Episode 181: You Can Be Right or You Can Have a Fleet: Budget Cuts for Grown-Ups #fleetmanagement

This is the Fleet Success Show dedicated to helping you and your fleet succeed using the experience of fleet professionals and Hall of Fame fleet legends. The show that explores how the pillars of stakeholder satisfaction, intentional culture, resource efficiency, and risk management all combine to lead your fleet to success. We're glad you're here. Now let's get into the show. Hey, welcome back for another episode of the Fleet Success Show. I'm your host, Josh Turley. Nice to meet you and be back.

Good to have you back.

Joined with Mark Canton.

Hey, everybody.

So a little intro for those who are new to the show. Josh Turley, the CEO of RTA, the Fleet Success Company, and we have a fleet management information system. We're a software company for fleet management. I've been around for— since 1979.

Wow.

Right. So pretty cool. Been forever. It's way older than I am by about 6 years. And I've been running the company. I've been part of the company for 20 years and just helping fleets succeed through various roles. But been the CEO for the last 10.

So third generation, American-made.

Third generation, American-made. Yeah, it's pretty awesome. Yeah, it's awesome to be a part of. And we're doing things like you can feel it. We're moving in the market for sure.

Yeah. And I'm Mark Canton. Most of you know me. I've been in fleet for not quite, but approaching 30 years. Ran a fleet up at Fordham University in New York City for 20 years or so and then went into consulting. And a few years back, I'm very, very grateful to have landed here. Very passionate about trying to build the world's best fleet software.

I'd say we're succeeding.

I think so. We're in the right direction.

We never really talk about ourselves very much on this show, but, you know, shameless plug.

Once in a while. Let's try.

So one of the things that, like, you know, for listeners that know me, they know I'm really passionate about leadership, culture, things of that nature. And there was an interesting topic that came up. Two fleet managers I've recently talked to are facing the same challenge. And in my mind, this is the perfect topic that intersects all of our areas, all of our four pillars, right? So as we talk about leadership and we talk about culture, we talk about resource efficiency and risk management. How do we build those things, right? So the problem that they're facing is both of these, they're public entities. So they're, you know, city of, county of.

Okay.

Both these cases, they're cities.

Okay.

And they're facing a massive budget shortfall, right? I think one needed to cut something like $2 million from their budget. The other one was, I want to say it might have been $3. So I have to go back and look at the email, but essentially it's a significant portion of their budget.

Okay, so, so your point is this $2 million cut is not from a $35 million, right? It's from $4 million or $5 million kind of an organization, or is it from $100 million?

Yeah, no, I would say it's probably middle size, you know, so maybe about a 10% or— okay. 5% cut.

Okay.

Still really difficult.

Big. Yes.

Right. Big enough that it's going to hurt.

Yeah.

It's not like a 1% haircut.

You're going to feel that pain. Right.

So I get a call, right? And we're talking through it. And the question that I had for you today is, what do you do in that situation? How do you handle it? And I wanted to kind of step in, you know, first, before you do anything, because we've got a lot of tactics, right?

We have tactics to help you.

Like we talked to Steve, we talked to, you know, Tony and a lot of those guys. Like we have tactics to help you through From what do you do as a fleet manager? What are the ways and the methods that you're actually going to use to save things?

Right.

Before we get into that, I want to talk about how you show up as a leader in this situation. Right. When you're dealing with a budget deficit, there are only two ways out of a budget deficit.

I think I know where you're going here.

It's very simple, right? It's the same problem with a— with any corporate company. We face this, you know, is you have two ways to get out. You can either cut expenses or you can raise revenue, right? And if you cut expenses, you have to recognize that that means cutting service.

Right.

Right. Like something has to change.

Correct.

Beyond what you're doing is status quo.

Right.

So from a public entity standpoint, raise revenue. How do you raise revenue? Taxes and fees. That's it.

That's it.

Right. So you either have to do more sales taxes, more property taxes, more something. Right. But you got to raise taxes on constituents. Politically, suicide. Nobody likes seeing you raise taxes and they're not gonna go for it. City council's gonna kick against it, right? So lots of issues there. Then you have the, okay, well then we've gotta cut expenses, knowing that cutting expenses means indirectly that you're cutting services.

Right.

Right? You can cut your technicians, you can cut replacements, you can cut whatever. But it's all going to have an impact on the service you deliver. It will. Right. So in both of these are growing cities. They're both, you know, like—

That's interesting. Why are we cutting budgets in growing cities?

That was my first question.

Okay.

So that was my first question is, wait a minute, we're growing. Where's the revenue?

Right.

Like, you know, and, and so that was the issue too, is that in both these cases, the fleets are actually expanding and they're talking about cutting technicians. I says, well, that's going the wrong direction. Yeah. And so my suggestion was like, we got to find out where's the revenue. You know, we have new residents coming in, population's growing, there's more demands on the, on the government, then why aren't we seeing the revenues from either property taxes or sales taxes or whatever your revenue stream is? Right. Because every jurisdiction is a little bit different in how they collect revenue. Like here in Arizona, most of it's driven by sales tax. And then there's some property taxes for things like schools and things like that. Right. But most of the revenue for the local governments is coming from sales tax. So if the revenue is not there, then like, is there a massive economic slowdown?

What's going on?

What's going on? But if your city is growing, then that shouldn't be— it should not be the case, right? So you have a dilemma. It's like, well, we need to expand our service offerings, but we have less money to do it. Okay, well, that's going to put you in a really rock and a hard place. Yeah.

I feel like Gumby. Remember that character?

Yeah, right. Like, just squish and you got to like, you know, squish through the mold and the clay. Okay, so that's the first question is like, where's the revenue? And if nobody wants to raise taxes and your city's not growing or— and in this case, you know, it was, well, it's not growing yet, right? Like the revenue, you know, whatever we collect this year, like it's going to show up next year's budget.

Sure.

Planning a year in arrears. Okay. So now let's talk about the other side of it. How do we cut expenses? We're going to talk about that. But the one thing I want to say to every fleet manager is if you're approached with this situation, the one thing you cannot do is say no. You know, and because it's going to be your first reaction, right, is there's no way we can do this, right? There's no way that we can continue the level of service, you know, essentially like there's no way for us to maintain the status quo. And you're right, there is no way for you to maintain the status quo. One of the things that I always like to tell people, and it's kind of a funny application in this case, right, but you can be right or you could be married, right? And so I say that you can be right or you can be married. And, you know, there's going to be cases where you're absolutely right. There's not any way for you to cut that money from the budget.

Right.

It doesn't make a difference.

Doesn't help you.

So the approach that I want everybody to take in this situation is one of an advisor. Right. And so I would say, you know, it's not necessarily that it's right, but here's all the options. And so as a fleet czar, as a fleet manager, you've got to recognize your job is not to make policy decisions. Your job is just to keep the public, you know, the essentially the council and the city manager and public works director, whatever is your job is to keep them informed.

Right.

And so you're going to come up with all the options. Here's all the ways. Okay, you want $2 million in savings. Here's all the ways we could cut $2 million from our operating budget.

Right. And associated—

here's the tradeoffs. Here are the consequences that come with each of those single decisions, because no decision is made in a vacuum. Every decision has an opportunity cost. Every decision is going to have an impact on serviceability. There are so many consequences from these decisions. All you have to do is be able to tell that story. Right. So the one thing I don't want you to do is take anything off the table. I want you to look at everything, put it on the table. And frankly, this is also to get out of your own bias to preserve the status quo. You know, it's an anchoring bias. It's, you know, there's a lot of things that go into cognitive biases, but this is one of them, which is, you know, not making any changes is easier than making changes. If you get out of that and say, okay, well, we have to come up with something drastic Right. Think of Apollo 13. We got to get a square peg in a round hole kind of a thing. All the options are on the table and we got to build it with this. You can't say it's impossible. Like, we have to figure this out. So first, get the word impossible out of your dictionary. Get the word can't out of your dictionary. Your job is not to figure out what you can and can't do. Your job is to just tell them what's possible. So we're going to talk through what's possible.

Right, right.

But that's my first word of advice.

I think that's such a key thing.

It's just make sure that your first reaction isn't, we can't do that. We can't do that. And I'll tell you why, is because if you do this and you're the party of can't, right, they're not going to see you as a team player, right? They're not going to see you as somebody that's willing to help out and figure things out, right? And if you're more worried about preserving your own reputation or preserving, you know, your own legacy, um, then you really aren't a team player, right? We talk about the 5 dysfunctions of a team.

You're not.

Yeah, that's exactly it.

And you actually shoot yourself in the foot. You won't have a great legacy or a great reputation, right?

Because you're not somebody who can figure it out and get it done, right?

Exactly.

And so when we talk about the 5 dysfunctions of a team, like inattention to results is literally defined by, you know, team members are paying attention to the wrong things. Right. And really, like, we're all in this together. We're a city. We need to make sure that we're good stewards of the public funds, all that fun stuff. That is the goal. That is the mission, is serving the public, not carrying on your reputation, your legacy. And I've talked about this on other episodes, but those are the kinds of things that you want to make sure you're checking your ego at the door, that you're trying to be a team player and finding a way forward.

Part of that is if you go with can't, it's going to come out in your day to day, right? Like you're going to show that in your face and in your— and your whole team is going to see can't. And that also is a disservice to that team, right? In my mind, right? Like you owe it to them. I think, you know, when you have to go back to your office and see the rest of the Fleet folks, there's, you know, no, we're going to figure out how to do this, right? You owe them that, that confidence and that optimism and that, um, you know, can-do attitude. Because if you don't, if you don't exude that, how the heck do you expect them to exude that, right? They're, they're literally relying on you for that. So that's one piece. And then the other piece is, you know, I almost think of it as what you, to your point about Kant and not being a team player, I encourage you to take it all the way 180 degrees to the other extreme. Like, this is a golden opportunity for you. You know, freak it, man. Like, hit a home run. Hit a home run now. Now is like, you know, the God-fearing folks out there, or the universe or whatever, has just given you on a silver platter an opportunity to take a swing and hit a home run. And that's how I would encourage you to look at this.

And maybe even like not aiming at $2 million, right? Go for $3.

Go for $3. Go for $4.

Deliver. Like, just be like, you know what, I'm gonna find a way that not only do we cut the budget, but we're gonna cut the budget. Yes, right.

And we're gonna find other groups who didn't do as well, and I'm gonna be your hero, right? Not literally because you're chasing the fame of it, but because you are a team player who's, who's saying, no, I'm gonna help, I'm gonna build my reputation as that guy, right? Exactly.

And now I'm not saying that's possible because sometimes it's like, it's too painful, the cuts are too deep, they're too painful, it gets too close to bone. However, if you can try, try, try and find it, all right? And let them— let them— again, your job is not to make policy, right? Come up with $4 million in cuts, and let them pick. It's— as a leader, I will tell you, when my managers come to me with options, I appreciate that so much more than when they come to me with, you know, impossibilities, right? Problems. Right.

It's the problem I can't solve.

Here's, you know, like, I know you asked for 2 and I can only get you to 5, like half a million. Mm-hmm. And nothing else is going to work, right? Because now I'm on the hook. Like, I got to go find this somewhere else, right? You haven't solved my problem, right? But if you come to me and you're like, I've got 4 million available for you, Now I can go through and be like, okay, let's, let's try this, let's do this, let's do this. And then I know I've got options if I have to come back to it, but I don't want to like, okay, I see how painful this is going to be and I'm not going to go there yet. Right. But I've got options if I need to go a little nuclear, if I need to amputate a leg, I'm ready to amputate a leg when I've exhausted all my other problems.

Right.

So that's my like the first piece of this, which is really about self-leadership and leading others, right? Leading up and down the chain of command and all that. Right. Let's talk tactics. Yeah. Right. So like, let's get into the meat and potatoes. If you are facing a budget shortfall, what are some of the first things that you're looking at? And I should clarify, like, you know, are we talking about CapEx, OpEx? A lot of finance departments blend them together.

Correct.

And so when you're facing $2 million, like, they don't care. They just want to make— it's not a cash flow. I guess sometimes it's cash flow. Maybe that's a question you need to ask.

Yeah.

Is this— are we talking about a cash budget? Are we talking about an accrual budget?

Right.

Because that makes a huge difference when we're talking about CapEx and OpEx.

There's a lot of questions that I would want to ask if I was advising someone because there's so many variables that I would like to know. So what I'll try to do is give some of those and then also maybe under what, let's say, are common circumstances for fleets, maybe some of the tech—

let's talk through that. You know, like I know replacement backlog is going to come up. Of course, it's one of my first ones.

Yeah, exactly. You know, if you've been, if you've been doing your replacement all along, great. You're gold.

Yeah.

You're ready to put on the cape.

Yeah. Because you can, you can weather a little bit of a storm. You're ready for the moment. You can take a gap year.

Yes, you can.

Just fine.

You'll be just fine. Exactly. However, if not, then let's talk. Yeah, exactly. Exactly. You know, a key question is a lot of times leaders will come to you and they'll say, hey, I need $2 million, but the intent is $2 million this year.

Yes.

Right. We're going to have a shortfall. That's different than we need to cut $2 million out for the foreseeable future for the next 20 years kind of a thing. Yeah, that's going to change some of the—

you ask that clarifying question.

Yes, exactly.

How long do you need this $2 million?

Correct. One of the best options that frankly on the municipal side there seems to be hesitancy and resistance around that is out there waiting for virtually every fleet to do is use debt financing.

Yeah.

Okay. When you debt finance, the cash savings and the end budgetary savings, the windfall over the first 5 years especially but generally over the course of the life of, let's say, a 20-year replacement plan are massive, just absolutely massive. Right. And you can just think about it, right? Like if you're, if you're going out and you were going to spend $10 million in replacements that year, you got to lay out $10 million.

Yeah.

Or you can finance it. And what are you going to lay out? $1 million, right? Yeah.

Maybe, maybe 10%, maybe 20%. Right.

So something like that much down.

$2 million.

Right. So you just saved $8 million and just by going to debt financing in one shot.

In one year.

Yeah. Right.

Now, mind you, that's not forever. And this is why you have to ask the question, because now you're going to have interest expense.

Correct. Right.

But the interest expense is usually going to be manageable as OpEx instead of CapEx.

Correct.

So yeah.

And if you manage it properly, what we've learned is, is in most cases compared to status quo, that additional interest cost doesn't cost you more than the savings you get from the discipline associated with replacing the vehicle in the life of the term.

Yes.

So normally what you'll get is, yes, there'll be this massive windfall year 1, almost massive, you know, very close to massive year 2, and it will tick up. And somewhere around year 5 to year 10, you're essentially spending what you would have been spending if you were just doing cash outlays.

Right.

Okay. So, so that's my, that's like the, a really simple go-to tactic and strategy that it's just amazing. Most fleets don't go to it and it's just there waiting for them.

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Yeah, and sometimes it's, you know, it depends on how your city and your government do debt structure approvals, things like that. Like, I know if you're a school district, you obviously have to, in order to get approval for debt, you sell bonds, right? And, you know, what the federal would sell T-bills, things like that. And so in order to get the debt limit raised, you might have approval processes that block that. However, most won't have that obstacle. You can go out and do debt financing and it's a cash management practice.

Exactly.

That's all it is.

And banks are dying to, to lend to government entities like municipalities because they know they're going to pay and they don't go bankrupt. It's as good as, you know, it's like a really good investment for them. So, and they develop a relationship to the community. They're dying to give you money. So when you do get an entity that's willing, we find that they do great. But for whatever reason, many municipalities are not. So the reason that that's probably the first thing you want to look at is because to your point about the tradeoff, that's going to minimize your trade-off. You're getting the cash and the budgetary savings you need, you're still replacing your assets, and you're, you're mostly unaffected other than you need to stop— and you've bought yourself some time. So the impact is I need to stop preparing for a couple years down the road when we start to see, uh, that level out. And to your point, right, what are we going to do then, right? So it's a really, really good opportunity that frankly, most folks don't, don't, don't even consider. And you can model it out so that you know exactly what your spend is going to be. So that's something we've come in a lot over the years. You know, you mentioned Steve and Tony. I mean, we have— we've done this exact thing in this exact scenario for many a municipality.

And you can just see people show this change in the room because it's like, if I had one massive justification on the ROI of consulting, this would be it. Right. And it seems so counterintuitive because it's like, no, no, no, we're trying to save money, not spend money.

Right.

And so the first thing that people usually struggle with is like they don't want to bring in outside help to come up with these ideas.

Correct.

And so I will tell you is just if you hire a consultant, yes, there's going to be some cash outlay. But what do we typically talk for those? Somewhere between $30,000, $50,000. I've never seen them go crazy.

Yeah. The biggest, the biggest multi-year projects are in the six figures, right?

Like, you know, multi-year projects, right? Yeah. You know, But when you talk about, okay, but you got to try justifying $2 million, but now you don't have to come up with it on your own. And you know what? If the consultants recommended it, right, you're not the bad guy.

Exactly.

So there's this element of, you know, spending a little bit of money in order to save money. Right. And so I definitely would advise like hire consultants and it doesn't have to be us. Like, we're not the only company.

We're not trying to sell you here, but we've done a lot of these.

And so these are some of the things that we've done, right?

Okay, well, and, and so let's stick with your theme here about spending money to save money. Okay, um, the irony of this, especially if you haven't been sticking— staying with your replacement, but let's say you've been petering along and you've been spending $2 million a year, $4 million a year, and maybe you should have been spending $8 million a year or something like that. One of the greatest ways to drive operational savings is also to replace your assets. So to your point, you might want to accelerate replacement because what you're going to find is your OpEx is going to tank and you're going to just—

because all your M&R is now what?

It's all been moved over into the debt financing on the CapEx, right?

And it's under warranty.

It's under warranty.

Right.

Right.

So like you don't have any M&R. Yeah. And now it's all part of the debt financing. And I know you're going to go another direction, which is what if you don't do debt financing? What else is on the table for getting your replacement backlog? Under control?

Well, you could obviously— there's debt financing, there's leasing, you can use a reserve fund, which is, you know, fairly common in the, in the government area. And unfortunately, in situations like this though, that's like— they, they look to that reserve fund, right? So oftentimes that's what happens is it gets raided, and that's why fleet managers are very uncomfortable around, around talking around reserve funds in situations like that. But, you know, those, those are kind of the big ones, right? So the debt financing, the leasing, you know, folks often ask me, well, which do you like better and what do you do and why do you— again, you, you, first off, you should model it out. Generally speaking, leasing is going to cost you more than direct debt financing, but what you get with the leasing is the services that that leasing company provides. So it's a matter of, do you need them or not, right? Do you need help ordering vehicles? Do you need help speccing vehicles, you know, taking delivery? Well, then the leasing might be a worthwhile option for you. But otherwise, if you have all of those resources in-house, you might, you know, you might want to lean more on the, on the financing side. So, you know, that, that's a big piece of it. And we've had like, you know, we've done studies where we will go in and, you know, we'll, we'll do like a cost allocation and a chargeback study for folks. And there's a port authority in the Northeast where we went in there and I mean, the labor rates and just their cost of M&R were just through the roof, you know, and they were asking for help. How can we get this under control? And the answer was replace your assets. And they looked at us like, no, no, we're asking for help. How do we make a better maintenance and our program? Replace your assets. And it, it took several times and explanations and showing the model for it to kind of sink in. Your M&R problems are so massive You're not going to fix them in the time frame that you would need to fix them to address, hey, I need to cut $2 million out next year, right? The answer was actually replace the assets, right? And if you don't want to have that kind of capital spend, no problem, go to the debt financing, and now you don't— you're not laying out so much cash. So I'm not advocating for necessarily cutting jobs and all that stuff when, you know, nobody wants to do that, but, you know, that's a, you know, that's an area where you can certainly reduce the maintenance and repair burden quickly, um, by taking that approach. Because your point, it's all on the warranty. And let's be honest, even if it's not on the warranty, the kind of stuff that you're running into at 5 years, let's say, is not the same stuff that you're running into at 15 years, right? What you'll find with this too is you'll need less vehicles.

Because let's talk about that. Yeah, when your replacement pack is, you know, through the roof and you're not paying attention to it, what happens to your fleet?

Balloons.

Number one metric in fleet is availability, right? What happens to your availability when your replacement backlog is out of whack? It goes through the basement, right? So my first question to these fleet managers, what's your availability rate like right now? I didn't even ask about the replacement backlog. I asked what's the availability rate, right? And he's like, well, it's, you know, if we talk about sanitation, Sanitation's at 70% and our overall fleet's at close to 95%. But if we include sanitation, then it drops down to like 88%.

Okay.

Okay. So we got a problem with sanitation trucks.

Clearly.

Right. Like, that's probably where I would spend some time with replacement backlog.

Yeah.

But, you know, like you ask that question because then the follow-on question is, okay, well, there's a way for us to save right here just because your availability rate is telling me that your spare ratio is through the roof.

It's way too high.

You know, if you're in the 80s and the 70s for your availability rate, then that means you have too many vehicles and maybe you don't need to replace them. Right. You just need to cut them and, you know, get new vehicles, but don't replace them with as many.

Right, exactly. You might be able to replace 2 vehicles with 1, essentially.

Yeah.

Use the proceeds from both, by the way. And, you know, and there you go. And you have that. And for those who are, you know, who haven't heard us say this before, you probably have. But just, just think about it in a very simplistic way. Imagine you buy a car and, you know, 1 out of every 4 days you go to drive it to work, it's not there for you to use. Well, that's the equivalent of a 75% availability rate.

Yep.

So when you hear that number, if you think it sounds good, put it in that context. How would you feel if you could—

if your own personal car, you know, 75% available?

Yeah. No bueno. Right. So you need that to get the work done somewhere else. As Josh is saying, either you have an increased spare rate or you're renting a bunch of commercial or you're giving people overtime and they're using a second. Somewhere you're bleeding money. And by the way, that's not always going to appear in the fleet budget. So you got to think that through a little bit, right? If it is—

especially the rentals, like, because that'll show up on another budget.

It might show up on that operations, or maybe they're outsourcing the work to somebody else. Right, right. So you got to think through that a little bit. It might not— you might need to partner up with some folks to say, hey, this is how we can show some savings, you know. So that's another key tactic to think through, right? Where, what are, what are, where are my hidden costs? It's super important. Where are my hidden costs that maybe I can show that really do exist? And if I can do something about them, right, we can figure out how to make that work.

But it's not— I'm actually not just cutting $2 million from my budget, but now I'm also cutting, you know, half a million from this budget because of all these hidden costs that are somebody else's problem.

Exactly.

They're not thinking about and they don't even know about because they think it's my budget. Exactly. It's like the, you know, like you said, the hidden cost. It's the, you know, we'll call the pointing fingers cost, right? Which is that two people are— they think somebody else has it.

Yes.

And nobody's looking at it and nobody's looking at it.

Right. Exactly. And it's— and again, this is super common. We see this virtually every study we do.

Okay. So replacement backlog going through and looking at debt financing, leasing, you know, we're looking at both debt financing or leasing, right? They're both viable options when you're talking about cash flow management, right? You know, when you don't own the asset, when you do, you do.

Right.

But at the same time, like, there are reasons to do both. Yeah. So getting your replacement backlog will have a direct impact on your M&R.

Yep.

And that should decrease your OpEx.

Right.

Okay. What else? What else do you look at?

Well, and you mentioned availability and how it impacts the right size of your fleet. So right-sizing is always an option. Cutting $2 million out, that'll kind of depend on the size of your fleet.

That's right.

The nature of those assets.

Is this a $20 million budget or is this a $200 million budget? Correct.

But you should be able to expect if you haven't done rightsizing in, let's say, 5 years or more, you should be able to— again, if you've got someone who knows what they're doing, like a good consultant or someone like that, I think it's reasonable to expect to, generally speaking, be able to cut about 5%. So again, if you're in a small fleet and you're asked to cut $2 million, that might not be the solution for you here.

Right.

But if you're in a large enough fleet, um, you can usually find 2 million, uh, 5% or more. I've seen as much as 20% in savings. And by the way, before you hear me as the Grim Reaper and it's like all about cutting out vehicles, not all the savings comes from removing vehicles. A lot of the savings comes from changing the vehicle to the appropriate type, right? You got, you got so-and-so who's been in a 1-ton truck for the last 30 years. Well, why are we getting them another 1-ton truck? Because they've always had a 1-ton truck. Meanwhile, a Subaru Forester would do just fine for the job. We see that stuff constantly. And again, just the savings to be had both on that case, cap and OpEx, are tremendous. So it doesn't always mean reduced vehicles, although frankly, you're going to find some opportunities to reduce vehicles, or maybe you're going to find some opportunities to utilize them differently. Is it a motor pool where I'm going to get more usage out of it because, you know, this department's only using it on Friday and Saturdays and this department's using it on Monday and Tuesdays? You know, you, if you, if you dig into a true utilization management study, which would include right-sizing, which would include looking at motor pools, looking at personally owned vehicles and reimbursements around there, that's a major opportunity, by the way. You got vehicles sitting on the lot. Most municipal governments, by the way, in our experience, if you get, if you have about 6,000 miles a year in a municipal government, your utilization is pretty good. Think about that, right? Meanwhile, your POV, your personally owned vehicle reimbursements, are thousands, hundreds of thousands, millions of dollars, and you got vehicles sitting there, right? Usually there's a case to be made for some policy around, hey, this is when we reimburse. If there wasn't one available, if there was some other set of special circumstances that makes sense for you to take your personally owned vehicle and get reimbursement. But there are so many folks who you got a vehicle sitting there, it's burning money, it's burning CapEx because, and it's not getting used. And then someone else is getting reimbursed for a personally owned vehicle. So cleaning up your policies around, you know, pools and personally owned vehicles and that sort of a thing, that there's usually quite a bit of savings to be found in that area as well, for sure. Another one I would look at is fuel. If you have telematics especially, it makes it a bit easier. But don't, don't throw your hands up if you don't have telematics. Idling. If you have not recently done an idling study, there is often a lot of money on the table in fuel, you know, to, to cut, quite frankly, especially if you're in an area like us where it's super hot. Let's be, let's be honest, like, I've learned this in my, what, 15 months I've been in the Phoenix area. Nobody turns off their car here to do anything. They go in the grocery store, they go here, like, the car's always Yeah. Um, you know, back when I was in the Northeast, that you'd see that in the winter, you know, like, uh, so there's something to be said around that. And you can make reasonable rules like, hey, you know, 5-minute warm-up or cool-off, that's fine. Um, but the amount of fuel, especially with some of these medium and heavy-duty assets that are burning diesel, right? Uh, there's a lot of costs to be saved there. Um, so it's definitely a sort of an angle that I would look at. So these are all kind of going to get you there. There's a, there's another piece. Again, some folks will have this skill in-house, but it's a tactic that we will use. And it's, it's kind of like, um, you know, I call it the Rosetta Stone of fleet.

Okay, this sounds interesting, Mark. Tell me more.

Execute an ABC cost analysis, right?

Okay. Yep.

Right. It's— we've talked about it before.

What does it stand for, Mark?

Oh, I don't even know. Help me out. You probably know.

Activity-based cost. There it is.

Okay. Activity-based cost, which is exactly what it is.

I feel like that was a pop quiz.

So essentially what you're doing is, is it's a cost allocation methodology in which you look at where your team is spending time and, and, and you take all those indirect and where you can identify the hidden costs. You know, some costs are direct. Oh, I bought a part. I'm going to pass through that part. That's a pass-through cost, right? Some costs are direct. Oh, I needed paper towels for the shop. That's directly a shop cost. Some costs are much more difficult than that. You're the fleet manager. You help manage the shop a little bit. You help order vehicles. You're doing some asset management. We need to allocate that cost accordingly. So that's kind of the basics behind it. When you do that, you— there's so much that can come out of it. You can develop great chargeback rates, you can do benchmarking. But the insight that you can gain if you talk to any of our consultants or any of our fleet management analysts, when we're done with a study like that, I mean, we can— I can tell you where every hole is in your system and I can tell you what you do great and shine a light on every potential opportunity. I know where your data is bad. I know where your data is good. It's just like a, you know, like, you know, you see those images in a movie, you know, someone opens the book and it glows. That's what it feels like sometimes. You have this aha moment when you, you know, when you read into the—

like a Rosetta Stone.

Like a Rosetta Stone. I like it.

That's a good analogy.

Yeah. Now that one's different than the other tactics I mentioned because I don't know what you're going to find there.

Right.

But what I'm suggesting is, is you will find something. Right, right. That's, that's the exercise.

You do the exercise and it's not necessarily that, you know, the thing itself is a thing, but you will find things within it.

Correct.

Right. So Who knows what it'll be? Correct. You'll find something there, right?

Oftentimes it's you might have too many techs, a lot of folks.

So let's talk about that because that was going to be one of my suggestions, right? Is, you know, we talk about right-sizing your fleet, right? Typing your fleet.

Right.

But there's also like right-sizing your technician pool. Absolutely. Make sure that, you know, it's right staffing. Right. And so for that, like we recommend you got to do your AUs, your, you know, what NAFA would call like a BU analysis. We do an AU analysis, right? We have a base rate. which, you know, what do we say, 2.4?

How many AU? Yeah, like 1 AU is 11.3 hours.

11.3 hours.

In our system, because we use a quarter-ton— excuse me, a half-ton pickup truck to be our standard AU.

It's the most common that we see.

Yes.

And so that's our standard mark, right? And so, but you equivalent-size your entire operation. So your sanitation trucks and your sedans, right? We put them on a level playing field. You figure out how many hours of service each of those things needs.

Exactly.

And then you go through and you figure, okay, based on hours of service, we know how much— how many hours based on, you know, productivity percentages. Exactly. And time off and all the other fun stuff.

Right.

How many technicians we then need.

Right.

In order to service that many vehicles. Exactly. And if somebody's coming to you and saying, well, we're actually going to need to add 50 more vehicles, you now know which type first.

Yes.

So you know how many technician hours you're going to need for each of those units.

Exactly.

but you might go through and realize, oh, we're actually overstaffed. And so maybe you've got open hiring positions. We'll cut those first. And then you can look at your staff and start with where's your productivity problems? Who are your most productive techs? Keep those ones. Don't worry about the cost. I guess cost per productivity makes sense here to some extent. But I like keeping my rock stars. There's a reason they're my most productive. 'Cause they can handle more work and they're amazing. But you know, you look at your least effective techs and maybe you start there.

Right.

If it's government, seniority's probably gonna play a role in this. You're gonna have unions, you're gonna have all that fun stuff.

It's a little tougher.

So it might be a little bit tougher to do that. But I always like looking at that kind of thing first, which is if you do need to cut techs, and don't do it the wrong way. So let's bring up then the other pillars of fleet management here with an intentional culture and leadership. If you have to cut $2 million from the budget and this is one of the options on the table, Handle it with grace.

Right.

Right. Call up your buddy at the next city over.

Right.

I've got a great technician. I want to make sure he lands on his feet. Do you have any spots open?

Amen.

In the era of technician shortage, it feels really— somebody's going to want him. And it does feel really like short-term thinking, right? Like, well, I don't want to cut a tech because, you know, it took so long to get them in the house. And, you know, like, it's hard to find good techs. But I'll tell you what, if you help them land with grace, when you're back on your feet as a city or as a county or whatever, Odds are is they're going to remember that.

Yes.

And they may be willing to come back.

Yeah.

And if they go to another city, they won't lose their retirement benefits. Right. Right. They'll stay in the fund.

Yeah, exactly.

So it's, you know, like try to help them out, try to do the right thing by them. And hopefully there's other opportunities around. But if not, they can go to a dealership, do their flat rate thing, earn a bunch of money, grind out, and then maybe when, you know, things turn around for the city or whatever, you'll have a position open and they might be able to be able to hire them back if they're, you know, some cities have that where you have like a hire back policy. That they're first in line to get a job back, you know, before you open it up to the general public. But, you know, those are some things that you may have to look at and make the tough decision, but just try to handle it in the right way.

Right. A couple of quick hits on that because that's a great point and just some additional nuance that you could search for. You know, Steve talks a lot about the right kinds of techs and the right types of positions, right?

Yeah.

If you got 5 heavy duty folks and most of what you're doing is PMs, right, you may not need that. You may need a runner and you're paying a full-time mechanic, right? You know, those sorts of things. And you need just the PM. Mechanic. So you can take, you can take an even deeper dive into looking into the type of work you're doing. Uh, you know, a good example is, you see, now don't get me wrong, if you're in some remote location, you might have to do your own alignments. But I got to tell you, if you're a city and you're doing your own alignments, odds are you're burning money there, right? The alignment shop down the street can do it better and cheaper than you can, probably faster, and probably faster. You know, most shops don't need a welder anymore. You know, you might— again, I'm not, I'm not, I'm speaking in generalities, but The average shop does not need a welder anymore, right? That's an upfit.

And you figure that out, you go look to see how often is the welder running.

Exactly right.

And is the— are they doing other jobs?

Correct. You know, often they're building gates for public works, right? Yeah.

Um, activity-based costing, make sure that half that salary is sitting in your budget. Bingo. That should be over the PW budget.

Exactly.

So that's where you go through and you find some of these things. You're like, okay, well, I can cut this from my budget. Now, in the end, it doesn't make a lick of difference because all you did was increase somebody else's budget, right? But that's their problem. Right, right. They can, you know, like, it should have been over there this entire time. That's not your fault.

You didn't do something wrong, right? Exactly.

All right, well, we're about at time. There's probably a dozen more ideas.

Yeah, we could keep going.

We can keep going for this.

Yeah.

Uh, I would say if you're facing this situation, my first call is like, reach out to us. We're happy to have these kind of conversations, give you just some free advice.

Yeah.

Uh, and then I'm going to recommend that you look at a couple of the different consulting firms, get a bid, right? Talk to us. We will be able to help you get through this challenge way faster with us than without us.

Right.

But you're not going to be on your own. You know, we can help you. We can point you in the right direction. And then you can go to, again, advise the city council, give them the options, tell them the tradeoffs.

Right.

This is what's going to happen if we cut our technicians too much, because that's usually the first thing they're going to look at is your labor. Right, right. Oh, well, we want you to cut your technicians by 5 and you do the analysis and you've got the story to tell.

Bingo.

Okay, we can do that. Remember, we're using the word can, right? We can do that. But here's what's going to happen to the serviceability, right? The availability rate is going to go down because we're not going to be able to do all these PMs. Our downtime will go up, right? And we won't be able to meet trash pickup schedules. We'll have to cut back on trash schedule pickups in order to do this. We'll also have to cut back on maybe the number of routes that police are running. We may not be able to service fire, right? So you just need to paint the picture of like, where is that cut? Going to trickle because every decision you make is a ripple. It's going to have a domino effect on some other decision, right? You have to be able to tell that story. And so your job now becomes one of storytelling and putting it in their language, which is numbers and serviceability.

Right?

Right. So some amazing ideas from this podcast. Again, reach out to us if you want to hear more. podcast@rtfleet.com. You can go reach out fleetconsulting.com if you want to just talk to us and submit and say, hey, this is the problem I'm having.

Yeah.

Go to fleetconsulting.com. You can submit a request. We're happy to talk to you. We can give you a proposal at least, but at the very least, you know, we can give you some free advice.

Yeah, we're happy to do that.

Yeah. With that, that's going to do it for this week's episode. Good luck to both of you. This is not easy. Anybody else going through this, I feel for you and I'm sorry, but, you know, we're going to wrap up and good luck.

Good luck, everybody.

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