Vehicles may also be acquired using a closed-end lease. This consists of a fixed monthly payment determined at the initiation of the lease by the lessor, explains CAFM. This payment includes charges for depreciation, interest and administrative overhead. For a full maintenance type of closed-end lease, it also includes a charge for maintenance.
Because the lessor assumes the depreciation risk under a closed-end lease, resale value is not a principal consideration for the lessee, nor is capitalized cost, except to the extent that it influences the amount of the monthly lease payment.
However, CAFM points out, the fleet may need to include a factor for excess mileage charges and another for anticipated excess wear and tear on any closed-end lease. Operating costs should be computed as described previously, but with the exception of the cost of routine oil changes. Maintenance costs need not be computed if the lease is a maintenance lease.
If a fleet is owned rather than leased and the vehicles are purchased with borrowed money, ownership cost (replacing lease cost) consists of the down payment (if any), interest cost and payment of principal (analogous to the reserve for depreciation in an open-end lease).
Resale value is important because when the vehicle is sold, the owner retains any excess of sale proceeds over the loan balance due. Therefore, the determination of capitalized cost is as important a step as it is in the case of an open-end lease.
Operating costs also must be computed as described for an open-end lease.
Many government fleets may take advantage of special, high volume discounts which have been developed by a government bid process, notes CAFM. Often, prices for the vehicles available under the state contract are advantageous. Many states invite local governments to make their purchases through the current state contract.
When all these steps have been completed, CAFM recommends ranking the selection criteria in order of importance. This can help in making a sound acquisition decision. "There is no bad equipment, only wrong equipment in the wrong application."
Prior to placing a vehicle order, it is always advisable to have management review the equipment specifications for their approval and support, advises CAFM. "Be prepared to share the basis for your recommendations. Factual data, recommendations from various sources and your own understanding of your employer's needs should be presented freely to support your recommendations.
"Don't be surprised if someone questions the relative importance of some factors or expresses some other preferences. If it is necessary to alter the final selector, recognize that the change may not be a reflection on your expertise as a fleet manager but rather demonstrates a desire by management to satisfy other, non-fleet concerns."
Once the order is approved, CAFM says the acquisition process should take the following steps:
Determine costs and specs for each vehicle to be acquired - Research and negotiate the exact, updated cost of each specific vehicle. Seek face-to-face meetings with a vehicle dealer or OEM representative to ensure that each vehicle is being acquired at the best price. Come away with a completed "build spec" or "quick spec" - the vehicle specification in code at a predetermined price - for each vehicle.
Process any driver selections - If a driver is given a choice of vehicles or is permitted to select certain vehicle options, such as paint, interiors, accessories, etc., the necessary paperwork needs to be completed.
Place the vehicle requisition/order - When each specific detail of a vehicle has been decided, the vehicle requisition/purchase order, or vehicle lease order, needs to be prepared. When this form is completed with every code and specified price and signed, it must be submitted to a dealer or a leasing company before any vehicle will be built.
Verify confirmation of order - Once the order has been placed, the dealer or leasing company will send a confirmation of order report. It is very important that every detail of this confirmation be immediately checked and verified to be absolutely certain that it reflects the items ordered, stresses CAFM.
Also at this point, a copy of the confirmation of order report should be given to the driver who will receive the vehicle so the driver, too, can confirm his order details.