Budgeting for fleets over the long haul

When it comes to determining the optimum time to trade fleet equipment, municipal fleet managers need to know when to hold ’em and when to fold ’em.

The stakes have never been higher. An optimum trade cycle reduces overall cost-per-mile for the life of the unit. Take a wrong turn and the results could be dramatic – higher up-front costs, maintenance head-aches and service failures.

Balancing the competing pressures has bedeviled fleet managers for decades. On the one hand, fleets want to turn equipment quickly to take advantage of the latest technology available. However, as the Dallas suburb of Farmers Branch demonstrates, better equipment allows fleets to postpone equipment turns with greater confidence. “It has allowed us to downsize our maintenance staff because of the new, more reliable equipment,” says Don Moore, the city’s director of equipment. “Over the past eight years, we have taken five people out of maintenance.”

In addition, Moore says he is relying on partnerships with vendors to maintain the newer equipment.

Still, the higher up-front investment puts this strategy out of reach for all but the most well-heeled municipalities.

INTERSECTING LINES

Longer trade cycles allow fleet managers to stretch that initial investment over the life of the equipment. At the same time, maintenance ex-penses start their climb. Knowing where these lines intersect helps provide a fleet manager with critical information to make rational replacement decisions.

“The ideal vehicle re-placement mileage or age is just before the need for major repair,” says John Dolce, a fleet consultant and author who managed a fleet for more than 30 years. “However, this point is not easy to determine. In most instances, replacement criteria must be established at the time of purchase to compute depreciation.”

Fleet managers balance the often competing needs in different ways. Some employ highly sophisticated formulas, while others rely more on gut instinct.

Regardless of where fleet managers fall on the replacement continuum, the one belief they share is the need to stick to a strategy.

For municipal fleets, developing a formula and sticking to it becomes even more essential with the wide variety of equipment the typical fleet manager oversees. Replacing a weed trimmer is far different from replacing a landfill grader. And even the most thoughtful strategy can wilt in the face of political heat.

Regardless of the differences, a sound philosophy must rule, even if it has a little give in it. Robert Turner, director of the fleet management department for the city of St. Petersburg, Fla., oversees a fleet of 2,100 pieces of equipment – from lawn mowers to dump trucks and nearly everything in between.

His replacement strategy varies depending on the vehicle. For example, his fleet of 600 passenger automobiles (which includes police patrol cars) trades on intervals of 30 months or 100,000 miles. Unmarked units are retired after five years or 100,000 miles.

His 200 light duty trucks, on the other hand, are scheduled on six-to-eight-year intervals. The remainder of his fleet, primarily heavy duty trucks and construction equipment, is retired after six years.

ALLOWING FOR FLEXIBILITY

Turner is quick to note that he does not adhere strictly to this schedule. “Once we make our strategic plan, we can still alter it if there is a justifiable need,” he says. “We don’t take the human factor completely out of the equation.”

For instance, when a vehicle or piece of equipment shows up for review toward the end of its scheduled life, Turner and his staff pore over it for performance data, comparing the cost of maintenance to the average maintenance cost for other vehicles or equipment in its class. This review also includes an evaluation of the vehicle’s appearance. “Residents of St. Petersburg don’t like to see beat-up equipment running around their streets,” Turner says.

Using this review, Turner will determine whether to hold on to the unit or send it off to the auction blocks. “If a unit is running well and still looks good, we may choose to extend the life of that unit,” he says.

That evaluation is complicated by the rigid budgeting and bidding requirements the fleet management department faces as a public agency.

As a result, the agency evaluates the equipment 18 months before its projected retirement date. The city also maintains an equipment replacement fund that is budgeted against projected replacement needs.

Not only does that allow Turner to eliminate financing from his replacement strategy, it also gives him an added cushion when he is able to extend the life of the vehicle.

UNEXPECTED BREAKDOWNS

What happens if something goes wrong in the 18-month interval? “If we blow an engine on a unit targeted for replacement, we make the major repairs and extend the economic life of the vehicle,” Turner says. The unit then gets a new lease on life.

Farmers Branch takes a similar tack. Under Moore’s leadership, the city has determined an optimum life expectancy for every piece of equipment. From that, Moore has developed an annual budget of $1.6 million to fund new equipment purchases.

That helps even out the spikes that often accompany fleet renewals. It also helps lower and stabilize maintenance expenditures. “If we fail to replace equipment at its scheduled interval, we pay the price,” Moore says.

Farmers Branch is a city just shy of 25,000 people that swells to 100,000 in the daytime because of commuters. Moore manages a fleet of 450 vehicles -“everything from earth movers to weeders and lawn mowers,” he says. This includes construction and street maintenance equipment, sanitation trucks and parks and recreation equipment.

“We’re responsible for providing safe and reliable equipment that is technologically up to date,” Moore says. “Our commitment is to provide service 24 hours a day. Right now our up time is running at 87 percent, which means we don’t have equipment out of service.”

Planned and even replacement cycles are the envy of many municipalities. Tom Wold, assistant street sanitation superintendent for the city of Bozeman, Mont., submits a five-year capital improvements program to city officials for his fleet of 35 trucks, street sweepers, front-end loaders, graders and small tractors.

The budget allows management and city commissioners to balance their anticipated needs with projected revenues.

“If the money isn’t there, then the equipment isn’t replaced,” he says. “We have to hold the item until the next fiscal year.”

As more equipment purchases are deferred until the out years of the capital improvement program, Wold spends more on repairs to extend the life of existing equipment. With just two mechanics, that is not always easy.

While the mechanics do major repairs, including engine overhauls, the increasing volume of work is forcing Wold to contract some of the work out.

Delayed purchasing has pushed the average age on Bozeman equipment to 10 to 15 years. “That’sa long time on a piece of equipment, especially if it’s running eight hours a day,” admits Wold. “It also means we’re looking at some pretty major repairs.”

THE ROLE OF POLITICS

Politics also fuel competition for replacement dollars within a fleet.

“The fire department gets to replace equipment more often because they’re classified as ’emergency,'” says Ernie Ramos, fleet service manager for the city of Coppell Hill, Texas, another Dallas suburb.

Replacing a fire apparatus eats up a huge chunk of the capital budget, often forcing Ramos to postpone needed and scheduled replacement on his fleet of 219 pieces of equipment ranging from heavy duty trucks to backhoes and sedans.

The city has adopted a strategy to replace any vehicle when it reaches 10 years of age, 100,000 miles or when the repair cost is greater than 75 percent of the current value of the equipment.

That policy is complicated by the fact that much of the equipment does not have hour-meters on it. “Utilization is really important,” Ramos explains. “We don’t put a lot of miles on our rolling stock operating in a 13-square-mile area. But we do a lot of idling.” As a result, Ramos will begin specifying all new orders with hour meters.

“The focus on public safety puts the fleet manager between a rock and hard place,” Ramos admits. “The longer you delay replacement, the more you will spend on maintenance. Everything suffers. It just spins out of control.”

WATCHING THE PURSE STRINGS

Even with their hands tied, fleet managers must be good stewards of public funds. That begins with open communication with city or county elected officials.

In Farmers Branch, Moore makes sure he keeps the city council aware of his equipment needs.

He communicates details of his internal service fund regularly – both orally and in writing – to the council to ensure he maintains their support.

He also conducts neighborhood meetings, where he visits with citizens groups prior to the budgeting process to see which future programs might affect his equipment strategies.

Frustrations aside, fleet managers all say a good trade cycle strategy must be based on political reality.

“You have to understand your council and what they believe in,” explains Ramos. “That’s a rock-hard fact.”

Tom Moore is executive editor of Fleet Owner magazine. He can be reached at (914) 287-6725.

Some 200 million vehicles ply the nation’s streets and highways, according to the U.S. Department of Transportation’s Bureau of Transportation Statistics (BTS). In 1995, these vehicles traveled more than 2.4 trillion miles.

Of the 200 million, just over 3 million vehicles are operated by city, county or state entities.

Given the sheer number of vehicles and miles driven each year, accidents are bound to happen, and indeed they do. According to BTS, there were approximately 6.5 million accidents in 1994. Of these, some 2.3 million involved injuries and 37,221 resulted in fatalities.

While these numbers seem ominous, the fact is the accident rate has dropped in recent years. In 1988, the BTS recorded 169 injury-accidents per 100 million vehicle miles traveled. By 1995, that figure had dropped to 144 per 100 million vehicle miles. Likewise, the fatality rate also declined over that same period, from 2.3 fatalities per 100 million vehicle miles in 1988 to 1.7 fatalities per 100 million miles in 1995.

Nationwide accident rates for city- and county-operated fleets are currently unavailable. Some commercial auto insurers show that municipal fleets typically incur fewer accidents per year than commercial fleets of similar sizes. This difference can largely be attributed to fewer annual miles traveled by city and county fleets.

Rates for city or county fleets could be either higher or lower than the national averages, says Ken Campbell of the University of Michigan Transportation Research Institute. While the institute does not collect data on publicly owned vehicles, he noted that, statistically, one would expect vehicles operating in urban settings to experience higher accident rates than those in rural areas.

DANGER IN REVERSE

According to Campbell, vehicles operating on crowded city streets, especially those that frequently back up, such as refuse vehicles, should show a higher accident rate than county road repair vehicles.

Whatever the rate of accidents a fleet experiences, several steps help reduce accidents and promote safer driving. These include specifying vehicles with added safety features and a comprehensive safety and driver training program.

For instance, Rollins Leasing, Lancaster, Pa., recommends that fleets, both public and private, consider the little things when specifying equipment. Extras like extra grab handles and self-cleaning tread plates on trucks, and proper material handling devices, can enhance safety.

Most new trucks feature a number of design elements specifically aimed at safety. Many newer medium- and heavy-weight trucks offer enhanced visibility from the cab and improved turning radius, for instance.

Several products on the market offer a rear-mounted camera that feeds live footage into a cab monitor to provide drivers with a constant view of traffic behind them – without the blind spots.

Truck manufacturers have also designed cabs so that getting in and out of them is easier and safer.

TRAINING IS CRUCIAL

Developing a thorough, ongoing safety and training program is perhaps the most important step a fleet manager can take to improve safety.

The Public Sector Services Division of St. Paul Fire and Marine Insurance Co., St. Paul, Minn., offers numerous driver training programs for drivers of emergency vehicles, refuse trucks, buses and other fleet vehicles. The company also offers consultation in driver qualification and selection, which when done properly can play a critical role in minimizing future accidents. Other insurers offering training courses to the public sector include Coregis, Chicago; American International Group, New York City; Penco, Nashville, Tenn.; Hartford Insurance, Hartford, Conn.; and Liberty Mutual Insurance, Boston.

As part of its insurance package, Liberty Mutual holds training programs designed specifically to instruct fleet managers and supervisors how to train drivers in the methods of safe driving, says company spokesman Chet Lasell.

These programs include field seminars for their customers as well as a more intensive, week-long program held at the company’s Research Center of Safety and Health in Hopkinton, Mass.

“We also work with some municipalities that aren’t our customers on a fee-for-service basis in this area,” Lasell says.

Liberty Mutual’s week-long training program includes both classroom and on-the-road training.

Classroom work involves identifying specific safety problems a particular fleet may have and developing a safety program.

The on-road training includes braking on a skid-pad and other emergency maneuvers. Another element is teaching driver-trainers the company’s “commentary” driving technique, which involves the driver telling the trainer what he or she is seeing as they ride down the road.

By carefully noting how the driver expresses his awareness of the work environment, the trainer is able to catalog those areas in which the driver-trainee needs improvement.

The company’s program also covers how to position mirrors, material handling techniques, driver coaching techniques, how to establish a driver safety program and the basics of “decision driving.”

Decision driving – what the company refers to as a positive approach to safe driving – involves training drivers to translate into decisive output the constant input of traffic information they see, hear and feel while on the road. For instance, decision driving tactics for backing a vehicle include the following:

* Plan ahead. If possible, park so that backing out will not be necessary;

* Be aware of everything around the vehicle. Walk around it before beginning to back up. Constantly check the mirrors and keep an eye on stationary objects;

* Signal the intent to back out early, either with gentle horn taps or revving of the engine;

* If someone is available to serve as a guide from outside the vehicle, accept this assistance. Know where this person is at every moment while backing up; and

* Back slowly and be alert for horn-blowing or yells.

A follow-up study on driver participants in the program showed a decrease in accident frequency in both the first and second years after training. Accident frequency dropped from 0.27 accidents-per-vehicle the year training was received, to 0.14 accidents the year after training.

Most commercial auto insurers offer some type of risk management training for their customers and can help institute safety and training programs. These efforts are only the beginning, however.

The bottom line is understanding that safety is a continuous program. The success of any safety initiative, whether in-house or based on attending an outside training program, requires a firm commitment from management and constant follow-through.

Jim Beach is a freelance writer based in Roseville, Calif.

As privatization has become more common, many municipal fleet managers have not only met the competition head-on, they have beaten it.

Contrary to popular belief, wage differences between private and public sector employees have not accounted for much in municipalities’ savings, but other factors have.

A widespread belief holds that privatization, or its threat, has a depressing effect on both union and non-union wages and benefits.

But while privatization programs often involve reductions in the size of municipal fleets and cuts to payroll and staffing levels, there are signs that the public sector not only can offer effective fleet management services in direct competition with private firms, but is actively recapturing some previously privatized operations.

In Indianapolis, city workers and managers are allowed to bid on work that has been previously privatized, as well as on current city projects. As a result of this policy, they have successfully negotiated a three-year, $16 million contract to maintain the city’s vehicle fleet in the face of rival bids from three national private firms, providing a savings of around $4.6 million over three years.

According to Steve Fantauzzo, executive director of the American Federation of State, County & Municipal Employees Council 62, the city workers cut costs by eliminating a layer of middle management.

“The whole process speaks for the empowerment of line managers and the elimination of middle managers from the bidding,” Fantauzzo says.

“We moved from an old system where we had one manager for every three or four workers competing with the private sector, to one in which the average is one manager for every 12 employees.”

Twenty-four managerial positions were eliminated, the employees moved to other departments, laid off, or put back into line work.

The result has been a “complete change” in the way the union looks at business, Fantauzzo says.

STRANGE BEDFELLOWS?

“The garage director and the local union president now work as a sales team, meeting with the local fire department and trying to get them to stop sending their vehicles to outside contractors for maintenance when they can send them to us,” he says.

Similar sales efforts are in use for maintenance of school buses and wastewater treatment fleet vehicles.

For refuse collection, public/private competitive bidding has resulted in formerly privatized operations that five years ago hauled 70 percent of the city’s total, shrinking in size to account for less than half of the load. City-run trucks now handle 60 percent of the business.

Indianapolis’s experience is not unique, as other local governments have found they can compete effectively with the private sector.

For example, in New Port Richey, Fla., fleet operations and repairs have been taken back in-house after 12 years of subletting to outside contractors.

The decision to take the work back was made, even though “there wasn’t much wrong with letting it out. It was a fairly good marriage for most of its years,” according to Chuck Bellerose, fleet service manager.

The pact ended after the fleet had almost doubled in size, from 600 to 1,100 vehicles, raising the costs of the management contract and, eventually, constraining further financial growth for the contractor, Bellerose says. “We had a good experience with privatization, but we now save the cost of profit by working as a government entity.”

MODEST COSTS

Moving fleet repairs back in-house has cost relatively little – the county already owned buildings and equipment – and has entailed the shift of 26 mechanics formerly working for the private contractor to the government payroll, at the same hourly wage rate.

Elsewhere in Florida, the city of Gainesville has retaken control of its fleet maintenance program after seven years of privatized operation. “Private operation served its purpose, but we took it back in-house because we can offer the same level of service for less money,” says Milton Reid, city fleet manager.

By contrast, California contracts out 90 percent of its fleet repairs. “There is no logistic or economic sense in our maintaining repair shops throughout the entire state,” states Tim Bow, chief officer of fleet administration within the department of general services.

Decisions on privatization are based on constant evaluation and review of the core competency of public operations in comparison with the private sector, Bow says.

“Where we don’t compete, we get out. For example, we have gotten out of providing security services at parking garages and repair shops,” which are now under private surveillance, he says.

Also contracted out are bus services and commuter parking. “But we find we get quicker service by keeping preventive rental vehicle maintenance and day-to-day repairs in-house,” Bow says.

A review of the state’s used vehicle disposal program has come up with opposing recommendations for different ends of the state.

In southern California, the state is disposing of its vehicle auction lot and will place sales in the hands of a private contractor, largely because of the high costs of real estate in Los Angeles. The northern California auction property in Sacramento will be maintained by the state.

Mirroring events in southern California, King County, Wash., has decided to end in-house auctions of its used vehicles and privatize the sales brokerage.

In a case of cooperation between the public and private sectors, the county operates a fleet of 575 passenger commuter vans that are not driven by public employees, but by the commuters themselves in pool-sharing groups of between 6-to-15 people. The drivers get a free ride in return for shuttling their fellow passengers, each of whom pays an average fee of $57 monthly for transportation to and from work.

The fee covers the costs of fleet operation, insurance, maintenance and some staffing, says Sydney Pawlowski, supervisor of rideshare operations with the transit division of the King County Department of Transportation.

“The fare schedule includes the cost of capital recovery over the five-year life of the vehicles, which we depreciate by 60 percent and resell at 40 percent of the vehicle price.” That resale value is “remarkably more than the average for local government vehicles,” Pawlowski adds.

CRACKING DOWN ON ‘FREEBIES’

In Oakland County, Mich., a fleet rationalization plan involving substantial reductions in the use of public vehicles by employees driving to and from work has provided $3 million in savings from the fleet operating and maintenance budget, including the privatization of some vehicle maintenance work previously done in-house.

The county’s fleet has been reduced from 610 to 565 vehicles. According to David VanderVeen, director of central services, “There was a change in policy, limiting vehicle assignments to non-elected officials and employees driving a minimum of 1,000 miles per month.”

Leigh Stoner is a Buffalo, N.Y.-based freelance writer.