Budgetary Shortfalls Intensify Second-Guessing of Fleet Managers

By Mike Antich

The budgetary meltdowns in public sector America have caused significant turmoil for fleet operations. Due to these fiscal shortfalls, the level of scrutiny of internal costs is at a level never seen before, even for fleets with reputations for cost-efficiency and high service levels. Fleet managers are constantly second-guessed on the efficacy of their policies and under tremendous pressure to maintain preexisting service levels despite slashed budgets and reduced staffing. One consequence is a broad-based trend to extend vehicle lifecycles for all vehicle and equipment classes. Fleet managers lament their fleets are aging rapidly and will require more maintenance funds to keep them in service. The conflicting tension in operating aging fleets is maintaining service levels while keeping maintenance costs down. However, this is difficult due to the increase in unscheduled repairs.

End-user departments have also reduced staff, prompting voluntary turn-in of vehicles at record numbers. Fleets are redeploying these vehicles, cherry-picking those in best condition for reassignment, and disposing of older, less serviceable units. One inadvertent benefit of the availability of these surplus vehicles is a reduced number of replacement vehicles needed, helping minimize the impact of eviscerated capital expenditure budgets.

Doing (a Lot) More with Less

One cost-containment strategy has been to reduce fleet size. A smaller fleet generates lower costs by requiring fewer maintenance techs and less money for parts, vehicle replacements, and fuel. Many fleets have implemented fleet utilization studies, eliminating millions in unneeded replacement costs. However, money saved by deferred capital purchases is often diverted to maintenance to keep older units operating at optimal performance.

Another cost-cutting measure has been to extend PMs for light-duty fleets to 5,000 miles or six-month intervals. Other fleets have drastically reduced overtime work and eliminated night shifts. Concurrent with this is a populist revolt by taxpayer groups and politicians to cut costs by eliminating take-home vehicles and other personal use of government vehicles. However, cost reductions in one area are often offset by rising costs elsewhere. For instance, the 2010 diesel emission regs increase per unit acquisition costs for diesel equipment by $12,000 to $24,000. The new diesel regs also have long-term infrastructure implications as fleets deliberate whether to dispense urea as part of their fueling operation or whether it will be a maintenance item.

In addition, fleets are focusing on eliminating waste, not only for cost savings, but to preempt reasons to trigger privatization initiatives. Outsourcing services that are in-sourced, such as parts departments, has reemerged as a hot topic with many politicians.

One silver lining is that lean budget years and fiscal constraints make management amendable to making operational changes that would not have been considered during times of economic prosperity. Another positive consequence of the economic downturn is many fleet operations now have fully staffed maintenance facilities due to the widespread closure of dealerships. Fewer fleet managers report problems recruiting and retaining qualified staff. However, at many other fleets, vacant positions remain frozen. If an employee retires, no replacement is hired to fill the vacancy. These hiring moratoriums are dramatically straining fleet operations since they are already staffed at very lean levels.

In this era of tight budgets, fleet managers also struggle with how much to budget for fuel. Fleet managers have been burned in the past by underestimating fuel budgets and were forced to go to management with hat in hand. Nowadays, most fleet managers err on the side of caution and budget high for fuel to be prepared for unanticipated fuel pricing volatility.

Forecast: More of the Same, Maybe Worse

The prognosis by fleet managers is that this dismal fiscal situation will worsen next year, and in a best case scenario, will remain at today's level, which isn't a pretty picture. Tax bases continue to be stagnant or declining, adding further pressure to minimize capital expenditures and extend vehicle and equipment service lives. Also, the psyche of public sector employees has been shaken. There once was the perception that economic recessions only affect jobs in the private sector. However, this perception has been shattered with this recession. Many political subdivisions have implemented layoffs with the hope of achieving the desired end-results through staff attrition. However, the depth of the budgetary shortfalls has necessitated not only more widespread staff reductions, but also pay cuts, unpaid holidays, and unpaid furlough days. Veteran fleet managers say this is the worst they've ever seen it. With tongue in cheek, some long-time fleet managers say early retirement now seems like an attractive option. I know they say this in jest, but you can't help but wonder.

Let me know what you think.

mike.antich@bobit.com