Taking a Forward-Thinking Approach with Your Fleet Budget

To say the global COVID-19 pandemic has changed how fleets operate would be an understatement. Issues like parts shortages and delayed vehicle delivery times — if orders weren't canceled — have forced public sector fleet managers to think ahead.

In the case of funding, gone are the days of planning fleet budgets on a 365-day timeline. With no end in sight to the trickle-down effect of the supply chain crisis, fleet managers must be forward-thinking. This is the mindset two fleet managers are implementing when they make budgetary decisions.

Never-Ending Supply Chain Headaches

Over the last several years, fleet managers have been forced to plan much further ahead when making vehicle purchases. With delivery times doubling — and even tripling in some cases — fleet managers must make room in their budgets to purchase new vehicles earlier than they would have previously.

Now, fleet managers must pay more attention to a vehicle’s projected lifecycle. Where they could previously plan to include a vehicle in the next order when it’s a few thousand miles from the end of its lifecycle, fleet managers now must account for the delivery delays.

This can mean doing one of two things: ordering a vehicle earlier so that it arrives right when the vehicle reaches the end of its lifecycle, or extending an existing vehicle’s lifecycle. But choosing the latter approach can lead to an increased need for more parts for the vehicle as it ages. And parts shortages have also proven to be a problem for fleets.

There are also times fleet managers feel that they don’t have any choice but to wait for their vehicles. Chuck Cramer, CAFM, director of fleet services for the city of Lynchburg, Virginia, is still waiting on vehicles from his fiscal year 2021 order from one OEM.

Earlier this year, the vendor explained to Cramer that the vehicles, which were already long delayed at this point, were on the lot but were not ready yet. After several more months of waiting, Cramer called the vendor to ask what was going on, only to find out that the vehicles were a newer model year so the price tag went up. The vendor did not know how to break that news to Cramer.

That forced Cramer to find nearly $60,000 more to pay for those vehicles because of the model year change, even under contract.

“We could say, ‘we're walking away because we had a contract [with a set price] and you voided it.’  But then we wouldn't have vehicles,” Cramer explained.

In Salem, Oregon, Fleet Manager Jim Schmidt, CAFM, has experienced similar headaches. The department typically replaces police patrol vehicles at 60 months or 100,000 miles. Currently, it has over a dozen vehicles due to be replaced that are now sitting at above that mileage.

Schmidt ordered 14 2023 Ford Police Interceptor Utility Hybrids to replace existing vehicles in August 2022.

As of September 2023, the order had not been scheduled to be built yet. Schmidt anticipates the order will be canceled and rolled into the 2024 model year, resulting in an even longer delay. He also worries that the UAW strike that began in mid-September 2023 could further delay things.

The city also has a 2001 model year pickup truck that was set to be replaced in 2022 with a 2022 vehicle of the same make and model. The original order was placed in November 2021 with a build date of May 2022, but was later canceled and moved to the following model year.

Further complicating things, the upfitter the city selected sold their business and did not order the truck body and upfit items needed for the new vehicle. The new pickup was delivered to a new upfitter in June 2023 with nothing to install. The city is now waiting for parts.

Alternative Methods for Sourcing Vehicles

Cramer is embracing alternative solutions to find vehicles when possible. Sometimes this means buying directly from a local dealer. Buying from a dealer’s inventory allows fleet managers to receive new vehicles more quickly.

“If I'm on a trip, I'm looking at the lots. And if it's not too far away, I'm stopping,” Cramer said.

Dealerships can also look deceiving; the lot may be full, but the vehicles parked in it are likely already spoken for.

This is something Schmidt can relate to.

“[Our customers] don't understand why I can't go to the dealership and just pick up the car off the lot,” Schmidt said. “That has really been a learning curve for our departments. We’ve tried to explain that to them. Their frustration is, ‘well I see it on the lot out there. Why can’t we just buy it?”

Dealerships can’t offer government savings that fleet managers can see when they order directly from OEMs. It forces fleet managers to weigh whether their need for the vehicle is critical enough to pay for the higher price. Alternatively, it makes them consider the plausibility of caring for an aging vehicle.

Schmidt has worked with his financing and purchasing department to streamline the approval process in case there is a vehicle at a local dealership that is urgently needed. Still, by the time his team can look at the vehicle, it’s typically already sold.

When buying directly from a local dealer or extending a vehicle’s lifecycle is not practical or possible, fleet managers sometimes consider other means.

“We’re definitely looking at an alternative means: looking at lightly used vehicles, off-leases, things of that nature. We’re reaching out to dealers we have never dealt with before,” Cramer said.

What About Specialty Vehicles?

Specialty vehicles like dump trucks are a whole other beast. Where departments used to expect 12 to 24-week delivery times, they are now told to expect two years — or even more, in some cases.

For fire apparatus and medic units, the wait time is even longer. Where departments used to be told they’d get vehicles in 10-15 months, they are now being told the wait time could reach three-plus years.

Cramer’s team is sending pre-ordering letters of intent. This does not guarantee a certain price, but it does put the department in line to order the vehicles when they are available to order.

This all plays into the forward-thinking approach with vehicle procurement.

“Now we have to think,’ is this [specialty vehicle] going to die in four years? Because if it is, I have to order it today,” Cramer said.

Adjusting the Budget to Account for More Maintenance

When fleet managers opt for holding onto vehicles longer, they are almost certainly met with higher maintenance needs for those vehicles.

“We had to put more in our budget for maintenance and repair. Because our vehicles are getting older, we typically replace them while they still have life in them and good value. It's based on value. And so we're having to keep them past that,” Cramer added.

Cramer’s department is doing a pilot program of sorts with two departments to test whether some of their higher use vehicles can be serviced fewer times a year. Additionally, it has transitioned all of its lubricants to full-synthetic and extended preventive maintenance mileage from 5,000 miles to 7,500 miles. For the two pilot departments, this has taken PM services on their high-use vehicles down to two or three times per year versus three to five times.

The department is working with the departments to see whether the vehicles will still work well with only two PM services per year. So far, the adjustments have worked well.

“We’re trying to reduce the number of times that they have to come in for just for PMs, because we're just overloaded in the shop,” Cramer explained. “Now that everything is older, we're doing more repairs than maintenance. And so we're trying to see, are they going to hold up to it? Is it going to save us money? We know it's saving us labor rates.”

Any changes that can lead to cost savings help, because they allow the department to have more money to go toward new vehicle purchases.

Parts shortages can be a huge hurdle for fleets caring for older vehicles. The city of Salem has partnered with NAPA IBS. Schmidt noted that this has allowed for a much larger parts inventory.

“You do what you can to get [vehicles] back running. A lot of times it's just bandaid fixes until a part or replacement vehicle is available. We'll fix a part. I know the vehicle will fail [eventually], but we don't have any other choice,” Schmidt said.

Planning Fleet Budgets Amid the Supply Chain Crisis

All these factors have led fleet managers to change their approach to planning their budgets. In order to take these factors into account, fleet managers can no longer plan year-to-year.

“With our vehicles and the replacements, we normally operate on our fiscal year and create our replacement lists one year at a time. Well, now we're [thinking] maybe we're going to do five years, maybe we're going to do three years,” Cramer said.

Where Cramer’s department would typically wait until about 90% of vehicle’s life based on its data before ordering a new vehicle, now the department is looking at lowering that percentage to order the vehicle earlier. Cramer is constantly thinking ahead, taking a proactive approach rather than a reactive approach.

“We’re trying to identify what might happen, and then and plan accordingly,” Cramer explained. “Looking at what you have now, what happened, what used to be two years ago, and what you think is going to happen soon. You almost have to be a news reporter and be [caught up] on current events, because let's face it, our fuel prices and our vehicle prices…are based on world events, like what's happening in Ukraine, or in the south [when there is] a hurricane.”

Schmidt’s team has worked hard to streamline the vehicle purchasing request process from departments, so that the orders are ready to be placed as soon as order banks open. The process, which is now paperless, used to take a month or more — from filling out the forms, to getting the purchase requests approved, to filing them away until the order bank opens. Now, that process only takes two weeks. This is crucial, since order banks are often not open very long anymore.

Schmidt stressed the importance of keeping an open line of communication with departments, so that the decision-makers in each department who request the vehicles understand the need to notify the fleet department of a vehicle need as soon as possible.

It might also be a good idea to sit your fleet customers down and ask them whether the vehicle they are requesting needs to be a specific class, in case a smaller vehicle is easier to purchase.

“We need to identify those things ahead of time. So they're thinking, ‘how are our operations going to change if we have a different type of vehicle or we can't get the vehicle we want?’”

Another problem fleets have run into in recent years is that the OEMs don’t always share vehicle prices when order banks are open, leaving fleets to blindly make orders without knowing how much of a dent the purchase will make to their budget.

It's important to bring these issues to stakeholders so that when fleet managers are faced with unexpected cost increases, these decision-makers understand the need for higher funding. Still, the approval process can take time. Schmidt recommends fleet managers work with their finance department to make these processes quicker.

Sometimes, fleets make vehicle purchases using grants. Canceled orders or delayed order bank openings bring the risk of a grant expiring. In Schmidt’s case, his department has always been successful in requesting an extension. But he fears that’s not an option with federal grants.

Schmidt recommends fleets work anywhere from five to ten years ahead when planning for vehicle purchases. There are a few questions he advised should be asked during this process.

“What is the new technology for vehicles going to cost? How are we going to repair them? How to pay for parts? How are we going to make sure that departments are setting aside enough money to make those repairs when they make those purchases? A lot of times they don't have reserve funds; [the excess costs] come out of their operational budget,” Schmidt explained. “So if we're not estimating the price accordingly, they have to pull the excess out of their operational budget, which then restricts them to what they can do for the whole year.”

Unplanned cost increases to vehicles can result in fleet departments being unable to order as many vehicles as they’d like. This is especially a problem, Schmidt pointed out, with police vehicles.

The combination of higher vehicle prices and higher equipment prices has had a huge impact on police vehicle orders. However, one thing that has ended up helping in this case is a shortage of police officers. Fewer officers mean a smaller number of vehicles needed for the department.

None of what the cities of Lynchburg and Salem are experiencing is unique. This is something all fleet managers across the board are experiencing. Cramer suggests leaning into news sources like Government Fleet, as well as industry associations and other groups who are facing similar hurdles and can discuss viable solutions.

“We're all trying to figure it out as we go. And most things that have happened, at least in the past year and a half, are new. Even if you're not a new fleet manager, this is all new. It's just new. And we're all trying to figure it out,” Cramer said.