By Mike Antich
The past few months have given me the opportunity to talk "fleet" with a large number of public sector fleet managers at the GFX and NAFA conferences. These conversations have allowed me to take the pulse of public sector fleet management. Based on my conversations, here what's on the minds of government fleet managers.
Without a doubt, the number one issue confronting public sector fleet managers is the current economic downturn. This is prompting adjustments to cope with budgetary shortfalls due to sharp declines in sales tax revenue. The fleet budget, always a perennial issue, is especially problematic in 2009 and will become even more so in 2010. Governments are being forced to make deep budget cuts to cover revenue shortfalls in the tens to hundreds of millions of dollars. Budget cuts are occurring at all levels of government, which include the harsh reality of layoffs. Government expenditures are being frozen at all levels - freezes on hiring, travel, capital purchases, construction projects, and out-of-town training. There is much uncertainty (and anxiety) as to how long this downturn will last. No one knows when it will hit bottom and begin a turnaround. Everyone is scrambling to implement cost saving measures anywhere and anyway they can.
In addition, there is a growing competition for limited resources between user departments, with fleet in the middle. This competition for scarce resources promises only to increase next year as budgets tighten further. In this type of fiscal environment, the challenge for fleet managers is how to maintain and achieve customer service level objectives, while cutting their own costs.
One silver lining, compared to last year, is lower fuel costs, which have helped mitigate some of the shortfall in budgets. However, there is still ongoing volatility of fuel prices, as we have witnessed in the past several months. With fuel prices behaving like a roller coaster (now on an upward trajectory), budgeting for fuel continues to be an elusive, moving target. The unpredictability of fuel pricing makes it difficult to budget with any accuracy.
Reduced funding is prompting wide-ranging process reviews to maximize efficiencies, such as vehicle utilization, fleet right-sizing, take-home vehicle policies, and enhanced fuel use monitoring. As one fleet manager said, nowadays everything is subject to challenge - the number of employees, vehicles, facilities, overhead, carry costs, tools, etc. In many cases, these process reviews call for cutting vehicle inventory, deferring replacements, and extending PM intervals. A common reaction for fleets is to extend vehicle lifecycles, while attempting to keep maintenance costs even or down. All fleet managers are struggling to find that elusive balance between extended lifecycle and increased costs. Most agree these short-term fixes will invariably lead to long-term increases in expenditures. Unfortunately, these short-term measures may affect the fleet's ability to perform its mission efficiently and in a timely manner. Despite budget cuts, user departments want the same level of service at the same time that fleet is trying to find ways to reduce costs. How to maintain current service levels at reasonable billing rates is a major challenge when customers are experiencing cutbacks themselves.
In addition, political subdivisions facing budget deficits have been laying off personnel, resulting in unassigned vehicles. Those vehicles with remaining economic life are being reallocated to other departments in lieu of ordering new vehicles until their replacement parameter is reached.
2010 Vehicle Acquisition Plans
Most government fleets will acquire fewer vehicles in the 2010 model-year due to budget constraints, with the federal government the one exception. Many fleet managers report they have been instructed by management to drive vehicles until they can demonstrate that the vehicle has exceeded its useful life. The decrease in tax revenues is forcing reductions in capital expenditures and renewed efforts to reduce operating costs. Many user departments have downsized and turned in surplus vehicles as a result. Some fleets are parking lower-mileage surplus vehicles for use as replacements in the next ordering cycle.
Also, there are concerns about the number of local dealers who have closed and the potential impact this many have on the bid process. The concern is fewer dealers may be bidding for government fleet business, which in turn could mean higher prices. The unknown is the extent to which the OEMs will offset this increased cost in the way of bid assistance funds.
Staffing & Training are Growing Concerns
Finding qualified technicians is an ongoing concern, but many fleet managers anticipate an increased number of available technicians in the job market as manufacturers terminate dealer franchises. Public sector fleets hope they will have a chance to recruit the better technicians from these closed dealerships. However, finding qualified technicians continues to be a challenge due to the diversity of equipment maintained by public sector fleet operations versus the limited number of models serviced at dealerships.
Another fleet manager concern is staffing. Most fleet managers are concerned about protecting staff jobs by ensuring their operations are competitive and technician productivity meets set objectives.
Training is another issue as fleet managers try to keep staff current with new technology. There is the ongoing challenge to stay abreast of changing technology, the need to update equipment specs, staff training, and support equipment. Nowadays, it's a Catch-22 situation - training is difficult to find and when available, attendance by technicians reduces billable hours. The new 2010 diesel emissions standard has prompted a need for technician training due to the decision by truck engine manufacturers to use two new and different methods to meet the new emission standards. One is the exhaust gas recirculation (EGR) method, and the other is the injection of urea into the exhaust system. Both are designed to reduce diesel emissions, but create new operating and maintenance challenges for fleets. Also, I hear from fleet managers that there are limited training opportunities in maintaining and servicing these new emission control technologies.
The Scramble for Grant and Stimulus Monies
I am told that savvy grant writers, with "get-rich-quick" schemes to tap into huge EPA grant funding, are approaching local elected officials with proposals to fund various green projects. The number of federal and state grants is enabling more fleets (in a time of constrained budgets) to look at green technology and telematics as near-term investments. Fleets are actively competing for federal and state stimulus funds, which will influence their acquisitions for 2009/2010. Many governments have applied for stimulus money to help fund the cost of going green. Many public sector fleets are converting to green fleets, but are finding it difficult to meet their goal when the auto industry does not provide a diversity of alt-fuel vehicles needed. In addition, as the number of alt-fuel vehicles grows in a fleet, specially trained technicians are needed to work on these vehicles. However, hiring freezes and budget constraints precludes hiring additional staff or training existing staff.
Re-Emergence of Privatization Initiatives
The industry scuttlebutt is that more politicians are assessing the need to privatize aspects of fleet operations to stay competitive with the private sector. This tempo of privatization initiatives started to pick up in 2008, and many of these same cities are looking at it again in 2009. The dramatic decline in tax revenues has reinvigorated discussions about the merits of outsourcing certain in-house fleet operations. The one takeaway I got from attending GFX and NAFA is the emerging challenge for 2010 may be more managed competitions.
Fleets are facing all of these challenges, but perhaps the greatest challenge is one of leadership. Successful fleet managers take the mantle of leadership in meeting the challenges and demands they face. These fleet managers develop great management teams by delegating responsibility to their teams and empowering them to accomplish tasks.
Today's reality is that fleet managers are struggling to do an ever-increasing job with decreased budgets or, at best, static budgets. When talking with public sector fleet managers, I am continually awed by what they are accomplishing for the benefit of taxpayers and their user departments with very limited resources.
Let me know what you think.