We are all discriminating consumers by nature, meaning we are always looking for the next great bargain. This innate gift allows us to go after the best deal we can find whenever we make a purchase. In addition most of us are frugal and would not waste money if it were brought to our attention. After all, the value of money is what drives most of us in this capitalistic society.
This being said, I have come to realize first hand that these same motivators exist in the world of fleet management. The power of informed consumers shapes personal behavior for good or for bad when it comes to decision-making relating to vehicle operation. If we perceive we are spending wisely then we make the best decision we can regarding vehicle operation.
But what if we make a decision without all of the pieces of the puzzle laid out before us? Or what if we don’t see the entire picture of costs when we make a justified decision?
Unfortunately, this happens every day when an organization using fleet vehicles to accomplish its mission disregards the total cost of operation. Unknowingly, organizations ignore millions in monetary waste as they fail to recognize the total cost of a vehicle.
Many fleets do not capture their costs in a centralized “Cost Center” which prohibits them from seeing the total costs related to managing vehicles. What this causes is a disconnect between consumers and decision-making best practices which leads to wasteful behaviors.
How do we engage in wasteful and unwise behaviors? By hoarding vehicles destined to sit idle when no longer mission critical. Many delude themselves into thinking they are saving money because the vehicle is not incurring costs when it sits idle. I recently heard a manager justify the retention of an idle vehicle because they needed it to run to the bank and it only impacted their budget when they put gas into the tank. Professional fleet managers refer to this as exhibiting a “sunk cost mentality” which takes place when a vehicle is purchased in totality before it drives a single mile. The disconnect occurs when total costs are ignored and confused with operation costs. (i.e., fuel, repair, etc)
Looking at an incomplete picture causes people to make poor decisions. I always use this opportunity to educate people about fleet management best practices. I ask them if they vehicle is insured, tracked in a database, taking up a parking space, garage space, having to be mowed around, or subject to safety inspections to ensure safe driveability after an extended periods of idleness.
Inevitably the answer is always “Yes”, meaning they are incurring indirect or real costs associated with keeping idle vehicles. At the very least having to keep track of a asset that is no longer needed occupies unnecessary mental focus that could be redirected toward other more important mission critical activities.
Few of us, if any, would purchase a new vehicle and then allow it sit idle when it is no longer needed to perform its intended purpose. Most of this would see this as a huge waste of money, especially if it impacts our household budget. For example, if a member of the traditional two car American family loses their job due to a poor economy (which is now a reality) and can’t find work for a long period of time, then they become motivated to sell one of their cars. This is simply common sense, especially when they see the car sitting idle in the driveway continuing to depreciate. After a period of time they start asking ourselves what would the car be worth if it were sold?
Why?
Because most people understand the time value of money and the way it affects our lives on a daily basis. The proceeds from an idle vehicle could be used to supplement a household’s budget and get them by with much needed funds until they regain employment and are able to purchase another vehicle.
This same practice holds true in fleet management. Idle vehicles cost money! Any fleet holding onto a vehicle until the economy or their budget situation improves is forgoing a huge opportunity cost to recoup the best value of selling a depreciating asset. Vehicles are an expendable asset that rarely become more valuable as they age. Exception may be classic cars but it takes several decades to become a classic and by the time they become a classic sitting idle exposed to the elements diminishes its value. Idle vehicles rust and are destroyed over time diminishing their value. If you don’t believe a vehicle deteriates, try leaving a one outside for a year and then take a look at its condition. You would likely find the tires flat, paint faded, seals leaking, battery dead, upholstery sun damaged, moving parts frozen, exterior vandalized, parts missing and/or at the very least the interior and exterior covered with dust, dirt mold or worse. Idle vehicle cost money in ways most people can’t imagine!
Simply put, a vehicle is depreciating asset that is worth more today than tomorrow and it is in the organization’s best interest to recognize idle vehicles immediately and sell them as soon as possible.
So how can fleet management organizations foster prudent behavior when it comes to providing incentives to user agencies to become more accountable to sell idle vehicles?
Simple. The best practice is to charge user agencies for the total cost of operating a vehicle.
As mentioned previously most of us know this to be true when we pay car payments and we seriously look at our opportunity costs to keep a vehicle versus continue to pay a car payment when not necessary helps us make wise decisions. Likewise, an agency charged a monthly car payment against their current expense budget is highly motivated to sell a vehicle when they see it sit idle month after month.
Agencies need to revisit the way they manage their vehicles if they are not using a cost center to track the total costs of a vehicle operation during its intended life cycle. Using the best fleet management practice to pay for vehicles as you go aids in promoting responsible behavior. This is even true in government organizations because most understand they are taxpayers and retaining an idle vehicle that continues to depreciate in value and incur unnecessary costs results in a wasted tax dollars that could be used for other programs.
In this economy there is not enough money to fund worthwhile endeavors making the cost of idle vehicles even more detrimental for organizations to ignore.
Keeping employees, programs or idle vehicles? Not really a difficult decision when you think about it.
Let’s begin looking at the total costs of vehicle operation and remember every wasted dollar affects us all, even if it’s an organization like a company or government who ultimately pass these costs back in consumer prices or taxes.
