COVID Cost Control: How will you navigate the capital expenditure tightrope?

Remember the days when you talked about ways to innovate and “think outside the box” with your fleet partners and industry colleagues? With the COVID-19 pandemic, there is no more box. Simple as that.

Today, fleet professionals are quickly learning how to perform a variety of planning acrobatics. While some businesses have slowed to a partial or full standstill, others are facing unprecedented growth and opportunity. Regardless of which scenario is playing out for your organization, we’re all facing the same challenge of navigating uncharted territory when it comes to vehicle expenses and allocated capital.

Starting from scratch…temporarily.

Now that you’ve addressed immediate fleet needs, such as driver distancing policies and vehicle cleaning procedures, it’s time to start looking ahead. The state of your industry, customer activity, and your company’s financial status will influence your next move. Are you trying to keep up with increased demand placed on your vehicles? Or are you facing the opposite challenge, where a slower business pace means that many of your vehicles aren’t fully utilized at the moment?

Your answer will help focus your short-term capital expenditure plan. With “closed until further notice” signs hanging on the doors of North American vehicle factories, now is a good time to build your temporary strategy.

Pay now, or pay later?

Your fleet’s capital expenses and operating expenses are always closely intertwined, and you’re familiar with maintaining a careful balance that works for your business. But that ideal replacement strategy you carefully ironed out is now freshly wrinkled thanks to the unplanned shutdown of OEM manufacturing.

How do you balance supporting your customers and protecting capital in the short-term, without mortgaging your fleet’s long-term position? The answer depends heavily on your organization’s unique circumstances and financial status. While you’re waiting for production to start up, consider the first decision you’ll need to make.

So how can you address your immediate challenges without creating a future budgetary nightmare? Here are some additional actions to consider during your decision process:

  • Explore leasing as a way to reduce upfront capital expenditures. If your business usually prefers to purchase vehicles, leasing can help avoid increased operating costs and downtime even in the face of reduced capital availability.
  • Narrow your replacement scope. Prioritize the vehicles that pose the most risk to your operating cost budget, and make the most of your available capital.
  • Quantify value of liquidating underutilized assets. Injecting capital into your business to help weather current financial challenge is always an attractive option, but make sure you understand any temporary variations in the resale market.
  • Watch operating costs for aged and high-mileage vehicles. These are the vehicles you would have normally cycled out by now, whether you place orders or not. These vehicles can lead to trouble in the form of increased operating expenses.
  • Factor in the lower cost of fuel. While fuel prices are low now, once global markets bounce back, the cost to operate your older vehicles will increase as well. If you opt to keep these vehicles in service, you’ll need to account for the increased expense.

 

While you are weighing the value and risk of each decision, please reach out to your ARI team for insight and a steady hand. If you need help developing a short-term strategy for controlling costs and allocating available capital, we can provide tools that will help you prioritize vehicles for replacement, project the impact of delaying orders on your average fleet age, and estimate operating cost implications. In addition, during the COVID-19 crisis, you can refer to ARI’s resource center for information and status updates from us and our industry partners. Most importantly, be well. Your continued health and safety is our top priority.

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ARI and our business partners are closely monitoring the impact that COVID-19 is having on our industry. Visit our COVID-19 Resource Page for the latest information and sign up for daily updates.