You’ve undoubtedly heard Franklin D. Roosevelt’s adage, “The only thing we have to fear is fear itself.” This was a very effective message during the Great Depression, but with the threat of privatization — not so much. Here, fear can be a very useful tool.
Fleets should fear privatization. By acknowledging the threat, they can avoid complacency in thinking it won’t happen to their operation. Complacency results in inaction and failing to recognize hidden vulnerabilities.
When it comes to privatization, it’s likely the fleet manager won’t be the decision-maker. This is typically a decision made higher up — often made with limited fleet knowledge or experience and questionable reasons.
Why would high-level leadership be interested in privatizing fleet maintenance? Is it cost, quality, or other issues? The decision is made based on customers’ needs, wants, and expectations. How well you meet these is a principal factor in determining your success.
Fleets can prepare for the situation now to be at an advantage if and when the privatization is brought up — by reducing cumbersome purchasing methods, educating and building credibility with upper management, obtaining vehicles when needed, and ensuring customer satisfaction.
At a Glance
Facing the threat of privatization, it’s useful to realize:
- New technologies and leasing options may make privatization a bigger threat
- Your cost accounting matters
- Leasing can eliminate unnecessary procurement processes and overcome capital budget limitations
- Strong customer support is added insurance against privatization.
Threats to Consider
The threat of privatization may rise due to emerging autonomous vehicle and electric vehicle technologies. These technologies will change the way fleets operate, eliminating the need for a driver, reducing maintenance needs, and changing fuel needs — changes that can bring on interest from those higher up in administration. This may lead fleet managers to have less control, increasing the risk for privatization.
Another vulnerability is an increasingly recognized best practice that’s still often misunderstood and undervalued by fleets — leasing. This provides opportunities including lower costs, higher quality services, and eliminating a multitude of non-value added functions. This can be leveraged to a fleet’s advantage, or it can present a threat from a prospective privatization firm.
It’s not just about cost and quality. While service performance is certainly a dominant consideration for privatization, others can escape attention. Perception is how customers determine performance, and it’s entirely based on their perspective and what’s real to them. This may not come solely from facts or experience, but it can also come from other sources — such as what they are told.
Additional criteria affecting privatization decisions that may not be obvious include relationships, credibility, trust, loyalty, and even likes and dislikes. How many fleets proactively manage these?
If you don’t, they can create unseen vulnerabilities. This is particularly true for fleets solely focusing on service performance. The competition may leverage these potential weaknesses at every opportunity. If the company has your high-level leadership’s ear, who knows where this could lead?
To compete on equal footing, fleets need the same tools as their competition. Manage these “soft” characteristics through a comprehensive fleet marketing strategy and plan.
Problems with Cost Comparisons
Cost and quality will typically become a primary focus when talks about privatization arise. It pays for a fleet to be proactive and recognize the common hazards with this process.
First, it’s not simple to measure fleet cost and quality. Thus, comparing these to an external fleet contractor can be difficult and create added risks. Add to this the fact that others may choose how to compare these costs — undoubtedly based on what’s most favorable to them.
Move Away From Class-Based Accounting Rates
If your fleet’s vehicle costs are based on generic equipment class-based accounting rates — where users pay the same rate for all vehicles within a class, despite age or operating and maintenance (O&M) costs — this is particularly disadvantageous.
First, this actually leads to higher costs since there are no incentives for operating groups to manage their portion of the costs effectively. Secondly, using class averages can create the appearance of higher costs to those who don’t have fleet knowledge.
Making this situation worse are the hidden costs some fleets include in their normal O&M expenses, such as accidents, damage, and abuse costs. A privatizing firm won’t make this mistake. Fleets need to separate these from their normal O&M expenses to compete on equal footing.
Even if you are aware of these discrepancies, your decision-makers may not be. If that’s the case, informing the decision-maker may help mitigate this vulnerability.
Generic rates also present another often missed issue for fleets and customers. With class-driven vehicle and equipment costs being the same, most customers want all-new equipment. Even if this doesn’t result in unnecessary newer equipment procurements, it still guarantees falling short of customer expectations.
Customer disappointment and the appearance of higher costs do not make a recipe for success. If possible, move away from class-based accounting rates, and take everything into consideration when comparing costs.
Look for ‘Lowball’ Estimates
Another approach to cost comparisons is to look at overall O&M costs. However, this presents a number of opportunities for unscrupulous contractors to “lowball” their costs. These include intentionally creating fraudulent profits by underfunding preventive maintenance functions; utilizing lower-cost, substandard replacement parts; or just replacing parts unnecessarily.
All of these create the appearance of reducing overall fleet maintenance costs while adding profits from the resulting increased breakdowns, repairs, and associated labor and parts requirements.
Any experienced fleet manager knows these, but how many procurement or executive leaders or elected officials are savvy enough to detect them?
Use a Potential Threat to Your Advantage
Despite the success of leasing, many fleets and their executive leaders still misperceive and undervalue its effectiveness. This is typically because they view leasing as only a financial tool, failing to recognize the savings in avoiding purchasing processes and overlooking the opportunities to improve customer service and satisfaction.
Simplify Your Purchasing Strategy
Typical existing purchase practices often result in hidden higher costs, quality concerns, and customer dissatisfaction.
Fleet purchases through a capital budget process can be inherently limiting and create numerous unnecessary requirements. One is prioritizing equipment to “fit” a final authorized budget. This not only results in unnecessary costs, but may also result in the fleet falling short of customer expectations and the potential for contentious negotiations.
A leasing program will allow fleets to reduce overall costs while still meeting all procurement requirements and objectives. Fleets can eliminate many procurement procedures, including procurement and vendor communications, follow-up and coordination, and the bid analyses and selection processes. It also reduces otherwise extensive equipment specification requirements.
Obtain Vehicles When Needed
Leasing is an O&M budget expense and allows fleets to eliminate capital budget limitations. The misperception of “saving money” with deferred replacements creates higher O&M costs, lower quality, and customer dissatisfaction.
Leasing replaces equipment at the optimal replacement time to ensure the lowest lifecycle costs. Additionally, rather than procurement being based on price and delivery criteria, typical in the bidding selection process, leasing decisions are based on lifecycle costs. Many fleet managers know that reducing up-front procurement costs may give the appearance of short-term savings, but it can result in hidden expenses.
Major fleet leasing firms also benefit from strong purchasing power, resulting in lower-cost vehicles, a further advantage over bids from local dealers. And with timely replacements, vehicles are more reliable, effective, capable, and fuel efficient.
Leave Remarketing to the Experts
Leasing also completely eliminates the supporting sale/disposal requirements associated with replacements, as the leasing firms handle this seamlessly.
Exceed Customer Expectations
Improved procurement practices, accurate individual equipment costs, and incentives to work cooperatively with customers to minimize their costs leads to optimum relations and results. With this approach, together with optimum costs and quality, customer satisfaction is redefined — often producing results beyond everyone’s expectations.
With this, your customers will become your strongest supporters. It’s the ultimate form of privatization insurance and a measure of success for any service provider.
About the Author: Tim King is a retired fleet professional with 30 years of experience in the utility industry. He is the author of “Fleet Services — Managing to Redefine Success,” published by SAE International. He can be reached at email@example.com.
How Our Fleet Avoided Privatization
We were lucky when the fleet I led (Sierra Pacific Power Company, now NV Energy in Nevada) was approached by an external fleet contractor. The contractor, too, was new to the process, and its focus was on easy-to-identify cost savings and quality opportunities.
One was with fleets that provided their technicians tools at no cost to the employee. The contractor also touted its competence and quality with technicians certified by the National Institute for Automotive Service Excellence (ASE).
Our fleet didn’t have the first, which was an advantage. But, it also didn’t have the second — a disadvantage. It took years to address and correct this.
Fortunately, we presented a competent image to this contractor and “passed the test.” We never heard back from the company again but were able to make changes to improve our operation, including eventually adopting individual equipment costs rather than using a class-based cost accounting system, as well as realizing all the advantages of leasing.The process taught us a few things:
- Championing process redesign is where the real opportunities are — process improvement is no longer enough to ensure success. The saying, “If it’s not broken, don’t fix it,” is toxic in a competitive environment.
- The threat of privatization will never go away. Competing is a way of life, and for most fleets, it’s inherent to the business environment.
- The solution isn’t ignoring the threat or hiding from it — it is to proactively address these challenges.
- Build confidence and trust with customers. Being defensive can be seen as a sign of weakness.