Colin-on-Cars – Fleet owners need to re-strategise

The words ‘fleet management’ are often used as a selling tool for a product or service that does not encompass the entire – often complex – spectrum of factors that make up the managing of a fleet of vehicles.

Now, more than ever before, considering the massive economic crisis facing South Africans, the cost-effective management of company vehicles is vital and goes way beyond a simple spreadsheet execution.

The fleet industry in South Africa accounts for upwards of 80% of all new vehicle sales each month – even if these are reported as ‘dealer sales’ – and, irrespective of whether they are allocated as company pool vehicles, company cars or car allowance, the holistic cost structures around each need to be managed.

“The challenges and complexities that fleet owners currently face in their efforts to optimise fleet operations and ensure continuity of services should not be taken lightly,” says John Loxton, WesBank Head of Fleet Management & Leasing.

According to Loxton, professional fleet management providers enable fleet owners time to focus on their core business, while the fleet management team provides structure, pro-actively plans on their behalf and provides discipline to fleet operations as well as the benefits of economies of scale.

“Our local fleet management industry, when measured against global standards, can justifiably be regarded as being among the best in the world,” says Loxton. “Over the past decade, the industry has seen a considerable increase in knowledge and skill levels. An increase in sophisticated telemetry and the improvement in information management have been the most important contributing factors, helping our industry stay in tune with international fleet management.”

According to Loxton, an effective approach to fleet management should include the following cost considerations:

  • Vehicle selection based on the Total Cost of Ownership (TCO) principles
  • Procurement management
  • Repairs, maintenance and tyre management  (including service and tyres)
  • Fuel management
  • Managing fleet utilisation
  • Funding and the most effective use of capital
  • The optimal vehicle replacement policy
  • The remarketing of off-fleet vehicles

A professional fleet management service provider should manage each of these cost factors in order to unlock optimal value for its client. Fleet owners also do not necessarily have the required skill and systems to do this effectively in order to lower the total costs of fleet operations.

Loxton stresses the importance of managing each vehicle individually with the aim of optimising the total cost of ownership of every vehicle in a fleet.

“A focus on optimising costs makes it clear that fleet management requires a very complex and analytical approach,” adds Loxton.

There are some companies in South Africa that refer to their services as fleet management, however this can be misleading. The owner of a workshop cannot possibly claim to be delivering comprehensive fleet management services as much as a telemetry provider in isolation cannot claim to either.

Yet these services are advertised as such, adding to the incorrect perceptions as to what fleet management actually entails.

“The maintenance, management and telemetry of a fleet are merely components of fleet management which, in isolation, cannot offer the same advantages as the holistic approach of professional fleet management. Complete fleet management should in fact be an example of where the whole is more than the sum of the parts,” says Loxton.

Due to current circumstances, some fleet owners might turn to managing their own maintenance facilities. In some of these cases, there may well be a logical reason for this, for example in the case of a transport company with the need to maintain vehicle uptime in order to deliver goods or services.

However, in other cases, when the primary reason is not the productivity of the fleet but cost, there is a very real likelihood that over time it will have the opposite effect on costs. In such instances, the allocation of overhead and labour costs can become a challenge, ie to calculate the accurate cost per kilometre of a fleet. This may unfortunately lead to the perception that fleet owners can maintain their fleet at a cheaper rate than a fleet management company.

“By reducing fleet management simply to a matter of comparing costs creates a false perception of effective fleet management. A holistic approach, combined with the right fleet management partner, should lead to considerable savings. As a rule, we aim to achieve savings in the region of 10%-20%,” Says Loxton.

“My advice to any fleet owner is to select a fleet management service provider based on the company’s experience and reputation, form a strong partnership with the service provider and ensure both partners enjoy the benefits of such a relationship where their interests and objectives are aligned.”

In a recent Blog article, Lynne Nel from Eqstra wrote: “Under the current trading conditions, all businesses are driving to free up cash. As a fleet usually contributes 42% to 48% of the operating costs in a business, it makes sense this is an area that can be interrogated to find capital savings. What does this mean for your fleet strategy and operations?

“There is no right or wrong answer in restructuring your fleet to obtain cash gains. The need for fleet vehicles changes from industry to industry, and even business to business within the same industries. Each unique business will be looking at their own fleet strategies versus the finance structures that have been put in place in order to free up capital. Reassessments of fleet cannot be done in isolation by finance, and input from all areas of the business will be critical.

“To free up cash, consider disposing of your non-essential vehicles. If you own your fleet, you may want to consult a remarketing specialist such as Eqstra which has access to bulk buyers to achieve the best price on resale values. Current delays at auction houses should be considered, as slower sales will hold up any injection of cash into your business.

“You will need to consider whether your essential vehicles are owned or leased.

“If you fully own your vehicles, you have the option to sell them and inject a cash sum into your business by changing the way you finance. The benefit will be in the short-term though, as you may need to incur debt for a longer period, but you will have a fixed budget to work with.

“A sale and leaseback could also be an option; a fleet management company can purchase your vehicles from you and lease them back to you.

“It is best to take a long-term view considering the total cost of ownership. As so many factors need consideration, re-strategising your fleet should be done in collaboration with fleet management experts who have specialist fleet analysts. The analysts are dedicated to performing fleet audits, determining optimum replacement periods and recommending the best suited finance solutions for your own unique business needs.”

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