Financing your AFV fleet
The U.S. consumes one-quarter of the world’s petroleum supply, most of it imported, a number that increases yearly. The side effects of this are profound. Petroleum purchases increase the trade deficit and leave the United States woefully dependent on countries with turbulent governments and questionable intentions.
More serious still, since much of the petroleum finds its way into automobile gas tanks, U.S. dependence on it is a critical component in nationwide air quality problems. Vehicle emissions are the single largest contributor to air pollution in cities.
The panic that accompanied the oil crisis of the 1970s has subsided, and with it has gone a national commitment to reducing the American dependence on oil. Currently, local governments, which do not pay federal taxes on gasoline and which buy gasoline in bulk, are enjoying heady days at the fuel pumps. Recent tensions in the Middle East, however, are prompting, at least among a number of progressive local governments, a renewed call for alternatives to the gas pump.
Government Gets on Board Alternative fuels have been around for years, although they were pretty much unusable by the vast majority of Americans because of the lack of a fueling infrastructure. That is changing, albeit slowly.
Additionally, American automakers were reluctant to sink significant research and development money into a field without a clear – and near – payoff.
The creation of the Department of Energy’s Clean Cities program marked a departure from the laissez-faire attitude that characterized the period following the oil crisis. With Clean Cities, the federal government has finally put its weight behind alternative fuels. And, while the program’s inroads into gasoline consumption remain modest, it does represent an attempt to help local governments interested in pursuing alternative fuel fleets.
Created in 1993, Clean Cities is designed to build on local initiatives that encourage the use of alternative fuels. Currently, 51 cities, counties and government associations, clusters of which are in smog-plagued California and the Northeast, enjoy the designation. They range from little Norwich, Conn., with 38,000 residents, to Florida’s Gold Coast, with 4.5 million.
In 1996, President Clinton put the White House solidly in the alternative fuels corner with an executive order that emphasized the importance of the federal government’s leadership role in the future of alternative fuels. The order demanded that “each federal agency … develop and implement aggressive plans to fulfill the alternative fueled vehicle acquisition requirements” of the Energy Policy Act of 1992. That act requires federal agencies and metropolitan statistical areas with populations of 250,000 or more to begin acquiring certain percentages of alternative fuel vehicles (AFVs).
Clinton’s executive order, however, provided no dedicated funding source for such purchases. (Electric vehicles are the exception. The order directed the Department of Energy to establish a program that would fund up to $10,000 or one-half the incremental cost of an electric vehicle over a comparable gasoline-powered vehicle, whichever is less.)
Few things split the fleet community as much as AFVs. Virtually every type, from propane to ethanol to compressed natural gas (CNG) has its defenders and detractors. Some fleet managers argue for conversions; others say purchases are the only way to go. Nearly all, however, agree on the overall merits of AFVs.
Philadelphia, pushed toward AFVs because of its status as a non-attainment area, has had significant problems with its CNG-powered downtown shuttle system, the Philadelphia Phlash. Those problems, which, according to Deputy Fleet Manager Tim Lynch, included engine fires, were not necessarily related to the fuel, though. “It hasn’t turned us off completely,” Lynch says. It has, however, made the city leery about AFV conversions.
“Our intent now is to not convert but to purchase dedicated equipment,” Lynch says. Philadelphia still has six Athey street sweepers that run on CNG and recently placed an order for CNG-powered Phlash replacement buses. Additionally, the city is using a grant to build a CNG fueling facility at its airport. New airport buses, which the city will lease, must conform to the city’s AFV specifications.
Windell Mitchell has no such problems with conversions. Mitchell, manager of the King County, Wash., fleet department, has 250 AFVs in his fleet, all of them conversions. He has been delighted with the results.
King County’s latest foray into the AFV market was for police vehicles, which are good candidates for alternative fuel because of their high mileage and low fuel economy, Mitchell says. The 74 Chevy Caprices (shown on the cover of this supplement) were converted since no original equipment manufacturer (OEM) made CNG-powered cars suitable for police work. The cars were converted at a rate of three per week and phased into the county’s fleet as they arrived from the dealer.
Police officers initially were wary of the vehicles, partly because no one had bothered to ask them what they thought at the beginning of the process. To allay those concerns, Mitchell agreed to allow testing by an outside consultant with the provision that, if the consultant determined the cars were inadequate for use as police vehicles, he would agree to abandon the project.
The consultant found the AFVs more than suitable. They did not oversteer and had less understeer than the gasoline model to which they were compared, making them more stable. Additionally, the weight was more evenly distributed than in the gasoline-powered car. The cars did accelerate and brake slightly slower than the gasoline-powered model, but that proved to be a minor problem.
King County’s police cars have now logged more than 5 million road miles. Their numbers compare favorably to the rest of the county’s police fleet: The AFV fuel cost is 36 cents per mile, and the cars get 14 miles per gallon; fuel for the gasoline-powered models costs 70 cents per mile, and the cars get 16 miles per gallon.
“They have been outstanding,” Mitchell says. “We’re pleased, and the policemen who drive them are pleased.”
Where the Money Is As in Philadelphia, air quality problems had some effect on the county’s decision to use AFVs. However, the deciding factor was Seattle’s – and by extension, King County’s – tradition of environmentally friendly government. “Seattle likes to be out front in these kinds of things,” Mitchell sayS.
In fact, King County’s policy on AFVs goes back to October 1991, when the county mandated that its managers use AFVs whenever possible. In 1992, the county council ruled that 50 percent of vehicles purchased in ’92 and 75 percent in ’93 be converted to alternative fuel.
King County’s AFV conversions were financed through a $200,000 state Department of Energy grant. In fact, states often are the best sources of AFV funding. Virtually every one offers incentives in the form of tax breaks, rebates and low-interest loans for the purchase or conversion of AFVs.
Through its Clean Cities program, DOE provides a wealth of information. DOE itself offers grants under the State and Local Incentive Program to Accelerate the Use of Alternative Fuels. In 1996, the department distributed $1.5 million in amounts ranging from $50,000 to $150,000 to 20 local governments.
Through its State Energy Program, DOE also provides money for AFV programs. One problem with DOE’s funding, though, is that requests outstrip available resources. Under the State Energy Program in 1996, DOE awarded $2.15 million, mostly to Clean Cities coalitions, but grant requests that year had totaled $7.8 million.
In 1997, requests topped $9 million, while DOE had only $1.5 million to award.
The U.S. Department of Transportation’s CMAQ (Congestion Mitigation and Air Quality Improvement) program has stepped into the funding breach. Between 1992 and 1996, local and state governments got nearly $300 million through CMAQ to purchase AFVs and support AFV-related initiatives. A CMAQ grant, in fact, helped Philadelphia with its conversion program.
Utilities, associations, automakers and agricultural interests also are sources of AFV money. The Gas Research Institute, for example, provides grants to support natural gas vehicle programs, while electric utilities, like California-based San Diego Gas & Electric and Pacific Gas & Electric, help support AFV infrastructure development.
In Nebraska, soybean growers helped finance a biodiesel demonstration project, and in Minnesota, corn growers, not air quality problems, convinced Hennepin County officials to give ethanol-powered vehicles a shot.
AFV State Incentives and Laws Alabama’s Department of Economic and Community Affairs offers up to $25,000 per project for fleet conversion. Arizona gives tax credits ($250 in 1998) for purchase or conversion and $1,000 grants for refueling stations or income tax subtractions for 25 percent of the cost of purchase or conversion.
The Arkansas Energy Office offers 50 percent rebates for conversion or OEM purchases for CNG and electric vehicles and up to $1,000 for LPG (liquefied propane gas) and alcohol conversions or OEM purchases.
The California State Energy Commission offers rebates of $1,000 for certified low-emission vehicles and $1,500 for certified ultra-low emission vehicles. Non-attainment areas can collect up to $4 annually per vehicle on registration fees to be used for pollution reduction projects. Local governments and agencies also offer incentives.
Colorado offers a rebate program of $1,500 to $6,000 per vehicle through the Governor’s Office of Energy Conservation in partnership with Colorado natural gas and propane fuel providers and DOE. The state also offers a 50 percent state tax credit for conversion or purchase of an AFV.
Connecticut has tax incentives and tax credits for vehicle conversion or for construction of AFV filling stations.
The Delaware State Energy Office administers the state’s Petroleum Violation Escrow account, which provides funding for purchases and conversions.
Florida allows tax exemptions for electric vehicles. The Gold Coast Clean Cities Coalition offers low-interest revolving loans with a maximum of $5,000 to $30,000 per vehicle, depending on type and size.
The Georgia Division of Energy Resources offers a Clean Fuels Grant Program for local governments, which provides grants of up to $50,000 for AFVs.
Hawaii allows state income tax deductions of $2,000 to $50,000 for installation of clean fuel vehicles and refueling property. When used as a vehicle fuel, propane is taxed at a lower rate than gasoline.
Idaho exempts biodiesel and ethanol from excise taxes.
Illinois offers rebates up to $4,000 per vehicle for 80 percent of the costs of conversion or purchase.
Indiana’s Small Business Energy Initiative Grant Program offers $2,000 to $10,000 for AFV projects.
The Iowa State Energy Bank provides low-interest loan financing
for AFV conversions and purchases.
The Kansas Corporation Commission-mission provides up to $1,500 per vehicle for CNG vehicle purchases or conversions. The state offers a state income tax credit up to $2,500 of 50 percent of the cost of factory-equipped AFVs or conversions.
Louisiana’s state income tax credit for alternative fuel vehicles is 20 percent of the cost of converting vehicles or up to $1,500 for 20 percent of the cost of purchasing them.
Maryland offers a state income tax credit of $800 to $2,000 for purchase or conversion of AFVs. Refueling and recharging equipment are exempt from property tax, and electric vehicles are exempt from the motor fuels tax. Conversion costs for clean fuel vehicles are exempt from sales tax.
Montana provides tax credits up to $1,000 for 50 percent of conversion costs.
The Nevada Energy Office’s Fleet Incentive Program pays the remainder of natural gas conversion costs for up to two vehicles after the fleet owner has paid the first $1,500.
New York offers sales tax exemptions for various AFVs. State agencies also fund projects on a case-by-case basis.
North Dakota gives a state tax credit of 10 percent, up to $500 per vehicle, of the cost of conversion equipment.
Oklahoma has a state income tax credit of 50 percent for conversion costs and a tax credit up to $1,500 for 10 percent of the total vehicle cost for the purchase of an OEM AFV. It also makes loans for conversion projects.
Oregon offers a tax credit of 35 percent of eligible projects costs for AFVs. The state Department of Energy makes small-scale loans for AFV projects.
The Pennsylvania Department of Environmental Protection’s Alter-native Fuels Incentive Grants Program will pay 50 percent of conversion or purchasing costs. The state Energy Office provides incentive grants for conversion, purchase and equipment installation.
South Dakota offers a reduced fuel tax for alternative fuels. Texas’s Alternative Fuels Council offers low-interest loans for AFV projects. The city of Austin, in partnership with Southern Union Gas, provides a rebate up to $2,000 for CNG conversions or purchases.
Utah offers a 20 percent tax credit up to $500 for each new AFV registered in the state and a 20 percent tax credit up to $400 for conversion. The Office of Energy Services makes loans for purchase, conversion and construction of refueling facilities.
Virginia offers no-charge licensing and exemption from High Occupancy Vehicle lane restrictions for AFVs. The state also offers a tax credit up to 10 percent of the federal clean fuel tax deduction, a 1.5 percent sales tax reduction for AFVs and an AFV fuel tax reduction. Virginia’s Alternative Fuels Revolving Fund provides loans to local governments for conversions.
West Virginia offers tax credits between $3,750 and $50,000 for the purchase or conversion of AFVs. The Development Office Energy Efficiency Program offers grants to local governments and transit authorities up to $10,000 for conversion.
Wisconsin’s local governments are eligible for competitive cost sharing grants of up to $4,500 for cars and up to $15,000 for trucks, vans and buses for the added costs of AFVs. Under the program, the total maximum grant is $50,000.
For more information, contact DOE’s Clean Cities Hotline, (800) CCITIES. “Greening the Fleet: A Local Government Guide to Alternative Fuels and Vehicles” is available from Public Technology, Inc., 1301 Pennsylvania Ave., N.W., Washington, DC 20004; Phone (202) 626-2400.
Over the past decade, advances in computer hardware, software and telecommunications technologies have re-engineered the factory floor and revitalized the American manufacturing industry. Now, it appears, fleet maintenance departments are about to reap some of the benefits. As competition forces city, county and state fleet departments to change the way they do business, the high-tech tools that will simplify their jobs are becoming more affordable, more reliable and a lot easier to use.
The Internet is having a major impact on the way fleet systems are deployed. For example, recent advances make it possible to run fleet management systems over the Internet as a web-enabled application.
The Internet offers fleets a low-cost network solution, and it affords end-users a convenient and familiar way to access the fleet system. Customers can simply pull up a web page to find out the status of vehicle.
Electronic data interchange (EDI), now used extensively by private trucking companies for freight billing and tracking, is likely to make its way into local government fleet operations. EDI allows personnel to file warranty claims from a fleet computer system directly into a vehicle manufacturer’s warranty claim system. It also allows access to a national parts vendor network.
Enriched Functionality Just 10 years ago, the majority of public fleets managers collected information using paper and pencil. That labor-intensive method has been replaced by computerized systems with data residing in sophisticated relational databases. These databases allow fleet managers to analyze everything from vehicle performance to worker productivity.
In the near future, fleet departments will be re-fashioned as profit centers, capable of taking in outside work and increasing revenue while maximizing resources. Fleet system functionality will be enhanced to accommodate more of a dealership approach to providing fleet services, with automatic flat-rate estimating and enhanced shop-scheduling features to balance workloads.
Additionally, electronic maintenance schedules will focus on preventive maintenance, taking advantage of in-vehicle diagnostic systems already in use in many local government fleets. Cellular communications will link on-board sensors directly into the fleet management system, automatically creating a work request.
It is one thing, however, to have a wealth of data and quite another to be able to make effective use of it. To address this issue, future fleet management systems will present data in color-coded, graphical formats for easy comparison and analysis. Also, they will incorporate color to flag low-inventory items.
Shop Floor Automation Fleet departments that have embraced shop floor automation would never give up their high-tech tools. Not only have those tools reduced or eliminated the need for clerical staff, but the data being collected with them is more accurate and timely than that collected by hand.
In the near future, a number of new hardware options – including touch-screen and voice-recognition technology and pen-based or palm-top computers – will make it even easier for shop personnel to use the fleet management system. Equipped with a palm-top computer, for example, a mechanic on the shop floor will be able to communicate with the host computer to open and close work orders online or to access vehicle specifications and repair histories right from the palm-top.
He or she also might click on a hot button on the work order to display the exact page of a needed service manual. Meanwhile, the fleet manager will be able to employ complex mathematical algorithms when making vehicle replacement decisions or analyzing life-cycle costs.
While many of these new technologies are already being implemented in other industries, they are not yet practical or affordable options for public sector fleet departments. But the next decade will offer those departments real opportunities to take advantage of the latest breakthroughs in technology.
This article was written by Jim Paulits, president of Control Software, Wayne, Pa.
Virgil Hardy likes to tell the story about the 10-yard dump truck he inherited when he became fleet manager of Siskiyou County, Calif. The truck, which had a 210-horsepower engine, was pretty much standard fare in the county’s fleet department.
The truck had two big problems: It was useless in the winter, and its transmission demanded a minimum 200 horsepower to run efficiently. Consequently, once the truck was loaded, efficiency went out the window.
Siskiyou’s fleet had always depended on the state bid process for its specifications. Trouble was, California’s specs are written for the entire state, and Siskiyou, lodged between the Klamath Mountains and the Cascades, has a geography unlike that of most of the rest of the state. “We’re not what people think of when they think of California,” Hardy says. “We get our fair share of snow. Our equipment has to be pretty diversified.”
Seven years ago, Hardy took over Siskiyou’s fleet department and set about changing the way it operated. First, he dumped the state specs, opting instead for specs that were specific to the county’s needs. Second, he began replacing summer equipment and winter equipment with equipment that could be used year-round.
“I look at it like a taxpayer,” Hardy says. “If we can save the county money on its fleet, we should.”
The newest additions to Hardy’s fleet are 13 Kenworth T800s, which replaced 22 less cost-effective trucks (like the 10-yard dump truck). The trucks were specified so that a snowplow can easily be attached on the front and a V-box for sanding on the back. They feature 350- to 410-horsepower engines that allow them to be used for road construction and general public works maintenance in the summer.
Besides giving the county a year-round fleet, the new trucks have actually increased fuel efficiency from 3.2 to as much as 6.2 miles-per-gallon. Additionally, “the better engines have doubled our ability with the single-power units because we can haul twice the capacity we used to,” Hardy says. In a department responsible for 1,400 miles of roads in California’s fourth largest county, savings like that translate into real money, he says.
Improved record-keeping and maintenance also save the county money. Hardy maintains meticulous computerized records on his fleet and has all his equipment in an oil analysis program. “Oil samples are cheap,” he notes. “Drivetrains are very expensive.”
Although he acknowledges that writing his own specs probably adds 2 to 5 percent to the amount of the state bid figures, Hardy says the county makes that up by not incurring delivery charges. “We’re remote,” he says. “It saves us money when the vendor delivers the trucks.”
Upgrading the fleet has shortened the replacement cycle window, giving the county’s trucks a greater residual value upon re-sale. Additionally, Hardy’s specs are more general than those used for traditional government equipment; therefore, the equipment is of greater value to fleet managers outside government. “The residual value on our trucks is 30 to 40 percent of what we paid for them,” he says. Finally, cost-per- mile for the newer units is 14 to 17 cents, nearly half that of older equipment.
State and local governments spend millions of dollars each year on their fleet operations. Most fleet assets other than high-profile vehicles like police cars and fire apparatuses, however, typically get very little notice. That is probably why decision-makers tend to minimize the importance of fleet operations and are lukewarm in their support of fleet management endeavors.
The oversimplification of fleet management can lead to serious consequences, ranging from mountains of deferred vehicle replacement costs and spiraling maintenance and repair bills to wrongful death lawsuits resulting from preventable accidents. It also can lead to baffling management decisions. Top-down decisions that fail to acknowledge the complexity or importance of fleet management threaten to undermine the quality of fleet service.
Most officials would deny they ignore fleets, pointing out their support for the best patrol cars, fire engines and ambulances. Well-funded, state-of-the-art public safety fleets are not unusual; however, vehicles necessary to patch potholes, repair street lights, plow snow or maintain ballfields too often are neglected.
In the private sector, upper-level management usually understands the relationship between fleet management activities and a company’s ability to deliver services and be competitive. That understanding is often missing in the public sector.
Oversimplification of fleet management often leads government officials to ask the “Jiffy Lube question”: Why don’t we take our vehicles to Jiffy Lube for maintenance? When raised in the proper context (i.e., in seeking an alternative approach to performing oil changes on cars and light trucks), that is a perfectly legitimate option. All too often, however, the Jiffy Lube question reflects a broader belief that fleet management involves little more than regular oil changes and the occasional brake job.
The reality is quite different. Maintenance activities usually account for less than half the cost of owning and operating a fleet. More importantly, fleet management functions that have nothing to do with vehicle maintenance greatly influence overall fleet cost effectiveness.
The goals and objectives a fleet services organization is expected to fulfill ultimately determine the range and complexity of fleet management activities. Typically, those goals include providing vehicles that are: suitable to the needs of user agencies; available when needed; reliable; safe to operate; safely operated and maintained; economical and efficient; and environmentally sound.
Collectively, those goals define the essence of fleet management. They are all important, although their relative importance can vary from one type of organization to another. For example, an emergency medical services agency may emphasize vehicle availability and reliability in managing its fleet resources, while a school district may view vehicle safety as its paramount fleet management concern.
Pursuing one goal to the detriment of others can undermine the overall effectiveness of fleet management endeavors and even backfire by hindering attainment of the original goal. For example, pursuing lower costs through cutbacks on maintenance and training ultimately may increase overall fleet costs.
A lack of balance in fleet management can have severe consequences. Officials in Los Angeles are now grappling with multi-million dollar lawsuits arising from an accident that occurred when a mechanical defect resulted in the deaths of two children. The ultimate cost of this accident to the city will far exceed the cost of many years’ worth of properly executed pre-trip inspections.
In stark contrast to most private companies, many government jurisdictions cut corners when it comes to replacing vehicles and equipment. Such practices may result in numerous difficult-to-quantify impacts on vehicle suitability, availability, reliability, safety and environmental soundness.
Moreover, they drive up out-of-pocket maintenance, fuel and mileage reimbursement costs, and they build up large backlogs of replacement needs that can be quite difficult to overcome. Replacement backlogs in the hundreds of millions of dollars are not uncommon among large governmental fleets.
The Role of the Fleet Manager Successfully achieving fleet management goals requires more than deciding whether to outsource oil changes to Jiffy Lube or to privatize the entire fleet maintenance function. It requires the development and application of an integrated set of policies, procedures, plans and resources in areas ranging from fuel procurement and supply to vehicle assignment and use.
Understanding the importance and complexity of these functions is central to achieving maximum fleet performance at the lowest possible cost. Responsibility for creating such understanding rests primarily with fleet managers. Unfortunately, some would rather respond to the Jiffy Lube question or crack down on the take-home use of vehicles than develop a balanced strategic plan and lobby decision-makers for its acceptance, support and implementation.
Only 5 percent of the respondents to a recent survey of members of the National Association of Fleet Managers cited convincing management of [the] fleet’s worth as a concern. Outsourcing and cost containment led the list of concerns. That is not necessarily an indictment of the fleet management profession. Astute fleet managers understand that greasing management’s squeaky wheels is critical to their survival.
Successful fleet managers, however, are those who can combine technical knowledge of fleet operations with an understanding of institutional and political realities.
Without an understanding of the goals and objectives of fleet management, it is not surprising that many government officials oversimplify the task and make decisions that conflict with sound practices. To the extent that decision-makers are willing to rely on the expertise of the fleet management professionals they employ, the quality and effectiveness of their endeavors will improve.
Conversely, top-down decisions and directives that bypass or ignore the advice and recommendations of fleet managers are unlikely to produce effective results.
This article was written by Paul Lauria, vice president and associate director of fleet management consulting services for David M. Griffith & Associates, Rockville, Md.