Article

Vehicle Replacement Policy: The Lifeline of Government Fleet Management

March 2004, Government Fleet - Feature

by Doug Weichman

In the 1970s and 1980s, fleet management evolved from the technician-led operation in which the head technician supervised fleet operations to that of a certified professional who functions as an administrator. Increasingly these professional fleet management operations were set up as internal service programs. Managers became responsible for balance sheets reflecting both expenditures and revenues, while delivering a full set of services and controlling maintenance and operational cost. Most grew into multimillion-dollar operations that required effective control of all cost factors to sustain a high-service level. Thus, the vehicle replacement policy was created. A formal vehicle replacement policy was a necessary tool for the progressive governmental fleet manager who wanted to establish a policy and implement procedures to control funding and replacement cycles for vehicles and equipment. The replacement policy was also necessary to complete the mission of the various agencies fleet management served.

Starting a Replacement Policy Fund

Vehicle replacement programs can be launched through two methods: seed money and replacement fees. An initial one-time funding source provides seed money to begin purchasing new vehicles and equipment. Replacement fees are paid by the customers who currently own the vehicles. Unlike leasing programs or one-time capital expenditures, this type of replacement policy is a forward-funded concept. Funds are gradually accumulated to become available when a vehicle or piece of equipment must be replaced. While employed with Miami-Dade County, Fla. during the early part of the ’80s, my goal was to design a process to fill departments’ new-vehicle requirements. Most administrative sedans were recycled police vehicles or a variety of old vehicles that had surpassed their economic lifecycle. We submitted a one-time funding request through the budget process, and the Fleet Management Division received $1.5 million to purchase vehicles for distribution to the departments in greatest need of vehicle replacement. Departments then began paying a monthly replacement fee for each vehicle instead of funding purchases out of their budgets. The majority of vehicles were sedans and light trucks, placed on a replacement cycle of six to seven years. The replacement policy fee, collected monthly, was then used annually to continue purchasing vehicles. The program’s biggest accomplishment, in addition to securing the seed money, was the police department’s agreement to purchase vehicles with its capital funds and simultaneously start paying replacement fees for vehicles that had not been obtained with the original seed money. With the seed money, this replacement fee buy-in helped foster the fund’s rapid growth, expanding the program to all types of vehicles and equipment. The fund now collects more than $38 million a year and supports a fleet of more than 9,000 vehicles.

Palm Beach Begins Fund

After becoming the director of fleet management for Palm Beach County, Fla. in 1990, one of my objectives was to start a replacement policy fund. At that time in Palm Beach County, no formal funding source was available to purchase replacement vehicles. Most departments within the county did not view vehicle replacement as a high priority and would rather spend money on expanding programs or saving jobs during tight budgets. The first expense cut in the budget process was usually capital items, including vehicles. A task team was established to develop the vehicle replacement policy at Palm Beach County. The team included the budget director, directors of the departments with the largest numbers of vehicles, and fleet management staff. Foregoing the seed money option, the group chose to initiate a replacement fund. Each vehicle was evaluated, and a replacement policy fee was determined by its remaining life and the original purchase price. These monthly replacement fees were then implemented in the next budget cycle. It wasn’t easy getting departments to start paying a fee on vehicles they had already purchased. Managers felt that was a double charge on paid-for vehicles. Clear and consistent communications were required to explain that the fee covered replacement of current vehicles and that future budgets would no longer require new-vehicle capital expense items. Detailing key advantages of the program helped sell it to department directors. Among the benefits was the transfer of responsibility to fleet management for justifying replacements each year. In addition, although replacement charges would increase vehicle cost each year, those costs would be viewed by the budget office as part of the operation cost rather than a capital purchase. Another selling point was that fleet would handle new vehicle acquisition through purchasing replacing vehicles using established cycles and guidelines with Budget Division endorsement. In 1991, the first year of Palm Beach County implemented the policy, fees produced about $1 million. The 2004 budget cycle fund will generate about $10 million. In both Miami-Dade and Palm Beach counties, the replacement policy fund produced another benefit —reduced spare vehicle inventory. Fleet established a loaner/pool program, recycling replaced vehicles that still had remaining useful life after being replaced with newer vehicles. The loaner/pool program eliminated the need for individual department inventories. The supply of newer, more reliable vehicles further reduced the required number of spare and loaner vehicles, and their utilization was monitored and controlled by fleet management, improving efficiency. Customers dropped off vehicles at the shop for maintenance or repair and quickly left in a loaner vehicle. The loaner fleet was also used to replace vehicles that had been damaged totally or were not economical to repair. These vehicles were then replaced in the next budget cycle.

Comment On This Story

Name:  
Email:  
Comment: (Maximum 10000 characters)  
Leave this field empty:
* Please note that every comment is moderated.

FleetFAQ

Public Fleet Tracking And Telematics

Amin Amini from Verizon will answer your questions and challenges

View All

Recent Topics

What tool do you use to calculate residual value on heavy equipment? Thanks,

View Topic

Hello All, We are developing a formal training program for light and heavy equipment technicians. Our goal is to recruit and train...

View Topic

Fleet Documents

974 Fleet Documents (and counting) to Download!

Sponsored by

The name given in Germany and Austria to closed end leases where the lessor is responsible for depreciation and maintenance.

Read more

Blog

FleetSpeak

Thi Dao
How Many Degrees of Separation?

By Thi Dao
The degrees of connection within any industry are less than six or four. Choose a handful of random fleet professionals, and I’d bet one of them knows someone you know or have worked with.

What's the Future of Transportation?

By Thi Dao

Managing a Police Fleet

Paul Clinton
Upgrading the F-150 for Off-Road Patrol

By Paul Clinton
Ford took the wraps off its 2018 F-150 Police Responder earlier this month and showed police agencies its latest tool for law enforcement work on more rugged terrain. Early feedback indicates that the truck will find a place with more rural agencies.

Managing High-Speed Pursuits

By Patrick Oliver and Samuel Kirchhoff

Next-Gen Fleet

Facundo Tassara
Rethinking Utilization: Using the Energy in Parked EVs

By Facundo Tassara
Think the return on investment for electric vehicles (EVs) is too long? Vehicle-to-grid technology allows EVs to earn money while parked by utilizing their large batteries to provide energy storage services for buildings, utilities, and the grid. This extra money can reduce the total cost of ownership of EVs.

Perception vs. Facts

By Facundo Tassara

Driving Notes

Paul Clinton
2018 Chevrolet Traverse

By Paul Clinton
The 2018 Traverse enters a crowded and intensely competitive category that pits two-row and three-row offerings in pitched battle. The generational update comes nine years after Chevrolet introduced the Traverse, and following two mid-cycle updates in 2013 and 2015.

2017 Chrysler Pacifica Hybrid

By Stephane Babcock

Nobody Asked Me, But...

Sherb Brown
Size Matters

By Sherb Brown
There is little doubt that the folks out there with 5,000-10,000 vehicles have a good handle on how much they should be paying; for everything from bucket trucks to sedan floor mats. But some of our recent survey data shows that vast hordes of the fleet market are paying close to retail rates for a lot of products and services.

Remembering the Coach

By Sherb Brown

STORE