By Jeremy Young, Director of Sales at Motus
The coronavirus pandemic has impacted the day-to-day lives of the mobile workforce, as shelter in place orders have forced mobile workers to stay home. As a result, companies utilizing fleet programs are finding themselves left with a high volume of fixed-cost assets that are currently sitting idle. Employers are searching for ways to curb overall spending while these company-provided vehicles go unused and continue to accumulate monthly corporate expenses regardless of usage.
While a fleet program may have best suited a business less than three months ago, decision makers are now looking for alternative programs to help them navigate this time of uncertainty in a way that’s best for the organization and its team.
Fixed and variable rate (FAVR) mileage reimbursement programs – which reimburse mobile workers for the business use of their personal assets – have proven to reduce excess spend, fairly and accurately reimburse employees, and provide vehicle program flexibility overall. As such, companies with fleet programs are now considering making the switch to a FAVR program.
Of course, there are short and long-term financial implications that come with each step of transitioning out of a company-provided vehicle service. The following will help identify potential obstacles, bring related financial considerations to light and propose effective solutions for shifting to a FAVR program.
First: Evaluate Where You Are Today
It is important for businesses to evaluate how their idle fleet vehicles are currently being managed, and the impact to the company’s bottom line of each line-item associated with vehicle ownership. For instance, while depreciation is slowed in times of low usage, companies continue to pay costs associated with titles, insurance and registration. What is often overlooked with idle fleet vehicles are additional expenses and liabilities that come with methods of storage during times of inactivity. These include:
Costs of Employer Managed Storage
• Transportation to and from storage facilities
• Facility rental and amenities for vehicle upkeep
• Service for reintroduction to daily use
Liabilities of Employee Managed Storage
• Vehicle use for personal reasons
• Employer responsibility for actions of employees due to the company’s name being on vehicle title
• Employee control over company assets
It’s crucial for business owners to have a firm grasp on these different components when evaluating the state of their assets. Critically, employers need to weigh the cost and benefit of having complete control of the asset against the uncertainty of an employee maintaining the vehicle and factor that into their current assessment of their fleet.
Second: Identify Where You Need to be Tomorrow
Once a company gains an in-depth understanding of where its fleet presently stands from a financial perspective, it must evaluate future needs so that it can set firm goals to work towards. The workforce looks significantly different now than it did pre-COVID-19, and it’s safe to say that we will never go back to working the same exact way we once did. So, in order to determine – and make progress towards fulfilling – future needs, employers must set clear financial objectives and understand the decisions they make now can inhibit or enhance their ability to reach those goals.
So, you have all of these idle vehicles weighing on your bottom line. What are your options and how to you evaluate them?
You may think to yourself: get rid of idle vehicles. However, while immediately downsizing the fleet through sales or trade-ins can reduce short-term expenses, it can also stunt long-term financial goals. The used-car industry has been significantly impacted by the pandemic and the result is a massive oversupply of preowned vehicles, with used sales down 34.3% year-over-year. If business owners look to move on from these used assets, they will be looking at a much different figure than they likely initially projected in their total cost of ownership model. For example, if a fleet of 1,000 vehicles is sold at $2,000 less per car than its projected resale value, it will result in a $2 million loss for the company.
Third: Determine What Your Company Can Impact Now
Next, companies should conduct an analysis of the cash flow as well as an equity analysis to gain a better understanding of how they can leverage the position they are in. An equity analysis compares what is owed on an asset to its resale value and can be applied to a single vehicle or the entirety of a fleet. Undertaking a cash flow analysis will provide a clear picture of the total all-in cost of the fleet, including – but not limited to – depreciation, interest, management fee, fuel, insurance, maintenance, license and title.
Fleet owners are not required to wait until the end of their leases to sell their vehicles. However, they must have an understanding of where they stand from a cash and equity perspective. With the cash flow savings associated with a FAVR program, a company can potentially transition out of a significant portion or all of the fleet vehicles immediately.
The average fleet vehicle costs a business $1,000 per month, while robust FAVR reimbursement plans cost around $800 per month. By saving $200 each month per vehicle, businesses may be able recoup the losses on their retired fleet vehicle through FAVR program savings. Certain cars in a company’s fleet may be in a negative position, but the overall fleet could still be in an equitable position overall depending on the scale of the fleet.
Last: Embrace Future Scalability
The sudden change to the workforce has proven that companies must be able to quickly adapt to adverse situations to remain in favorable positions during volatile times. Fleet programs result in fixed costs that do not fluctuate with the economic climate, while a FAVR program can be scaled up and down instantly to account for factors such as vehicle usage and fuel costs. Instead of being saddled with mounting expenses for an idle fixed asset that is difficult to move from during a recession, businesses could instead choose to be responsible for only a software license for a program that can immediately help reduce spend.
Companies that prove they can evolve amidst these troubling times will position themselves to emerge from this pandemic stronger than when it began. Embracing opportunities that allow for financial flexibility will positively impact the bottom line, decrease the need for workforce downsizing and allow for businesses to ramp back up at a moment’s notice. If this volatile economy has shown decision makers anything, it’s that they need to consider all variables when making long-term choices for their company and their employees so that they can pivot as necessary to sustain their business no matter the climate.