Fleet budgeting and forecasting guide
September 06, 2022
Macroeconomic factors and Original Equipment Manufacturer (OEM) production delays continue to exert pressure on fleet budgets in 2022. With ordering already underway for 2023-model-year vehicles, fleet executives need to consider a myriad of factors when forecasting fleet costs in the coming months.
Fleet expense planning
To better deal with cost uncertainty, plan for known fleet expenses while factoring for possible changes to minimize financial surprises.
Stay vigilant to macroeconomic changes
In 2023 managing fleet spend will require keeping a close eye on impactful macroeconomic trends such as interest rates, inflation, and fuel prices.
With fleet vehicles extending lifecycles due to acquisition and supply chain bottlenecks, maintenance has become a focal point. Fleet admins should increase their focus on preventative maintenance, utilize in-network suppliers, and subscribe to downtime management.
Fleet forecasting methods
Proper expense forecasting helps you achieve an accurate estimate of ongoing operational costs. Choose one of the following two approaches that will best fit your fleet and company:
Incremental
- Use prior period as a start
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Adjust for anomalies compared to historical view
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Factor inflationary adjustments
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Pros: Quick and easy
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Cons: Market fluctuations not easily captured
Zero-based
- Start with blank slate
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Add known expenses
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Add market-driven inputs
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Pros: More accurate, identifies savings
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Cons: Increased difficulty
Budget factors and spend levers
You’ll gain greater certainty in the budgeting process, if you understand spend inputs that drive expenses and take specific actions to reduce overall spend.
Fleet expenses fall into three main categories:
- Depreciation costs – including acquisition
- Fuel costs
- Maintenance spend
Depreciation costs – including acquisition
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Factors include vehicle invoice price, OEM rebates (fleet incentives), amortization term, and remarketing
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Actions include reviewing the vehicle selection process; engaging in volume-based negotiations; conducting life-cycle analyses; considering reassignment of idle units; and taking advantage of market trends
Fuel
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Factors include price per gallon, miles driven, and vehicle fuel efficiency (MPG)
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Actions include using regional providers; monitoring route optimization; and adjusting vehicle selector and replacement policies.
Maintenance
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Factors include age / odometer of vehicle, preventive maintenance, and managed network utilization
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Actions include monitoring for optimal replacement; adhering to oil-life parameters; and directing drivers to in-network providers
Other Budgeting Factors to Consider
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Factors include delivery expenses, as well as tolls, violations, and accidents.
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Actions include aligning with acquisition activity and providing driver education.
How to best deal with fleet acquisition uncertainty
Arguably the biggest x-factor for 2023-model year planning relates to the OEM production delays. Here are six recommendations for managing this ongoing challenge:
- Validate your OEM allocation commitment and order rollover to next model year.
- If you’re considering alternative OEMs, allocation pre-negotiation should be done early in the year.
- Continue negotiating price protection along with incentives. Negotiate incentives on stock purchases that are sold as retail rather than commercial.
- Review your approval process for stock orders to ensure that it’s efficient and nimble.
- If upfitting is required, carefully consider required modifications to upfitting specs if changing OEMs.
- Prepare for delays and proactively define a back-up plan playbook for unassigned vehicles.
Are you ready to take action?
If you’re considering a more hands-on approach to budgeting and forecasting, Element Fleet Management can help with strategic consulting and recommendations. Get in touch with us to learn more.
