developed infrastructure to refill with fuel in any geographic location, more than any other type of fuel.
- Type of driving
The way the vehicle will be driven has a great influence in the type of energy source to use. If the vehicle is used in urban environments, where there are several stops, hybrid vehicles are recommended. On the contrary, if the vehicle is used mostly in highways, where there are barely any stops, a hybrid vehicle wouldn’t be recommended.
A mixed solution would be to use a set of vehicles that use different types of fuel that are destined to different clients/users depending on their characteristics, use and goals.
Choosing the type of insurance for the vehicle fleet
A vehicle can have three types of insurance: full coverage, franchise or third party. Which to choose depends on the following factors:
- Cost of insurance.
Full coverage insurance is the most expensive of the three, but it covers any damage the vehicle might face.
- Importance of the vehicle.
In a vehicle fleet, some vehicles are more important than others, for which it’s advisable that they have full coverage insurance, and the rest of the vehicles have a franchise or third party insurance.
- Vehicle’s value.
The higher the vehicle’s value, the highest the insurance cost, and for this reason, it’s advisable that it has a full coverage risk.
- Vehicle’s age.
The older a vehicle is, the lower the residual value, and in this case, the full coverage insurance won’t compensate economically after a certain age, and it’s advisable to have insurance with franchise or third-parties.
- Number of reports to the insurance.
If a higher number of incidents are reported to the insurance company, the most advisable option is full coverage insurance; if a low number of incidents are reported to the insurance company, the most advisable option is insurance with franchise or a third-party.
It has to be considered that some renting/leasing contracts include the vehicle’s insurance.
Choosing the suppliers for the vehicle fleet
The organization has to choose the vehicles’ suppliers. If the vehicle is acquired as property, it’d be acquired directly from the manufacturer or the official dealer in the country; if the vehicle is acquired through renting/leasing, a renting/leasing company has to be chosen, and which to choose depends on the following factors:
- Contract cost.
The organization must compare the different economic options from the renting/leasing companies for the same vehicle’s brand and model. Some companies are more competitive in certain brands and models.
- The contract’s duration.
The organization has to consider the minimum and maximum duration of the contract, if it adapts to the organization’s renovation policy, and what’s the penalization for not meeting the contract’s lenght.
- Services included in the contract.
The organization has to consider what services are included in the contract like maintenance, insurance, road assistance, tires, traffic tickets/fines management, traffic accidents management, etc.
- Contract’s flexibility.
The organization has to consider if the contract has flexible conditions like the cost of each additional kilometer/mile after the maximum distance to travel, the number of ticket/fines management, the workshop options, the insurance and change of tires established in the contract.
- Telematics services.
The organization has to consider if the renting/leasing company offers telematicss services for the vehicles follow up, such as fuel consumption, GPS, or the way the drivers drive.
- Vehicle’s delivery time.
The organization has to consider the time it’d take between the moment the vehicle is requested and when it is delivered to the organization.
- Payment options.
The organization has to consider the payment options the renting/leasing company offers. It is advisable to have a maximum of vehicles’ suppliers, manufacturers and/or renting/leasing companies to reduce costs and get better prices due to the high number of vehicles in the contract.
The organization has to consider the following organization factors for the vehicles acquisition.
Establishing a central for vehicles acquisition, with the following goals: acquire all the vehicles; authorize the vehicles acquisition; manage the vehicle’s suppliers; negotiate the framework agreement with the vehicle’s suppliers; avoid duplicating; and control the vehicle’s assigned budget and the acquisition process, and that the organization achieves the established optimal number of vehicles.
The organization has to standardize what vehicles can be acquired, and for this reason, they have to establish brands, models, type of fuel, and equipment to acquire with the following goals: get the best acquisition, maintenance, and repairing prices once the organization establishes a framework agreement with the vehicles’ suppliers.
Another way to acquire the vehicles is doing a contest, in which the organization presents a number of conditions and competing companies present their offers, so the organization can choose the one that adapts better to their needs, requirements and goals.
I´m a Fleet Management expert, and the manager of Advanced Fleet Management Consulting, that provides Fleet Management Consultancy Services.