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The Ultimate Guide to Company Vehicles: Purchasing, Maintenance and Resale

2021_eriesenseblog-businessfleet-large

Business fleets come in many shapes and sizes from two or three sedans to hundreds of commercial delivery trucks. But they all have one thing in common: they meet the essential transportation needs of the companies they serve.

When managed correctly, a fleet of vehicles can help you reduce expenses and improve the efficiency of your business. But if you don’t plan wisely, owning or leasing a fleet can have the opposite effect and will eat away at your bottom line through added ownership and maintenance costs.

Naturally, many business owners can be a little apprehensive about getting into fleet management, especially with the added stressors of the past few years. Car chip shortages are still impacting vehicle inventories and the price of available vehicles has risen, along with interest rates. Not to mention the impact current events have on gas prices.

To help educate you on the basics, we’ve reached out to an expert: ERIE’s own corporate fleet program manager who is responsible for purchasing and maintaining a massive fleet of vehicles that travel more than two million miles each month!

To help put your mind at ease, here are answers to some of the most common questions business owners may have when starting their own fleet.

What Type of Vehicle Should I Choose for My Fleet?

When a business is considering owning a vehicle (or vehicles) for employees to drive, it’s important to consider how it will be used. By assessing the needs of your business, you can narrow down the type of vehicle you should be looking for:

  • Transporting passengers: If you’ll be using your fleet vehicle to carry people (like offering a shuttle or taxi service), then you’ll probably want a minivan, full-size van or large SUV.
  • Sales force: When an employee is using a fleet vehicle for personal travel to and from clients, a sedan, compact utility vehicle (CUV) or small SUV is the most economical option.
  • Service: For jobs where an employee needs to transport tools and supplies (think plumbers and electricians), a full-size van or SUV typically fits the bill.
  • Delivery: What you’re moving will help you narrow down the right vehicle type, which is likely to be a full-size van, light truck or cargo truck.
  • Specialized service: If your work requires the use of industry-specific equipment, you’ll need a truck or full-size van that’s outfitted for the job. This could include adding a dump bed to a pickup truck or outfitting a van with shelving and ladder racks. (Learn more about what you should keep in mind when shopping for a pickup truck.)

What Vehicle-Specific Factors Should I Consider?

Once you decide on the type of vehicle, you’ll need to select a specific make, model and trim level. Here are some operational factors you should consider:

  • Vehicle safety: The safety of your employees is an important consideration when choosing a fleet vehicle. You can view a vehicle’s government safety ratings on the National Highway Traffic Safety Administration (NHTSA) website. The Insurance Institute for Highway Safety (IIHS) is another great source for learning about which vehicles do the best job of protecting people in the most common kinds of crashes: front, side, rollover and rear.
  • Fuel economy: The fuel efficiency of a vehicle will have a direct impact on your operating costs. But of course, the size of that impact will depend on how many miles your fleet travels each month. You can find a vehicle’s government fuel economy ratings on the manufacturer’s website or through the U.S. Department of Energy. Learn more about how to get better gas mileage.
  • Terrain ability: Consider what kind of road conditions your employees will be traveling in. If they’ll frequently need to drive off-road or in snowy cold-weather climates, you may want to purchase a vehicle with all-wheel or four-wheel drive.
  • Maintenance: Before choosing a vehicle, do some research on the manufacturer’s recommended maintenance schedules and take those costs into account. For example, you can run a fleet of sedans without paying for much more than oil changes, tires and brakes. But with larger vehicles and four-wheel drive trucks, parts will generally cost more and service intervals will be more frequent.
  • Options: Once you settle on a make and model, you’ll need to choose an options package. This may not seem like a big deal, but it can have a huge impact on driver satisfaction. A car with heated leather seats will be a better place for your drivers to spend their days than a base-level vehicle with roll-up windows.

How Should I Pay for My Fleet Vehicles?

When it comes to deciding how to finance your fleet vehicles, there are several options—each of which have their own advantages:

  • Buying: If you’re looking to buy a car, truck, van or an SUV that your business will own for the long haul, buying is a good option. It can also make sense if you have the capital to purchase the vehicle outright because you can avoid financing costs and recoup your investment when you sell the vehicle.
  • Leasing: Leasing is a great option if you don’t have the operating capital to buy a vehicle. By signing a lease, you can get into a new car with a relatively low monthly payment. But remember that you’ll be responsible for any mileage overages or vehicle damage when the lease term ends.
  • Renting: Short-term vehicle rentals are the most expensive option. However, depending on your circumstances, it could also be the best long-term financial move. For example, if you need a heavy-duty truck for a single job or for seasonal use, you can just rent it when you need it instead of paying for it year-round.

How Do I Get the Best Deal on a Fleet Vehicle?

For many business owners, the first thing they look at is the initial cost of purchasing the vehicle. But this approach can be shortsighted. To get the best value out of your fleet vehicle, it’s better to consider the total cost of ownership, also known as the “life cycle cost.” This includes:

  • Purchase price: How much you pay to buy, lease or rent the vehicle.
  • Maintenance costs: How much it costs to operate the vehicle over your ownership.
  • Resale value: How much the vehicle will be worth when you decide to sell it.

By considering these factors, you may find that a more expensive vehicle will actually cost you less to operate because the cheaper car would require more maintenance and will have a lower resale value.

How Do I Compare Potential Fleet Vehicles?

As we outlined above, there are a lot of factors to consider when choosing a fleet vehicle. One mistake many people make is putting too much emphasis on one single criterion. A good way to avoid this is by using a vehicle selection matrix analysis.

This tool allows you to choose your own selection criteria and assign a rating of one (worst) to five (best) for each vehicle you’re considering. When you add up the scores, the vehicles with the highest totals should be at the top of your list.

For example:

How Long Should I Keep My Fleet Vehicle?

As a rule of thumb, it makes sense to sell a fleet vehicle after around 36 to 48 months, or 60,000 to 80,000 miles. This is the sweet spot for remarketing where you’ll recover the most money from selling the car.

During this period, maintenance will also be relatively low (usually limited to oil changes, a set of tires and brakes).

After that, you fall into what is called the “maintenance trough.” This is the period between 80,000 and 120,000 miles where you’ll need to invest a lot of extra money into repairs. If you keep a vehicle for that long, you might as well plan on using it for up to 200,000 miles.

ERIE’s fleet of company vehicles is at its oldest due to car and chip shortages post pandemic, and performing routine maintenance has helped us keep our older vehicles in good condition. We currently have 70 vehicles (of a fleet of over 1,200 vehicles) manufactured in 2018 that we are in the process of replacing with 2023s. 

Here’s another tip: resale values of fleet vehicles are often highest in early spring or fall.

What Should I Know About Insuring My Fleet?

Whether you rely on a single car or a large fleet of vehicles, commercial auto insurance is something most businesses need. That’s because an accident can happen to even the most careful driver—and these accidents can cost thousands or even millions of dollars.

Commercial vehicle insurance for both owned and leased cars and trucks protects your business in many important ways. ERIE offers coverage1 for:

  • Liability if you’re responsible for harming others or for damaging their vehicles or property.
  • Damages if your car is damaged or destroyed in an accident or by something other than an accident, such as theft, vandalism or hail.
  • Uninsured/underinsured motorists if an at-fault driver is unable to pay any or all of the costs owed to you.
  • Medical costs for you or your passengers’ injuries.

By working with us, you can customize your policy to meet the specific needs of your business.

Are There Any Other Factors I Should Consider?

Here are a few more things to keep in mind as you begin to build your own business fleet:

  • Personal use: Consider whether you will let an employee use your fleet vehicle for personal use. This can make sense if you’re providing a car for a traveling salesperson or remote worker. But it can also be considered taxable income by the IRS so do your homework in advance.
  • Branding: Branded vehicle wraps are a great way to advertise your business. But many employees who use a fleet vehicle for personal use don’t want to travel in a rolling billboard. Generally speaking, branded vehicles are a better option for strictly corporate use.
  • Driver requirements: A commercial driver’s license is required for vehicles with a gross combined weight rating (GCWR) of 26,001 or more pounds. But your state may have additional license requirements for smaller vehicles weighing more than 10,000 pounds.
  • Inspections: Your required fleet inspections will depend on the types of vehicles you operate and where you drive them. Cars and SUVs may only need an annual state inspection. Trucks may need to be inspected twice a year, and mounted equipment could require quarterly inspections. If you’re only driving within your state, you’ll deal solely with state regulations. However, if you are traveling interstate or are operating large commercial vehicles, you’ll need to comply with federal Department of Transportation (DOT) guidelines.
  • Fleet management: Managing a few vehicles is something most business owners can handle on their own. But if you’re building a fleet of several dozen vehicles or more, consider working with a fleet management company or a major leasing company. These firms can arm you with the advice and data you need to effectively manage your fleet. They can also provide added benefits such as safety programs and driver monitoring services which may also lower your insurance rates.

Looking After You

Whether you’re managing a fleet of 2 or 200, ERIE will always be there to help protect you and your business. To learn more about our business auto insurance, or to get a free no-obligation quote, contact us today.

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Car Sense

ERIE® insurance products and services are provided by one or more of the following insurers: Erie Insurance Exchange, Erie Insurance Company, Erie Insurance Property & Casualty Company, Flagship City Insurance Company and Erie Family Life Insurance Company (home offices: Erie, Pennsylvania) or Erie Insurance Company of New York (home office: Rochester, New York).  The companies within the Erie Insurance Group are not licensed to operate in all states. Refer to the company licensure and states of operation information.

The insurance products and rates, if applicable, described in this blog are in effect as of July 2022 and may be changed at any time. 

Insurance products are subject to terms, conditions and exclusions not described in this blog. The policy contains the specific details of the coverages, terms, conditions and exclusions. 

The insurance products and services described in this blog are not offered in all states.  ERIE life insurance and annuity products are not available in New York.  ERIE Medicare supplement products are not available in the District of Columbia or New York.  ERIE long term care products are not available in the District of Columbia and New York. 

Eligibility will be determined at the time of application based upon applicable underwriting guidelines and rules in effect at that time.

Your ERIE agent can offer you practical guidance and answer questions you may have before you buy.

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