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Pros & Cons of Service Vehicle Programs

9 May, 2011 By: Tom Arney, Service Consultant imageSource

Pros & Cons of Service Vehicle Programs

Developing and managing a vehicle program that keeps both Executive
Management & Service Technicians satisfied continues to be a struggle for
Service Management.  When service profits start to take a negative slide, one of
the first areas of attack is the service vehicle program. And as fuel prices
continue to escalate the service technicians start to protest about the amount
they are being reimbursed. In either case, here are some possible pros and cons
to consider before creating a new program or making changes to the current one.

There seems to be countless programs designed to attack the problem of
getting our technicians, hopefully with some parts, to our customer’s location
in a timely and cost effective manner. In the end it boils down to two distinct
types of vehicle programs: company owned or employee provided, each with its own
set of characteristics; both positive and negative.

Before discussing different philosophies of vehicle programs, let’s discuss
the reason why we must have a vehicle program in the first place and what it
should cost. When the first non-desktop copier required a service call it was
obviously not feasible to expect the customer to bring the equipment into the
shop for repair. Therefore, the vehicle program was born out of necessity so we
must have some plan in place to ensure transportation is provided for the
technician along with some parts to assist in servicing our customer’s location.

Pick your Battles

Well, the vehicle program is not optional and obviously it is going to cost us
something, but how much? Referring to most industry benchmarks, we know that
auto expense should be somewhere around 4% of the gross service revenue or about
8% of your total service related expenses. 

It has been my experience that when the auto expense is high, usually the
salary expense is high as well. If this is the case, addressing the salary or
staffing issues first will bring the auto expense closer to the benchmark.  In
addition, auto expense, as a percentage of the total service expense, should be
small (8%) in comparison to salary expense (53%).  In most cases, you would have
a much bigger effect on the bottom line in reducing service salary by 5
percentage points over cutting auto expense in half!

Company Provided Vehicles

One of the upsides to a company car program is that the company has control on
what the image of their Service Technicians will be when they pull up in front
of the customer’s office or are driving down the interstate. Many auto makers
have come out in recent years with “throwback” designs of wagons and mini-vans
that make excellent service vehicles. Also, if the company so chooses, they can
have these vehicles wrapped with their logo, thus creating a fleet of rolling
billboards in their marketplace. I have seen this used very effectively as the
company highlighted these unique vehicles in their radio marketing plan. 

Another advantage of this program would be to ensure adequate storage space
for parts, supplies and tools. In the event your service area includes the Rocky
Mountain States or the New England States you can opt for all-wheel drive
vehicles or if in the Southern States get air-conditioning, again to control the
image, minus the pit stains, of the Service Technicians. Company owned vehicles
afford you the right to install GPS units, which is not the case with personally
owned vehicles.

There are also many downsides to the company car program. The perception of a
high cost being the biggest one. Maintenance of these vehicles also falls upon
the company which include routine oil changes, tune-ups, brake service and tires
to name a few.  You should also have a plan to be able to obtain or have a
backup vehicle in the event a car must be out for extended repairs. Someone has
to manage the program, schedule the required maintenance and repairs along with
staying up to date with license tabs and tolling passes which has become so
prevalent in our metro service areas. Either the same person or someone else
will also be responsible for managing the gas card program and monitoring the
fuel purchases. The company must carry auto insurance to cover the vehicle which
differs in the amount and cost of coverage required from state-to-state and if
the vehicle is owned outright.

Personal use can have many responsibilities including, but not limited to
insurance liability when the vehicle is used outside of normal work hours. If
you have your logo on the car and it is parked outside the local “watering hole”
or “gentleman’s club” there may be some negative advertising to deal with. Also
expect calls from angry drivers to vent about your technician cutting them off
or taking their favorite parking space.

Personally Owned Vehicles

Having the technician providing their own vehicle for work gives a perceived
thought of less expense and less liability for the company.  This may be true,
but the wrong vehicles can more expensive in other areas.  Personal use is
obviously no longer a concern since the employee owns the car he is driving, but
we do not have the right to install a GPS unit in their vehicles; sorry, the
“Patriot Act” doesn’t cover that.

With personally owned vehicles you also get to remove the sub-title of Fleet
Manager from your job description, but you will still have to deal with
monitoring mileage reports over gas bills.  If the technician’s car breaks down
or is in need of maintenance it falls on their shoulders, but how many of our
technical staff have back-up vehicles available to them?  Also the technician,
not the company, has to provide insurance for their own vehicle, but the company
must ensure that the coverage names your company as “also insured” and the
liability limits are at the minimum according to your state’s insurance laws.

Most companies that have their technicians provide their own vehicles for
work reimburse the technicians on a per-mile-basis.  There are third-party
programs available to have someone monitoring this for you. Runzheimer
International is one of the most well-known. Most of our industry specific
operating systems and 3rd party add-ons provide for computing the reimbursement
by technician as well, but you are left to determine the per-per mile amount to
be reimbursed.  Most programs range from .30 to .50 per mile and reimbursement
checks get handed out usually on a bi-weekly basis.

As fuel prices continue to climb, technicians see a .20 cent increase at the
pump and expect that we should be increasing their reimbursement penny for
penny.  In reality, if a technician’s vehicle averages 18 miles per gallon and
the price of gas is $3.60 per gallon, the fuel portion of the reimbursement
should be 20.0 cents. If the gas price goes to $3.80 per gallon then the
reimbursement should be 21.1 cents. Therefore, a 20 cent increase at the pump
only translates to a little over a penny in reimbursement per business mile.

Technicians have a tendency to “add” or “pad” their miles when gas prices go
up to make-up for the increase what they are paying at the pump.  Seven miles
becomes 10 and 12 miles becomes 20 unless you have some way to inspect what is
being reported.

Final Recommendations

During my time in the industry I have dealt with company provided vehicles, been
on a per-mile reimbursement plan and also developed a hybrid program that paid
the technicians a fixed monthly vehicle allowance for the use of their vehicle
and provided a company gas card for business use.  All of them did what they
were supposed to do if the goal is only to get the technician, hopefully with
some parts, to our customer’s location in a timely and efficient way.

If you chose to go to, or stay with, personally owned vehicles do yourself a
big favor and consider to reimburse the technicians on the high side, but
incorporate standards regarding their vehicles.  You may want to include some of
the following conditions in order to qualify for the program:

  • Minimum acceptable storage space
  • Maximum total mileage or age of vehicle
  • Maximum down-time due to vehicle issues (lost work hours due to vehicle)
  • Adequate security for company assets (no soft tops or non-locking
  • Acceptable condition with regard to appearance (major damage or missing
  • Passes minimum safety standards
  • Equipped for the service area (4X4 or all-wheel, A/C, etc.)
  • Minimum acceptable fuel economy if you are providing a gas card

Technicians are notorious on the ability to work a program in their favor, if
you don’t stipulate what the expectations are of the service vehicle, you could
end up with a technician in a Smart Car that can’t carry a fuser roller, let
alone a drum!  Small vehicles cause the technician to have to come back to the
shop between calls for parts and you pay more out in mileage reimbursements and
they can’t get to more than 2 or 3 calls in a day. Therefore, you end up hiring
more technicians to improve your response time and there goes your salary
expense too!

In today’s business environment, image and perception both play huge roles in
the battle to gain new, and hold existing customers. Having a fleet of company
vehicles that brand an image of standardization and professionalism is a great
influencer when competing for customers, as well as good for technicians. When
you look at the vehicles as more than just a “necessary evil” and let them be
part of your marketing plan, you can help spread the cost of the vehicles to
other departments. 

Many leasing companies, that we are very familiar with already, offer vehicle
programs that include the vehicle, monitoring of the miles via GPS, take care of
all the routine maintenance and provides loaners all for one fixed monthly fee. 
Based on the specific service area you can select the proper vehicle depending
on the needs of the territory or even the machine group the technician works in.
At the end of the lease period the vehicle goes back and a new vehicle takes it

On the company car program you still have to put some expectations in
place that could include, but not limited to:

  • Cleanliness of vehicle and organization of parts
  • Personal use fees or “commute value” (required by the IRS and it offsets
  • Rules of conduct (driving habits, non-work related use or limits,
  • Rules for use of a company gas card
  • Penalties for “At-Fault” accidents  

Tom Arney began his career in 1985 as a technician with Cascade Office
Systems WA; was promoted to Service Manager then the company was acquired &
became part of Global Imaging Systems.  Tom was named “Service Manager of the
Year” for GIS in 1999 & 2005 as well as named to. GIS was purchased by Xerox in
’07 and Tom left to pursue other interests in 2010. At


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