If you asked fleet managers what the industry average is for personal use of company vehicles, most would say it is approximately 15-18 percent. But, is it?
Automotive Fleet conducts an annual survey of thousands of fleet managers who report, on average, 18-percent personal use. Is this accurate? AF publishes what fleet managers tell us, who in turn are dependent on what their drivers report. Therein lies the heart of the matter. Are drivers being accurate (honest) about the number of personal miles they report for their company vehicles?
Most of us will agree that some drivers fudge their personal-use mileage, but no one knows by how much. There is a growing suspicion that personal-use mileage is far greater — perhaps substantially greater — than what the industry accepts as conventional wisdom. My contention, along with a few others, is that the exaggeration of personal-use miles is substantially greater. There is also a feeling that if we definitively track all personal-use and commute miles, we’ll be shocked by the degree of under-estimating and misidentifying of business miles.
A Hitherto Hidden Fleet Cost
How much did the fleet industry talk about unnecessary idling in the 1990s? I can tell you it was very little. Today, however, everyone agrees unnecessary idling is a substantial contributor to fuel consumption and engine wear. The reason we discovered this hitherto “hidden cost” was through the installation of telematics devices on company vehicles, which tracked engine hours versus actual miles driven. The results shocked the industry. While the amount of unnecessary idling varied by fleet, some fleets recorded idling as much as 35 percent of the time on non-PTO vehicles.
Today, the technology exists to definitively track and segregate business, personal, and commute miles for company vehicles and the early results support some of our worst suspicions.
“One fleet that switched to our automated program experienced a 17-percent reduction in business miles,” said Matt Betz, VP of business development for CRS Fleet, which markets a telematics solution to track business, personal, and commuting miles. “If they were charging for the full cost of personal use, that equates to a 17-percent fleet savings. Another fleet we work with was very confident that their personal use was 18 percent. After using our solution, they found that they had, on average, 38-percent personal miles and 9-percent commute miles.”
Scofflaw drivers go to elaborate extremes to avoid reporting personal-use miles. One fleet manager related a story about a former driver who installed a “kill switch” on his company-provided vehicle to disengage the odometer when driving personal miles. Some drivers will even report driving zero personal-use miles.
“Even the most well-intentioned drivers misunderstand the IRS rules and wrongly categorize miles. Most often, they do not report commute miles as personal miles,” said Betz. “When fleets switch over to a system that automatically measures commute, personal, and business miles, the number of personal and commute miles almost always dramatically increase, while business miles are reduced. For businesses that only want to pay for business miles, this is a huge area for potential savings.”
Personal Use Impact on Fixed & Operating Costs
Personal-use mileage has an adverse impact on the resale value of fleet vehicles. There is a direct cost relationship between the number of personal miles driven and the vehicle’s ultimate resale value. Fleet industry lore states that personal use accounts for approximately 15-18 percent of the overall miles. What would be the impact if your personal-use miles were far higher? Each personal mile driven not only reduces a vehicle’s residual value, but also shortens its service life by causing it to reach its optimal replacement mileage earlier. Imagine the impact on actual depreciation if personal-use miles were actually double what were reported. For instance, an intermediate sedan averages 24,840 miles per year, and, on average, is kept in service for 29 months. If a fleet vehicle averages 4,000-8,000 personal miles per year, that means almost 5-10 months of a vehicle’s 29-month service life has been consumed by personal use. Likewise, personal use decreases the life of maintenance “wear” items, such as tires and brakes, which need to be replaced at company expense — earlier than normal.
There is also an administrative cost to provide personal use as an employee benefit. Administering a personal-use program is expensive, with internal costs ranging from $40-$80 per year, per vehicle, depending on how a company manages the process.
The purpose of this editorial is a “call to arms” for fleet managers to give their full and immediate attention to identifying their fleet’s actual personal-use miles. Do you really know how many personal-use miles your vehicles actually accumulate? The honest answer is no. I predict that personal-use mileage will become the new flashpoint in our ongoing battle to reduce fleet costs.
Let me know what you think.