Presented by: Catherine Blazer - Senior Account ExecutiveAdam Cline - Finance ManagerBryan St. Eve - Director of Fleet Management

The Importance of Fleet Management to The Bottom Line

Presenter

Catherine BlazerCatherine is a Senior Account Executive with Enterprise Fleet Management; she has been with Enterprise for over 12 years. Catherine started her career with Enterprise in the rental division, and was promoted to Fleet Management in 2006.  

Catherine is on the board of Construction Financial Management Association (CFMA), serves on committees for Associated General Contractors (AGC), and is a member of the Kentucky Association of Highway Contractors (KAHC).

Presenter

Bryan St. EveBryan has been with Enterprise for over 11 years, and with the Fleet Management Division for 10.  Throughout his career he has held accounting, sales and management positions in Dallas, St. Louis, Denver, and Louisville, all with Enterprise Fleet Management.  

Bryan is a native of St. Louis, MO, and received a BBA in Finance and Economics from Southern Methodist University in Dallas, TX; he currently serves as Director of Fleet Management for EFM in

Louisville, KY.

Presenter

Adam ClineAdam is currently a Finance Manager for Enterprise Fleet

Management.  He has been with the company for 12 years, and with the Fleet Management Division for 10.  With Enterprise, he has held leadership positions in the areas of acquisition, tax and title compliance and accounting.  

Adam has worked at the corporate office and in various field locations.  Adam is a native of St. Louis, MO, and received a BBA in Finance and Business Administration.

Agenda Dollars and cents of buying, selling and operating a fleet

of vehicles Basics of vehicle Fleet Management The importance of a flexible fleet and managing risk in a

cyclical or seasonal business Replacement Analysis Industry issues involving vehicle fleets Questions to ask to determine if Fleet Management

makes sense for your client’s business

Vehicle Expense• Depreciation (Acquisition less resale)• Interest• Sales Tax & Registration

Operating Expense• Fuel• Maintenance and Repairs (includes downtime)• Insurance

Additional Economic Considerations• Income Tax• Cost of Capital• Inflation (budgeting)

6 Elements of Cost of Operating a Fleet

Food for Thought

For a standard $25,000 Ford F-150, what is the total approximate cost to operate over 8 years/200,000 miles?

A. $50,000B. $75,000C. $100,000

Pre-Tax cost is $105,338

Answer

Example – Buy and Hold Assumptions Vehicle cost $24,938 Sales Tax of 6% or $1,496 Interest Rate of 4.00% for 4-year loan 25,000 miles per year (all business) Hold for 8 years or 200,000 miles Fuel economy of 20.00 MPG with some degradation Fuel price of $3.50 with 5.00% inflation No inflation is considered for non-fuel expenses Sells for $1,000 after 8 years Insurance costs of $1,200 annually or $9,600 in total Preventative maintenance based upon provider’s schedule (5,000 miles) Normal costs related to vehicle breakdowns were considered $250 annually for administrative time and effort

Cost to Manage IRS Reimbursement

Vehicle Acquisition Price $24,938 (56.5 cents per mile)

Vehicle Sales Price ($1,000)

Depreciation $23,938

Sales Tax $1,496

Interest Expense $2,618

Total Acquisition Cost $28,052

Fuel $44,243

Preventative Maintenance $12,800

Vehicle Breakdowns (Non-Preventative) $8,643

Insurance $9,600

Total Operations CostAdministrative Time

$75,286$2,000

Total Cost: Pre-Tax $105,338 $113,000 (no inflation considered)

Average Annual Spend $13,167 $14,125

Cents Per Mile 52.7¢ 56.5¢

After-Tax NPV (discounted at 5%) $57,400 2.3 X’s acquisition price

Total Cost for 1 Vehicle – 8 Years at 200,000 miles

Total Cost for 50 Vehicles – 8 Years at 200,000 miles

Total Cost$5,266,900

Average Annual Spend $658,363

Cents Per Mile52.7¢

$2,870,000 Present Value

Understanding the Basics of Fleet Management Expertise in the Automotive Industry with Emphasis on Cradle-to-Grave Vehicle Processes

The Basics of Fleet Management

The Building Blocks of Fleet Management

Reducing and Controlling Costs Vehicle selection to fit the needs of the business Vehicle buy and vehicle incentives Selling the vehicle Competitive funding and options

Open-End Lease Closed-End Lease

Maintenance and repair plans Monitor and control operating costs such as fuel Proper replacement patterns Productivity gains from time savings

Characteristics of Closed-End and Open-End Lease

Closed-End Traditional “Lease” structure:

Contract is for a set period of time and set amount of miles. Generally a lower monthly payment, but subject to over miles

and wear and tear penalties Open-End (our most recommended structure for commercial use)

Flexibility of ownership Market Value financing Client takes advantage of resale

Example of Open-end LeaseA $20,000 vehicle is leased to a customer for 36 months with 2% per month depreciation.

At the end of 36 months, the lease will have a residual of $5,600 representing the balance that is not depreciated in the lease.

$20,000 times 2% times 36 months = $14,400

$20,000 minus $14,400 = $5,600

If the vehicle sells for $6,000, the customer receives the $400 difference ($6,000 minus $5,600)

If the vehicle sells for $5,000, the customer pays the $600 difference ($5,000 minus $5,600)

Core Cost Elements

Example – Managed Fleet Assumptions Vehicle cost $23,938 Sales Tax of 6% or $1,436 Interest Rate of 3.35% for 4-year lease 25,000 miles per year (all business) Hold for 8 years or 200,000 miles Fuel economy of 20.00 MPG with slight degradation Fuel price of $3.50 with 5.00% inflation No inflation is considered for non-fuel expenses Sells for $1,300 after 8 years Insurance costs of $1,200 annually or $9,600 in total Maintenance plan put in place to control service intervals and avoid

unnecessary services Normal costs related to vehicle breakdowns were considered $50 annually for administrative time and effort

Cost to Manage Cost to Outsource

Vehicle Acquisition Price $24,938 $23,938

Vehicle Sales Price ($1,000) ($1,300)

Depreciation $23,938 $22,638

Sales Tax $1,496 $1,436

Interest Expense $2,618 $2,088

Total Acquisition Cost $28,052 $26,162

Fuel $44,243 $44,243

Preventative Maintenance $12,800 $10,247

Vehicle Breakdowns (Non-Preventative) $8,643 $8,643

InsuranceManagement Fee

$9,600 $9,600$2,816

Total Operations CostAdministrative Time

$75,286$2,000

$75,549$400

Total Cost: Pre-Tax $105,338 $102,111Average Annual Spend $13,167 $12,764

Cents Per Mile 52.7¢ 51.1¢

After-Tax NPV (discounted at 5%) $57,400 2.3 X’s acquisition price $55,300

Total Cost for 1 Vehicle – 8 Years at 200,000 miles

Total Cost for 50 Vehicles – 8 Years at 200,000 miles

Self Managed ProgramTotal Cost $5,266,900Average Annual Spend $658,363Cents Per Mile 52.7¢Present Value $2,870,000

Outsourced ProgramTotal Cost $5,105,550Average Annual Spend $638,194Cents Per Mile 51.1¢Present Value $2,765,000

Managing Cyclical and Seasonal Industries

Business Peaks

Hiring workers and need vehicles fast Tend to acquire from dealership inventory Will overpay because of unnecessary equipment and lack of

dealer inventory

Business ValleysIdle Vehicles = Idle Capital

Tend to sell in “fire-sale” mentality and may not get a good price

12

Vehicles in Service

Time in Service

The Value of Replacement

The Value of ReplacementOne of the important elements of Fleet Management is knowing the economics and the customer’s business goals of when to replace vehiclesThis example did not assume replacement options

Fleet management companies do not recommend 200,000 mileage patterns for a Ford F-150

Fleet Management Companies monitor the following items: Used vehicle prices Maintenance and downtime considerations / customer service issues Fuel and fuel economy standards Appearance and branding Vehicle incentives

The structure of the lease term provides an automatic trigger to analyze the hold versus replace decision

Food for Thought

Do you know how often your clients replace their company vehicles?

A. Every 3-4 yearsB. Every 5-6 yearsC. Every 7-8 yearsD. Longer than 8 years

Vehicle – Buy and Hold PlanMaintenance and Repair

$0

$1,000

$2,000

$3,000

$4,000

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8

Buy and Hold – Fuel Cost

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8

25,000/year – 6% Inflation - $3.75/GallonStarting MPG in Year 1 – 13mpgStarting MPG in Year 5 – 14mpg

25,000 Miles/Year

Cost to Hold Cost to Replace

Vehicle Acquisition PriceSale of First Vehicle

$0$0

$23,938($9,300)

Vehicle Sales Price in 4 years ($1,000) ($9,300)

Depreciation ($1,000) $5,338

Sales Tax $0 $1,436

Interest Expense

Total Acquisition Cost

$0

($1,000)

$2,088

$8,862

Fuel $25,159 $21,018

Preventative Maintenance $7,029 $5,565

Vehicle Breakdowns (Non-Preventative) $7,209 $0

Insurance $4,800 $4,800

Management Fee

Total Operations Cost

$0

$44,197

$1,736

$33,119

Total Cost $43,197 $41,981

*Does not include any costs related to additional downtime.

Replacement Analysis at 4 Years / 100,000 miles

Cost to Manage Cost to Outsource

Vehicle Acquisition Price $24,938 $47,876

Vehicle Sales Price ($1,000) ($18,600)

Depreciation $23,938 $29,276

Sales Tax $1,496 $2,872

Interest Expense $2,618 $4,176

Total Acquisition Cost $28,052 $36,324

Fuel $44,243 $40,098

Preventative Maintenance $12,800 $11,130

Vehicle Breakdowns (Non-Preventative) $8,643 $0

InsuranceManagement Fee

$9,600 $9,600$3,473

Total Operations CostAdministrative Time

$75,286$2,000

$64,301$400

Total Cost: Pre-Tax $105,338 $101,025Average Annual Spend $13,167 $12,628

Cents Per Mile 52.7¢ 50.5¢

After-Tax NPV (discounted at 5%) $57,400 2.3 X’s acquisition price $54,900

Total Cost for 1 Vehicle – with Replacement

Downtime & Administration Maintenance

Depreciation & Taxes

Maintenance

FuelInsurance

Total Cost of Buy and Hold Strategy

Total Cost of a Replacement Plan Strategy

Downtime and Administration Maintenance

Fuel

Depreciation & Taxes

Maintenance

Insurance Interest

Evaluating Trends and Planning

Considerations

Having an expert opinion to evaluate the industry trends and consult on business needs in order to plan for ahead for the future

Food for Thought

Do you know what the average price of fuel was in 2001?

A. $1.15B. $2.65C. $3.00

Answer

$1.15

Source: U.S Energy Information Administration

National Fuel Price Analysis

Average Rate of Inflation 12%

1.87

2.693.01

3.35

1.15

1.41

1.53

1.96

2.19

2.34

3.11

3.85

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

Dec 01 Dec 02 Dec 03 Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12

Average Unleaded Fuel PPG 2001-2012

Inflation and Fuel Costs Over 8 years

3% 6% 12%Fuel Cost $39,988 $44,569 $55,532

CAFE Mandate: Double Fuel Economy by 2025 54.5 MPG in 2025 5% annual increase in MPG for cars 3.5% annual increase in MPG for trucks

Fuel – Long Term Requirements

An Analogy to the Finance Profession

Fleet Management is similar to a Tax Professional

A company can do it alone without professional advice But it’s likely to cost you more

Tax Professionals implement proper cash flow planning techniques and ensures all of the proper deductions for a constantly-changing tax code

A vehicle fleet manager designs a flexible fleet and strives for the best economics for a given business

Putting it in PerspectiveLooking at the Ford F-150

51 different choices (this does not mean different colors, interiors, etc.) Acquisition prices range from MSRP of $24,000 to $53,000 Small changes can quickly add over $1,000

Looking at all Vehicles There are roughly 2,200 different series each model year Keeping updated on year-to-year changes is no small task

An Analogy to the Finance Profession

Fleet Management is similar to a Tax Professional

A company can do it alone without professional advice But it’s likely to cost you more

Tax Professionals implement proper cash flow planning techniques and ensures all of the proper deductions for a constantly-changing tax code

A vehicle fleet manager designs a flexible fleet and strives for the best economics for a given business

Other hot topics in the industry

• CNG / Electric / Hybrid / Diesels• Smaller Vehicles / Lighter Vehicles• Computerized Dashboards • Oval Car Bodies to Reduce Drag• CVT: Continuously Variable Transmissions• Rising commodity costs – rubber for tires and

maintenance in general• Redesigned and release of commercial vehicles: Ford

Transit and Transit Connect, Dodge Promaster, Nissan NV, etc.

The Building Blocks of Fleet Management

Is an additional source of capital important to their business? Do they know the total spend for the fleet? Is it difficult to dispose of vehicles during a business downturn? Do they have idle vehicles at different points in time? Is vehicle downtime a significant detriment to their business? Who approves maintenance invoices and what experience does that person

have with the automotive industry? At what mileage intervals are the vehicles being serviced for oil changes? Do they track maintenance expense on a vehicle-by-vehicle basis? What is the plan if fuel prices continue to rise? Is the business equipped to analyze the new products (i.e., Hybrids, compressed

natural gas, electric, etc.) that are coming to market?

Questions to Ask to Determine if Fleet Management Makes Sense for your clients:

Questions

For more information on fleet consultation

Please check out our website www.efleets.com or call

877-23 FLEET