Chapter 4

Regardless of the topic, whether it is health care or house care, all professionals agree that preventative maintenance will result in lower costs. This is equally true of vehicle care. Your car, truck, or van will cost less to operate and will be less likely to break down during your travels, when you follow a preventative maintenance schedule.
You will experience less grief, if you will make it a point to inspect or service your vehicle when it is more convenient for you. The alternative is to pay higher prices for your neglected machine, AFTER you have paid to have it towed. In those circumstances, you cannot shop around for a desired discount, you can no longer keep your appointment or meet your schedule, and you will disappoint family, friends, customers, and yourself.

In this chapter I am going to propose the following:

a) Buy trucks and vans from a manufacturer that can assure you that, within the next five years, the cab or body can be removed and placed upon a new chassis, thereby reducing the cost of an asset.

b) Add-on features to encourage caution and pride in the operator.

c) Implement proactive maintenance policies and procedures.

d) Utilize a gas card to track abuse and to promote economy.

e) Carefully evaluate lease/borrow options.

Firms with delivery vehicles should be setting a ten year life goal for the body, and a 300,000 mile life on the working/road portion of the vehicle. I know that 300,000 miles is not a difficult goal and that many of you may want to consider a much higher level. Speaking from personal experience, my 1972 Buick Le Sabre had over 270,000 miles on it before I sold it in 1986. My cost per mile, including all repair work and paint, was under 8 cents, excluding gasoline.

Of a firm's many assets, vehicles offer both opportunity and hardship.

The opportunity lies in the liquidity of the asset, as it can easily be turned into cash, and that there is a wide market for them. Vehicles can be purchased or leased, and can be serviced at competitive prices, as there are numerous vendors to finance, supply and repair this commodity.

The hardship of vehicle ownership lies in potential or actual liability, when it is involved in an accident, or when the vehicle suffers a defect and is unable to perform the function intended. Included in liability equations is the cost to operate, and the possible loss of consumer confidence, caused by tardy delivery or damaged goods. When your product is delivered by your staff, there is no one else to blame but your firm.

When acquiring a vehicle, most managers can easily determine whether it will be purchased or leased. An area that is not as easily understood is that of the appearance and/or features that should be considered as acquisition options.

Human Resource managers know that people assume the persona of the clothes that they wear. People will alter their behavior to conform to their perception of how a person in that profession would act. The wearer of a suit will have a more conservative attitude than that of a person wearing military fatigues. People in sports wear will act differently than others wearing a police officer's uniform. The aforementioned is fact and is easily observed by anyone interested enough to experiment with human behavior within their work place.

Some of you are now wondering, what does clothing induced behavior have to do with vehicle maintenance? Simple. If a vehicle is plain vanilla in appearance, and looks as if it were made for punishment. Lacking in frills, that piece of equipment will more likely be punished by the user, your employee.

Regardless of cultures, most people hold little value for material items that they have not personally paid for. From my own personal experiences, I have noticed that people will take care of a book that they have given money for, even if the money spent is only a percentile of the book's value. When I give a book away, most people will never take the time to read it and oftentimes loose it.
The failure to appreciate the property of others is also evident by firms who are in the rental business, such as Avis or Hertz.

While you may shake your head in wonder, and threaten the heads of your staff in a vain attempt to elicit appropriate behavior, your best chance of obtaining the maximum longevity of a piece of capital equipment is to give it some personality. Give your staff a reason to be concerned with the asset's well being by removing the punishment factor.

As a manager of a mail courier and freight delivery department, I found that user attitudes could be modified by the addition of a few creature comforts. I consider these comforts to be pre-paid assurance / insurance. Of course, safety features such as an alarm that sounds when the vehicle's transmission is in reverse, wire mesh walls to separate a driver from spillable cargo, windows in the back doors to improve visibility, and side mirror enhancements, are obvious necessities.

Many managers forget that the vehicle's color is a primary safety factor. I particularly admire Yellow Freight's efforts to enhance safety. Other safety colors to consider are fire-truck lime green and bright yellow. Avoid dark colors, such as dark blue, at all costs.

Less obvious or controversial options to consider are air-conditioning, fm/am cassette radio, under-coating, upgraded seats and wheels.

As a manager, I discovered that drivers were involved in fewer accidents and kept their vehicles cleaner, as a direct result of the upgrades. They were actually proud of "their" truck, taking a possessive responsibility towards this work tool.

Now, that possessive spirit is not found in every driver. To obtain a consistent attitude towards excellence, I found it necessary to delegate a vehicle to a particular person. I discovered that it was counter productive to indifferently assign vehicles. For when staff realizes that it does not matter to management as to who uses what, then it will not matter to them how the asset is used or abused. When faced with that environment, staff will be indifferent and will not contribute to the vehicle's care. However, oddly enough, they will care and complain about other slobs who spilled soda on the dash, etc. But, they will oftentimes not be anxious about their contributions to any mess or maintenance problem.

Just as the communists have learned, ownership leads to productivity. By setting policy that assigns a measure of possessiveness and responsibility, you will receive substantial maintenance savings.

To complete my policy recommendations for drivers, I suggest that: (i) drivers be assigned a primary vehicle, (ii) drivers are responsible for reporting any maintenance issues to a designated authority, (iii) drivers are responsible for interior cleanliness, and that (iv) drivers are responsible for providing all necessary receipts for fuel and repair and that those receipts contain an odometer reading.

Speaking of maintenance, I cannot say enough about it. For some yet-to-be explained reason, firms seldom establish a program that promotes the care and feeding of their assets. Even individuals are indifferent about their own true love, their personal vehicle.

For individuals, transportation is oftentimes a visual extension of their beliefs and aspirations. The profile of a vehicle owner is that: (i) their car is the second largest investment they will ever make, second only to their house, (ii) they will spend more on transportation, in their lifetime, then they will on their home or any other investment, including old age or retirement savings, and (iii) they take better care of their pets and/or lawn than they do this high profile investment.

It is usually a love/hate relationship, with the owner taking great care to polish and pet their treasure, yet cursing it and wishing it a horrible death when it fails to transport the owner in a timely manner.

Of course, while many people take excellent care of their car's exterior, they have been found doing little to nothing when it comes to utilizing preventative maintenance, as a means of minimizing expensive and surprising mechanical failure. It is easy to prove that, following the manufacturer's guidelines, a vehicle owner can avoid most of the mechanical failure that plagues many motorists. And, it is a fact, known especially well to manufacturers, that preventative maintenance costs the user less than waiting to fix something after it has failed.

Excluding money as a consideration, I believe the concern for others is a factor to cause a person to get on the preventative maintenance band wagon. For individuals, the peace of mind, knowing that a loved one is not stuck on a dangerous highway, as a result of my negligence, should be reason enough to take a few moments to practice auto safety.

For firms, an additional incentive for a preventative maintenance program is that of PRODUCTIVITY. When a vehicle fails, an employee is being paid to wait. On occasion, it ties up another vehicle as well as one or more additional employees, as assistance is provided in unloading and reloading cargo, in their communications to customers and vehicle repair vendors, and in assisting the stranded driver. Also, customers become agitated and sometimes take their business elsewhere.

I do realize that it is not an easy task for anyone to remember when repairs were performed, or when maintenance needs to be completed. After all, you are asking someone to remember the last time the tires were rotated, etc. These are facts that are next to impossible to keep in your head.

SOLUTION: Use a computer scheduling software program. My favorite is Outlook 98 from Microsoft. It has a calendar section where you can place recurring appointments. Merely input the vehicle’s suggested maintenance schedule into the calendar. You can input notes regarding amount paid, reference a spreadsheet’s file & folder name where important data is recorded, etc.

For large firms, it may be appropriate for a staff member in Accounts Payable to keep track of this important function. Reports requesting maintenance would be sent to the fleet or department manager. For managers and owners, you would also know the current and life time expense to operate this vehicle, which would be helpful in making future replacement decisions. It would also assist during the employee evaluation process, as it is an unbiased measure of the driver/user's participation in prolonging the life of an important asset.

For businesses or self employed persons who utilize IRS form 2106 or 4562, when claiming actual expenses, the detailed information record from the software would be particularly helpful.

Let's talk about quality and image. Most firms realize that their delivery vehicle's appearance reflect upon the firm that owns them.

Savvy organizations also realize that their rolling assets can serve as mobile bill boards. I have witnessed Pepsi, amongst others, who have paid people to drive around with advertisements painted upon them. And I know that the folks at Coca-Cola feel that almost any exposure is good exposure. They like their logo appearing in the news, in sports, on a person's clothing, etc., and encourage image proliferation.

You, as a savvy business person, will do everything possible to keep expenses to a minimum, while increasing consumer acceptance to your firm & products. And last but not least, you are keenly aware of the benefits of promoting safety.

SOLUTION: Institute a policy and procedure that focuses upon: (i) safe & responsible driving, (ii) vehicle cleanliness and, (iii) recycling the vehicle's body and interior. This effort will involve your advertising department, who will create the message that is painted upon the exterior of the vehicle.

I am suggesting that you plan on keeping the shell of the truck or van for ten or more years. This act will save you money and reduce the amount of garbage that is going to your local landfill. Manufacturers are just now getting the message that they may be responsible, in the near future, for the recycling of the products they produce. In Germany, Mercedes is already recycling their discarded vehicles.

I am suggesting that your staff wash and wax the exterior on a regularly scheduled basis. A clean machine will mean that your windows and headlights are clean. Safety first! A clean machine means that your message is seen. This is an inexpensive and effective method of advertising!

I am suggesting that dents and scratches would now be economical to repair. Remember my earlier discussion about personal behavior. Employees will exhibit pride in "their" truck and will be more likely to perform as expected.

Lastly, I am suggesting that you paint your firm's telephone number on the back of the vehicle, asking "How Am I Driving?" That telephone number should be targeted towards a senior manager, not necessarily the vehicle or fleet manager. I do not recommend that the call be directed to a paid service. Why add an additional expense? As mentioned before, avoid monthly payments.

Only a few people are inclined to voice a complaint. If someone holds a perception that a wrong needs to be reported, that call should go to a decision maker, and not to someone who may feel compelled to protect the transgressor.

Now, lets talk about the procurement of fuel. This is an area not unlike the use of the office telephone, where expenses can go unchecked and the opportunity for abuse is substantial.

While a few firms will have their own fueling station, most will rely upon gasoline stations such as Arco or Shell. In most metropolitan markets, there are firms that offer the specific service of providing a gas card.

The gas cards I have used allowed my drivers to obtain fuel from a limited number of vendors. Those vendors were known to sell consistently at the lowest price, known as price leaders. The cards looked like credit cards, but limited the drivers to (i) self serve, (ii) least expensive fuel, no premium, and provided a detailed invoice showing consumption in a chronological order. The detailed list was helpful in curbing abuses, as it would indicate a higher MPG value if someone were dishonest enough to use the card to fuel their own car or their friend's car. And, the drivers knew that management had to approve the purchases before payment by Accounts Payable.

Just like the telephone bill, which is almost never challenged, fuel abuse is commonplace. The chronological order and odometer reading/MPG report on the detailed statement is the best method of keeping people honest, removing temptation. This is another good reason to use spreadsheet or database software, such as Microsoft'’ Access.

Lastly, I will comment upon leasing versus the purchase of capital equipment. There are no easy answers, but I can offer you a list of questions that you need to ask and analyze.

NOTHING BUT THE TAX. For individuals, you can depreciate your vehicle using a Standard Mileage Rate (which changes annually at the IRS) or you can select Actual Expenses. For firms, directly purchased vehicles are usually depreciated on a Straight Line method, especially by firms that are already paying an additional tax when the Alternative Minimum Tax form is completed. Accelerated depreciation choices include Sum-of-Years'-Digits and Declining Balance methods. Under a capital lease, firms can fully expense their monthly payments.

Instead of lease-versus-purchase, you should be asking lease-versus-borrow when contemplating this decision. Lease cost of funds will oftentimes be greater than the interest rate on borrowed funds. In most cases, leasing is a perfect substitute for borrowing, but is typically considered by firms who are in a less than ideal cash flow position.

Creditors prefer to lease instead of lend to risky firms, because a creditor, even a secured one, will face expenses and delays in recovering assets that had been financed. As a lessor, they retain ownership and have a greater probability of asset recovery.

Negative leasing factors to consider are that: (i) the equipment may not be discounted as fully as a direct purchase, (ii) maintenance costs may be higher, (iii) you may not benefit from the full life utility of the asset (residual value) and, (iv) financing costs may be higher.

Positive leasing factors to consider are the possible reduction of obsolescence expense, and a more rapid write-off of the principle.

Beware of the Cost-Per-Month trap. Insist upon the Lifetime Cost calculations shown in chapter VII.

The numbers you need to consider when making a purchase/lease decision are:

Purchase Price, Market Resale Value, Number of years the asset is to be used, Anticipated inflation rate, Maintenance, and if interest is deductible. Include the answers to these questions within the Life Cost Analysis form in chapter VII.

Within your lease computation, ask:
Monthly Amount, Annual Inflation %, Deductible Portion, Lease's Purchase Price, Security Deposit, Initial Expenses, Tax Bracket, type of lease.

There are two types of leases, known as Operating or Capital leases. An operating lease is one that does not satisfy at least one of the following criteria:

1. The lease contains a bargain purchase option.

2. The lease transfers title/ownership of the property or equipment to the lessee by the end of the lease term.

3. The lease term is equal to 75% or more of the economic life of the property or equipment.

4. The Present Value of the minimum lease payments is 90% or more of the original fair market value/cost of the equipment or property.

If all four of the aforementioned conditions are met, you are looking at a capital lease.
If you decide that a capital lease is best for your needs, I would insist upon a 10% Purchase Option type, instead of the Fair Market Value lease. I have found fair market values to be arbitrary and difficult to rely upon. There is something very concrete about an explicit figure, such as a percentile of cost, while I have had experiences in which several people have placed widely differing values on equipment, when the purchase or return decision was being considered.

You must always take steps to protect your wallet, not only at the time of purchase, but throughout the utility of the product or service. The "great deal" today may carry a hidden penalty tomorrow. Many consumer laws are on the books regarding balloon payments and the like. However, buyer beware is the second best rule from which to base your business decisions.

Rule #1: He with the gold rules. Until you write the check, you're in charge.

Rule #2: Buyer beware. Get the lifetime cost of a product, including costs to terminate or liquidate.