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Managing Costs to Find Hidden Savings

How did a state-wide transit agency not only curb excessive spending, but also achieve $500,000 in maintenance savings in one fiscal year? By questioning the status quo and adopting a leasing acquisition model.

Fleet Background

As the nation’s third largest transit agency, NJ TRANSIT moves nearly 223 million passengers through major points in New Jersey, New York and Philadelphia, on time, every time. However the state of their non-revenue generating support vehicles was something entirely different.

Like many in the transit industry, NJ TRANSIT purchased non-revenue fleet vehicles with the intention of replacing them within industry standards. However, due to budgetary constraints year after year the fleet grew older and mileage crept upwards. Many trucks were showing their age; several needed engine replacements and entire transmission and body parts had rusted, resulting in maintenance expenses that escalated into a substantial deficit. In addition, older models resulted in poor fuel economy and mediocre resale values.

Objective

So how did this conservative agency not only curb excessive spending, but also achieve $500,000 in maintenance savings in one fiscal year? By questioning the status quo and adopting a leasing acquisition model, which led to significant improvements that impacted NJ TRANSIT’s overall bottom line.

Approach

Like most transit agencies, NJ TRANSIT operated under the acquisition model of “purchase, power through, then purge.” Vehicles were purchased with a sole job function, driven and utilized for many years (well past an optimum or even recommended replacement schedule), and then finally purged once they were found to be beyond economic repair.

On average, an NJ TRANSIT light duty truck was at least eleven years old with roughly 120,000 – 130,000 miles, and many were over 150,000 miles. Often times, these trucks had rusty beds restored, and some had entire engines or transmissions replaced by onsite maintenance garages.

As a transit agency, their purchasing power was dependent upon state funding. Budgets fluctuated which resulted in inconsistent vehicle quantity ordering. Through a strict purchasing model, about forty-five vehicles per year were replaced; however the fleet  needed at least 100 vehicles – the worst of the worst – to be replenished.

Instead of accepting the status quo of doing things the way they were always done, NJ TRANSIT, thanks to the ARI team, conducted an extensive analysis of the benefits of leasing compared to their existing purchasing model.

The most attractive option resulted in a hybrid purchase/lease model. Leasing gave NJ TRANSIT the extra capital it needed to fund more vehicles in a single year while also purchasing specialty vehicles that were crucial to the fleet.

$500,000 Reduction in maintenance spend in the first year.

101 The number of new light-duty trucks added to the fleet in the first ordering cycle.

$219,000 Additional savings returned to NJ TRANSIT from ARI's innovative remarketing strategy.

Projected Savings/ Benefits and Results to Date

In the first year of the ARI partnership, NJ TRANSIT ordered 101 light duty trucks in the initial vehicle cycle. In the past, to obtain this number of vehicles in a single year would have required millions of dollars in state funding. Operating new model year vehicles resulted in foreseen advantages such as increased fuel economy and decreased downtime. Within the first year of the NJ TRANSIT’s partnership with ARI partnership the agency reduced its maintenance spend by nearly $500,000.

On top of the maintenance savings from operating a newer fleet, the transit agency also saw significant remarketing returns.

Previously, when it was time to take vehicles classified as beyond economic repair out of service, NJ TRANSIT would send its worst offenders to state auction. Sold in front of a limited audience, state auctions produced meager resale values. NJ TRANSIT received $6,000 for two vehicles combined.

However, through the ARI multi-pronged remarketing strategy, NJ TRANSIT’s trucks received maximum exposure both online as well as through live auctions. This resulted in double the returns, many times as much as $12,000 – $13,000 for two vehicles. In the first year of this partnership NJ TRANSIT received almost $219,000 for its oldest, most tired, and significantly beat-up vehicles.

In addition, using online and live auctions to sell the retired fleet, vehicle sales remained within the fleet budget, instead of the general fund. This additional capital could be used against future purchase orders and not from taxpayer dollars, which was also something the agency was not able to do before partnering with ARI.

 

NJ TRANSIT demonstrated how a hybrid acquisition model could be successful and produce significant savings to its bottom line. Thanks to the financial leeway leasing provides, the agency now has over 175 new vehicles in its fleet and is on track to replace the rest. In addition, remarketing returns resulted in a cash flow stream that was previously unavailable to the agency.

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