How has COVID-19 impacted fleet category strategies to date? How will the crisis impact replacement programming and other strategic decisions? What sort of impact has remote working had on fleets? What savings have been found, and what costs have increased?
On August 19th, 20 experts working in fleet management came together online for a valuable session of peer-to-peer knowledge-sharing at a virtual PASA Connect. The session was hosted by Quenten Shephard, a fleet-management veteran with 20 years’ experience.
What has changed?
Fleet management priorities have changed dramatically during the pandemic crisis, with fleets used much less in the main. Depending on the types of vehicles, some fleets have been working flat-out while others have been almost mothballed:
- “Management cars” are barely used, with work-from-home employees opting for ridesharing services near their residence rather than travelling to the office to pick up a car.
- Supply-chain and last-mile delivery vehicles are travelling more kilometres due to the eCommerce boom.
During the discussion, three levels of thinking emerged among the fleet manager participants: short-term savings, medium-term considerations, and long-term strategic planning.
Short-term, operational savings
Many indirect category managers discovered immediate savings at the beginning of the COVID crisis, with big reductions in office rent, cleaning, and more.
Fleet managers found lockdown savings in areas including maintenance, parking, servicing and crash repair, insurance premiums (reduced by an average of 15%), consumables, fuel, tyre budgets, batteries, and crash-damage. The fuel saving was boosted by a fuel price collapse to $1 a litre. Fleet-related fines for some businesses have dropped from 700 to 70 speeding fines per month.
Medium-term, tactical considerations
Unfortunately, many of these short-term savings will be offset by medium-term cost increases between now and Christmas. Vehicles are being allowed to go past their maximum service dates, while extended leases are leading to higher warranty and maintenance costs. As PASA’s Brand Ambassador Jonathan Dutton observed, “In this dash for operational savings, fleet managers are falling into tactical errors”.
- Replacement programmes are being reassessed. Some fleet managers have extended leases by 6 to 12 months. Others with replacement schedules are being forced to extend as vehicle manufacturers have advised of likely supply delays for some models for 6 to 12 months – a situation exacerbated by Australia/NZ being a small market far away from main manufacturing plants. Some high-turnover Australian dealers are reportedly getting preference on supply from manufacturers, to the detriment of fleet buyers.
- Leasing is perhaps less attractive for some as “all leases now need to be on balance sheets, including vehicles” since accounting standards changed in 2019. This may lead many to buy instead of lease; to add assets rather than liabilities to their balance sheet. Fleet managers are asking themselves if they should extend the lease on a car fleet that isn’t being used.
- But fleet managers report that they cannot get new cars. This has tactical impacts on selling fleet vehicles, keeping fleet vehicles, and extending leases.
Other tactical considerations currently being faced by fleet managers include:
- Pooled multi-driver vehicles must be cleaned between drivers for COVID-19 safety – with associated costs.
- Increased ride-share usage is raising similar questions about cleansing standards for corporate usage. Ride-shares raise a multitude of issues, including insurance.
- Half-owned vehicles shared with employees who pay 50% of costs: as corporate standards are rising and changing during Covid-19, and owners are known to be fussy on minor repairs and expensive scratches. Hidden costs are also prevalent on shared personally allocated vehicles.
- Insurance implications of rapidly-changing driver behaviour with owned, rented or shared vehicles. As business mileage goes down and personal mileage (using the car to go to the shops) goes up, some corporate policies might not cover these changed usage patterns.
- Liability is a key issue for fleet managers. Drivers must be trained for different vehicle usage, cleaning standards, using electric vehicles, and maintenance standards for higher/lower usage. Some fleet managers are currently taking detailed legal advice on ride-share usage and policy.
- Grey fleets (personally owned vehicles used for business purposes) are also an issue in terms of insurance and corporate standards of usage, maintenance, insurance cover, quality, appropriateness, cleanliness, rego, safety and roadworthiness.
- The need for parking spaces has plummeted, but fleet managers are finding it more difficult than expected to re-sell parking spaces in commercial parking lots.
Long-term strategic planning
Will vehicle usage revert to normal after a COVID-19 vaccine is found, or are these changes here to stay? The pandemic has promoted an accelerated evolution of trends that were expected to take years. For example, working from home will be much more prevalent even after COVID, while we’ve leapt to a near-cashless society due to infection concerns. Fleet managers are also asking themselves if now is the time to transition to an EV fleet.
Several fleet managers are currently re-optimising their fleet mix between owned, rented, shared and personal vehicles. They are also re-evaluating where they are located: in the central pool, at other corporate locations, or at ride-share-like pick-up points.
Is now a good time to replace the fleet? Amazon, for example, has taken the opportunity presented by depressed aircraft prices to dramatically expand its air delivery fleet in 2020.
In terms of strategic costs, something fleet managers should be aware of is the fleet “value” has dropped due to second-hand market values stalling at the beginning of the crisis. Taking a book write-down on these values could hit the corporate P&L as an ‘expense’ and depress corporate profits. However, some second-hand car markets have boomed as retail customers have accessed superannuation to buy new (second-hand) cars while new car availability remains limited. This has led to stock needs by dealers and raising values. Longer-term, this will lead to a glut of stock as demand subsides and, likely, fleet managers will dump stock quickly into the second-hand market. Moving early on residual sales may benefit fleet managers.
Strategic questions for fleet managers
Future-proofing fleet policy is almost impossible during this crisis. But fleet managers can ask themselves the following questions to shift from tactical to strategic thinking:
- What data can I use to support decision-making? Telematics (on-board and GPS vehicle data) can help demonstrate you are acting on real data, which is an important point in terms of fleet manager liability. Data on inert or stationery vehicles is very useful to collect.
- What long-term structural changes are likely to occur in car usage, ownership, and associated policy? What vehicle patterns are likely to be only temporary?
- What changes to the fleet balance (owned versus flexible-use fleets) might be required to stay agile during the current period of uncertainty?
While it’s important to think strategically when building a fleet policy, keep in mind that cost savings will remain a priority for the foreseeable future.
Visit PASA to discover more peer-to-peer knowledge sharing opportunities at upcoming virtual PASA Connect sessions.