operating a private fleet

Today’s Challenges of

Operating a Private Fleet

Proprietary and Confidential

Today’s Challenges of Operating Private Fleets

Acquisition Maintenance Operations & Compliance Disposal

2


Components of Operating a Fleet Today

Impact of Technology

Tax Considerations

Maintenance Quality

D.O.T.

Residual Risk

Environmental Regulations

Flexibility

Financing Restrictions

Exte

rnal

Inte

rnal

Acquisition

Financing

Maintenance

Compliance

Disposal

Fuel

Insurance

Technology

TCO Total Cost

of

Ownership

Inputs

Cash Flow

Overview

3


Vehicle Acquisition

• Vehicle Specification

• Total Investment Cost (All Taxes / Delivery Costs / In-Service)

• Financing Options

• Cost of Capital

• Interest Rate

• Financing Period

• Holding Period

• Payment Terms

• Tax Position

• Vehicle Availability / Production

4

Acquisition

COMPONENTS


Vehicle Financing

• Cash

• Traditional Bank Financing

• Dealer Financing

• Line of Credit Option

• Lease Finance

− Operating Lease

− Capital Lease

5

Financial

COMPONENTS


Vehicle Maintenance

• Regular Scheduled Maintenance

• Non-Scheduled Maintenance

• Tires

• Road Service

• Technician Availability

• Technician Certification

• Technology

− Diagnostic Equipment

− On Board Computers

• Administrative Overheads

• Fleet Reporting

• Government Regulations

6

Maintenance

COMPONENTS


Vehicle Operations / Compliance

• Increased Government Regulation (CSA)

• Hazardous Waste Disposal (tires, oil, filters)

• Company Reputation Associated with Violations

• Location Zoning Ordinances

• Licensing & Permitting

• Fuel Tax Reporting

• Federal Vehicle/Driver Recording

• Ongoing Driver Safety Training

7

Compliance

COMPONENTS


Vehicle Disposal

• Disposal Options

− Retail

− Wholesale

− Auction

• Uncertainty of Used Vehicle Market

• Disposal Fees

• De-Identification Expenses

• End of Life Repair Costs

• Unknown Liability Exposure

8

Disposal

COMPONENTS


Fuel

• Quality of Fuel

• Availability of Fuel

• Cost Predictability

• Cost Impact Awareness

• Factors Effecting MPG

-Timely Maintenance

-Vehicle Specifications

-Geared Road Speed

-Driver Training

• Alternative Fuel Option (Natural Gas)

• Fuel Cost Management

9

Fuel

COMPONENTS


Vehicle Insurance

• Premium Cost

− Annual Premium

− Monthly Premium

• Limits to Level of Coverages

− Coverage Limits

− Extended Coverage for Extra Vehicles

• GAP Coverage

• Coverage Exclusions and Limitations

• Impact of Compliance/Safety/Accountability (CSA)

• Hidden Costs (Bundled vs Itemized)

• Managing the Repair Process

10

Insurance

COMPONENTS


Vehicle Technology

• Cost Implication of New Vehicle Technology

• Cost Implication of Changing Government Regulations

• Vehicles Compete for More Budgetary Capital

• Increase Maintenance Complexity

• Limited Availability of Certified Maintenance Providers

• Risk that Additional Technology Improvements

Decrease Value of Current Asset

• Impact of Increased Technology Costs on Residual

Value

11

Technology

COMPONENTS



• Uncertainty of Reliability/Longevity of New Technology

• Increased Total Life Cycle Costs Associated with New

Technology

• Uncertainty of Increased Vehicle Downtime and

Associated Consequences

− Cost of Getting Vehicle in for Repair

− Expense During Time Being Repaired

− Expense to Retrieve Vehicle

• Danger of Obsolescence Due to Availability of New

Innovation

− Safety

− Fuel Efficiency

− Improved Fleet Reporting

• Hidden Costs of Warranty

12


COMPONENTS


Ownership Tax Considerations

• Income Statement Considerations

• Balance Sheet Considerations

• Changing Tax Laws

− Bonus Depreciation

− Section 179

− Corporate Tax Rate

− Alternative Minimum Tax

− Changes to FASB

13

Tax Considerations

COMPONENTS


Vehicle Maintenance Quality

• Inadequate Historical Data on Cost to Maintain New

Technology

• Maintenance Complexity Reduces Number of

Providers

• Over the Road Maintenance Impact

− Extensive Downtime

− Limited Providers

− Availability of Certified Technicians

− Quality of Repair

− Higher Repair Costs

14

Maintenance Quality

COMPONENTS


Department of Transportation

• Hours of Service Change

• Compliance/Safety/Accountability (CSA)

• Electronic Log Requirement

• Cost of Ongoing Regulatory Compliance

• Local /State Idling Restrictions

• Changing Highway Weight Laws

15

D.O.T.

COMPONENTS


Vehicle Residual Risk

• Uncertainty of Setting an Original Residual for Account

Purposes

• Used Truck Market Discounts Value of Increased

Investment

• Risk of Stranded Asset

• Risk of Additional Technology Improvements that

Decrease Value of Asset

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Residual Risk

COMPONENTS



• Continued Compliance to Increasing Government

Regulation

• Hazardous waste disposal

− (tires, oil, filters)

• Carbon Emission Reduction Compliance

• Potential Increased Insurance Costs from

Environmental Violations

• Potential Increased Insurance Costs to Cover Any

Environmental Accidents

• Company Reputation Associated with Violations

17


COMPONENTS


Flexibility

• Changing Equipment Requirements

• Need to Relocate Equipment

• Change in Market Conditions

• Seasonality

• Equipment Obsolescence (MPG Improvements / On Board Equipment)

• Flex to Green Options

18

Flexibility

COMPONENTS



• Restrictive Bank Covenants

• Preservation of Lines of Credit

• Availability of Financing

• Cumbersome Documentation Process

19


COMPONENTS


Total Cost of Ownership (TCO)

Total Cost of Ownership

Acquisition Maintenance Disposal

Investment Financing Maintenance Administrative Other

Overheads

Sales

Proceeds

Cost of

Disposal

Taxes on

Gains

Interest

Rate

Payment

Terms

Purchase Fleet

General

Contract

Maintenance

Dealer /

Garage

Self

Maintenance Accidents

Licensing &

Insurance

Employee

Management

Components used to evaluate costs include acquisition,

maintenance and disposal.

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COMPONENTS


Total Cost of Ownership (TCO) – Overview

Fleet

Fleet Utilization

• Cost of rental units, extra units

• Cost of a unit held

in reserve

Vehicle Investments

• Initial investment

• Residual values at end of life

• Disposal costs

• Cost of capital

• Tax implications

Wash

• Company image

• Frequency, on-site, truck stops

Vehicle Damage

• Refer to damage not

associated with accidents or

insurance claims

• Driver abuse, vandalism

Maintenance

Maintenance Overheads

• Corporate support services –

dedicated resources

• Facility costs – Infrastructure

associated with on-site

maintenance facilities (utilities,

building)

• Shop tooling & equipment –

Carrying cost of inventory

Maintenance Expenses

• Direct & indirect costs of

vehicle maintenance

• Technicians, helpers,

supervisors, managers

• Includes travel, benefits, FICA

• Service vehicles, exempt parts

• Workers compensation

• Cost of hiring and training

• Wastestream management

• Parts, tires, road calls, 800 call

in number

Administrative Cost & Support

Administrative Costs

• Costs associated with titling,

license, registration, FHUT,

PPT, sale tax

• Both internal and external

Fuel Tax Reporting

• Cost associated with

individual states and IFTA

• Manual or electronic

process

Legal / Insurance

• Actual cost of the annual

expense, license, PPT,

FHUT, permits

• Managed internal (staff) or

external (third party)

• Includes the cost of

processing claims

• Includes physical damage,

liability

• Umbrella / co-insurance

Corporate Support

• Dedicated staff

• Asset management

• Fixed assets

• Safety / environmental

• Human resources

• Accounts payable

21

COMPONENTS


TCO - Inputs

22

COMPONENTS


Total Cost of Ownership (TCO) – Cash Flow

* Report is per unit.

1 Tax Benefit calculated based on the tax deductions times the tax rate.

Cash Flow

23

COMPONENTS

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COMPONENTS

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