Mitigating Major Risks Facing Fleets in the Age of COVID-19
During the current pandemic crisis, the challenges that businesses face on a daily basis are exponentially magnified. That goes for literally every aspect of business, including fleets. In a recent Corcentric webinar, “Fleet Disruption and Risk Management: COVID-19 and Beyond” I, along with three of my colleagues, discuss the many challenges facing fleet operators in today’s environment including supply chain disruption, lifecycle planning uncertainty, and cost pressures. We discuss how those challenges can impact fleets and the steps that can be taken to mitigate those risks.
Main areas of risk
At the beginning of the year, businesses globally were focused on growth. Now, with the pandemic and its consequences, companies are focusing more on business continuity, which means managing risk throughout the organization, but doing so effectively and efficiently. That requires thinking about the business holistically and that is true for fleets as well. From the day you consider purchasing or leasing a vehicle until the day you dispose of it, there needs to be a holistic approach to fleet management. In the past, capital equipment procurement, finance, and remarketing have often operated in silos. That is no longer a viable option; all functions within the asset lifecycle need to collaborate with one another.
The need to respond to the issues covered in the Corcentric webinar may be heightened during the COVID-19 crisis, but the steps we reveal will also help optimize fleet performance and mitigate risk once the crisis has passed. Two main areas of risk are cost management and asset management and each function in the asset lifecycle has a part to play.
Capital Equipment Financing – Fleets have two basic cost components, fixed and variable. The variable are those costs directly related to utilization; things like fuel and maintenance. Those costs will basically increase and decrease with asset utilization and asset age. The fixed cost is the financing of the asset itself and that is a place where, in today’s situation, you can and should mitigate that cost. Because of the current situation, fleets may need to re-evaluate their long-term plans and look for ways to make cash more accessible. At Corcentric, we offer a “Sale-Leaseback” program, driven by our proprietary “Asset Intelligence,” program allowing customers to sell their assets to us at better than current market prices and then lease those same assets back from us. This frees up cash at a time when cash flow is more important than ever.
Fleet Procurement – The biggest concern for fleets is disruption of the supply chain. Some of our suppliers have implemented rolling shutdowns for the health and safety of their employees. Our hope, as it is the hope of many, is that this will not have as much of an impact in Q3 or Q4. If inventory tightens, fleets may find themselves short of vital supplies like tires, batteries, and other components. Or, they may be at the mercy of increased pricing based on demand. The way to mitigate that risk is to become part of a buying group. That is a program that Corcentric offers to its fleet customers. Using the aggregated buying power of our customer base, we negotiate advantageous pricing and are able to secure inventory that individual fleets would have difficulty ensuring on their own.
Remarketing – Disposing of assets is never an easy task and has been made even more difficult during this time. With the surplus of used equipment available, this is a buyer’s market, especially when it comes to Class 8 vehicles. The risk to a seller is pricing the used assets too high, leaving your assets sitting idle while those fleets with better information, have an easier time selling theirs. Buyers look for price, mileage, condition, cleanliness, and proximity, among other things. Mileage is something you cannot control in the sense that you transport the goods from Point A to Point B as the business dictates. However, things like condition and cleanliness do fall under the control of the owner and should be pursued. Corcentric’s asset disposal team has a database of 6,000+ qualified customers and deep market knowledge. The faster an asset sells, the faster a fleet has cash on hand.
The pandemic has thrown a unique and problematic curve at businesses. Much of the workforce is working remotely, doing office business at the kitchen table. The three most important factors in asset management during this time are…data…data…and data. Oh, and of course the internet.
Capital Equipment Financing – Asset management would be nearly impossible in this market if there were no access to the data necessary to make informed decisions. Today’s vehicles “communicate” with the office via telematics that convey reams of data, including fuel economy, maintenance issues, etc. That office is now at home and managers and operators use that data to develop vehicle lifecycle plans. In a volatile market, being able to evaluate things like cost, utilization, and routing are key to keeping risk and cost to a minimum. Corcentric’s “Sweet Spot” and “Run Cost” analyses capture both fixed and variable costs and enable managers to make data-driven decisions regarding asset replacement. We are able to inform customers of the optimal time to replace an asset (on a vehicle by vehicle basis); which assets are under-performers; whether to lease or purchase a new asset; and offer the optimal financing plan. This optimizes the total cost of ownership for each vehicle in the fleet.
Fleet Procurement – When it comes to getting the components and supplies needed to run a fleet, there is a bright spot, even with rolling shutdowns throughout the economy. Suppliers of vehicle parts and supplies are considered essential businesses and so, as long as the product is being manufactured, fleets will be able to purchase what they need. However, in this situation, going it alone as an individual fleet has never been more difficult. As with capital equipment financing, fleet procurement professionals are likely working from home; access to information and visibility into spend is essential. Customers on the Corcentric platform know that the price paid for a specific tire, for example, will be the same regardless of where in the country it is purchased. But guaranteed pre-negotiated pricing and terms are not the only benefits. From purchase to payment, every aspect of the transaction is automated and visible 24/7.
Remarketing – Just like financing and procurement, asset disposal is also dependent on data and internet access during the pandemic. Managing asset disposal from home definitely presents its own set of issues. Certainly, there will need to be some physical presence when a vehicle is sold but a great deal goes into the transaction prior to getting to that point. Fleet managers need to know market pricing and how to best advertise their equipment. Because Corcentric operates a virtual dealership, we have long-established processes to work all of our transactions online. Our customers know that we will manage the sale, handle the advertising, and get them the best price in the shortest period of time.
We are facing unprecedented times and the better informed and better prepared you are to confront the challenges, the more likely you will survive as close to intact as possible and thrive in the future. This crisis will pass; how you handle it will make a major difference.