Fleet Management Basics Enterprise Cost Flexibility Replacement Industry knowledge Job Cost Equipment Financing Wells Fargo Equipment Finance Glossary of Terms Lenders Loans vs leases Tax issues ID: 628487
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Slide1
Good Morning!Slide2Slide3
Equipment Cost CharacteristicFleet Management Basics (Enterprise)Cost, Flexibility, Replacement, Industry knowledgeJob CostEquipment Financing (Wells Fargo Equipment Finance)Glossary of TermsLenders, Loans vs leases, Tax issues
CARB Regulations
AgendaSlide4
* Equipment Cost and CharacteristicHow big is the impact?
Equipment Costing & Fleet ManagementSlide5
Equipment Cost Characteristic and Strategy IIWhat Characteristic? Ownership vs OperationWhat goes into the cost pool?Operation Costs - Scheduling/StaffingPreventative MaintenanceFuel, Oil, Parts, Tires, WashRepairsMajor Maintenance
Ownership Costs – (no active jobs)
Depreciation
Purchase, Lease/Financing costs
License, Insurance, Fees, Registrations
Labeling, SetupSTORAGE – Yard costs
Additional Costs / Benefits
Income Tax
Inflation
Opportunity Cost
Equipment Costing and Fleet Management
Do you
need to manage
just costs or an entire fleet?Slide6
Fleet ManagementDoes Fleet Management make sense for your business?Slide7
The Basics of Fleet ManagementSlide8
An Analogy to the Finance Profession
Fleet Management is similar to a Tax Professional
A company can do it alone without professional advice
But it
’
s likely to cost you more
Tax Professionals implement proper cash flow planning techniques and ensure all of the proper deductions for a constantly-changing tax code
A vehicle fleet manager designs a flexible fleet and strives for the best economics for a given business Slide9
6 Elements of Cost of Operating a FleetSlide10
Additional Considerations
Decision Maker’s Time
Employee/Admin Involvement
Image of Fleet Vehicles/Company
Driver Satisfaction/Productivity
Safety Concerns
DowntimeSlide11
The Building Blocks of Fleet ManagementSlide12
The Value of a Replacement Strategy
One of the important elements of Fleet Management is knowing the economics and the customer
’
s business goals of when to replace vehicles
A fleet manager monitors the following items:
Used vehicle prices
Maintenance and downtime considerations / customer service issues
Fuel and fuel economy standards
Appearance and branding
Employee morale
Administrative time
Vehicle incentives
The structure of the lease term provides an automatic trigger to analyze the hold versus replace decision.Slide13
Cost to Hold
Cost to Replace
Vehicle Acquisition Price
Sale of First Vehicle
$0
$0
$23,938
($9,300)
Vehicle Sales Price in 4 years
($1,000)
($9,300)
Depreciation
($1,000)
$5,338
Sales Tax
$0
$1,436
Interest Expense
Total Acquisition Cost
$0
($1,000
)
$2,088
$8,862
Fuel
$25,159
$21,018
Preventative Maintenance
$7,029
$5,565
Vehicle Breakdowns (Non-Preventative)
$7,209
$0
Insurance
$4,800
$4,800
Management Fee
Total Operations Cost
$0$44,197$1,736$33,119Total Cost$43,197$41,981*Does not include any costs related to additional downtime.
Replacement Analysis at 4 Years / 100,000 milesSlide14
Cost to Manage
Cost to Outsource
Vehicle Acquisition Price
$24,938
$47,876
Vehicle Sales Price
($1,000)
($18,600)
Depreciation
$23,938
$29,276
Sales Tax
$1,496
$2,872
Interest Expense
$2,618
$4,176
Total Acquisition Cost
$28,052
$36,324
Fuel
$44,243
$40,098
Preventative Maintenance
$12,800
$11,130
Vehicle Breakdowns (Non-Preventative)
$8,643
$0
Insurance
Management Fee
$9,600
$9,600
$3,473
Total Operations Cost
Administrative Time
$75,286
$2,000
$64,301$400Total Cost: Pre-Tax $105,338$101,025Average Annual Spend$13,167$12,628Cents Per Mile52.7¢50.5¢After-Tax NPV (discounted at 5%)$57,4002.3 X’s acquisition price$54,900
Total Cost for 1 Vehicle – with Replacement Slide15
Is an additional source of capital important to my business?Do I know my total spend for my fleet
?
Is it difficult to dispose of vehicles during a business downturn
?
Do I have idle vehicles at different points in time?
Is
vehicle downtime a significant detriment in my business
?
Who approves maintenance invoices and what experience does that person have with the automotive industry?
At what mileage intervals are your vehicles being serviced for oil changes?
Do
I track maintenance expense on a vehicle-by-vehicle basis?
What
is my plan if fuel prices continue to rise?
Is my business equipped to analyze the new products (i.e., Hybrids, compressed natural gas, electric, etc.) that are coming to market?
Questions to Ask to Determine if Fleet Management Makes Sense to My Business: Slide16
The Value of Replacement
One of the important elements of Fleet Management is knowing the economics and the customer
’
s business goals of when to replace vehicles
A fleet manager monitors the following items:
Used vehicle prices
Maintenance and downtime considerations / customer service issues
Fuel and fuel economy standards
Appearance and branding
Employee morale
Administrative time
Vehicle incentives
The structure of the lease term provides an automatic trigger to analyze the hold versus replace decision.
Fleet vs Costs? Buy vs Lease? Some things to know…Slide17
4 Rules for Capital Lease AccountingTitle passes to Lessee automatically by EOLLease contains option to purchase at EOL for substantially less than FMVTerm is > 75% of the useful life Present value of lease payments is greater the 90% of FMV
Accounting Treatment - Capital
Same as loan, Liability & Asset capitalized (PV of future
Pmts
)
(is it?)
Interest + depreciation expense equivalent to lease payment
Cash payment maybe more than lease payment
May have existing debt covenant / collateral restrictions
Accounting Treatment - Operating
Full Lease payment is expensed
Off balance sheet, but PV of future payments required in disclosures
Not in Loan covenant calculations
Lease Accounting: Operating vs CapitalSlide18
Fair Market Value leaseEnd of lease options: Return, Renew, or Purchase at FMVDollar Buyout LeaseCapital Lease, purchase for $1 at end of lease,
Wrap Lease
Roll existing lease into new lease with added equipment
Sale-Leaseback
Within 90 days, provide proof of payments, invoices, titles – can be Dollar Buyout or
FMV
Open-End Lease
Renewable with wrap
Some Common Forms of Equipment LeasingSlide19
Term – Period over which regular payments are madeEnd of Lease, Term (EOL, EOT) – Options for returning or acquiring assets
Lease Rate Factor
–
multiple of Asset value that calculates payment
Ex: lease rate factor of .021 x 1,000,000 = $21,000 monthly payment
Indexing
–
lease rate is tied to interest rate for timing, ex: Libor or Fed Funds
Bargain Purchase Option
–
substantially less than FMV
Closed-End Lease
–
no purchase Option, Return onlyFinance Lease – Capital LeaseGuaranteed Residual Value – Lessor receives fixed amount EOLEx: TRAC lease – Terminal Rental Adjustment Clause – lessee guarateedTax Lease
– Lessor takes on Tax benefits of ownership e.g. Bonus DepreciationGlossary of Lease Terms
What are some financing options and their advantages?Slide20
Direct to equipment end usersDirect Territory ManagersNational Contractor ProgramEquipment distributorsDirect Territory ManagersInventory Territory ManagersNational Account Territory ManagersManufacturer programs
National Accounts – Over 25 active programs
Retail
Loans & Leases
Inventory
Private Label
Target Markets
Wells Fargo Construction specialists regularly finance equipment used for the following applications:
Highway/street construction
Site preparation and excavation
Concrete /asphalt production and paving
Utility construction
Bridge and tunnel construction
Sand and gravel production/quarry operations
Crane and equipment rentalDealer inventory and rental fleetDistribution Channel20 Wells Fargo Equipment Finance, Construction Group Business Overview
Work with construction specialists who have in-depth knowledge of the industry and extensive experience creating customized equipment financing solutionsSlide21
21
Products for Equipment End Users
Product Category
Details
Term Debt
Fixed and floating rate loans
Installment sale contracts
Cap Ex Lines of Credit
Refinances
Working Capital Loans
Transaction sizes from $75 Thousand to over $100 Million
Leases
Operating and Capital leases
Walk away options
Fixed price purchase options
Early buyout options
TRAC & Split
Trac
Leases
Sale and leasebacks
Synthetic Leases
Transaction Sizes from $150 Thousand to over $100 MillionSlide22
22
Products for Equipment Distributors
Product Category
Details
Inventory /Rental Fleet
Fixed and floating rate products
3 to 12 months interest only with term out extensions
Rental Fleet Installment Transactions
Rental Fleet Leases
Manufacturer and bank roll over lines
Refinances
Non Inventory Loans & Leases
L
oans and Leases for capital equipment including:
Service and Delivery Trucks
Shop Equipment
Computer and IT Systems
Company VehiclesSlide23
Down paymentTypically 100% financingRisk of obsolescenceTransfers risk of obsolescence to a LessorNo obligation to purchase asset at end of termTax deductions and budgetingA Lessee may claim the entire lease payment as an expense, thereby reducing taxable income
Flexible payment terms and interim
financing
Financial reporting
If the lease qualifies, neither the asset nor the corresponding liability appears on the balance sheet, which can improve financial ratios
Loan
Down payment
May require some down payment (varies by equipment type
)
Risk of obsolescence
Through ownership, a borrower bears risk of asset devaluation as a result of technological
advances
Tax deductions & budgeting
The borrower may claim a tax deduction for depreciation as well as the interest portion of the loan payment
Payments can be based on fixed or floating rates, fixed principal and interest or fixed principal plus interestFinancial reportingFASB 13 requires that an owned asset appear as an asset with a corresponding liability on the balance sheetLease23
Wells Fargo Equipment Finance Know your optionsSlide24
Lessee/Borrower Background: Time in business, Key management stability Customers Position in the industry
Industry:
What’s
currently going on in the
industry
Financial Analysis: Quality
of Financials Statements,
C
ash
flow/debt service,
Trends (Balance Sheet and Income Statement), D & B reports, Credit
Bureau Reports,
Pay
history with Lender
24Lender considerations when reviewing a financing requestFinancial Package Typically Required by Lender
Most recent 3 years annual financial statements (would need associated tax returns if statements are not a CPA review or audit)Most recent YTD interim financial statement with comparable to the same period for the previous year
Most recent Work In Progress reportEquipment to be purchased and reason for acquiring (manufacturer, make and model , and cost, itemized)Company and ownership background & structure
Now that you have equipment, how do
you charge jobs for it?Slide25
Getting Cost from the Left side to the right sideEach piece is a businessEquipment Project Costing
Rubber
ROADSlide26
Methods for charging pieces >> LEFT SIDEDirect costs – Charge to Piece or to WO which charges piece ?Fuel (Gas cards)Repair workorders
PM
workorders
Labor timesheets charge WO or Equipment
Depreciation
Financing
Licenses, Fees, Registrations
Indirect Cost – Allocate costs to pieces based on…
?
Fuel (without reporting)
Insurance – Auto maybe direct, yellow iron not so much
Dispatch Labor
Unapplied Mechanic time
Unapplied Yard costs
Equipment Project CostingSlide27
Methods for charging jobs >> RIGHT SIDEUsage & Ownership ratesWhich hours count? Who owns it when it’s off site?Minimum hours per dayDon’t overthink it
Labor-Based OH Rate Allocations
How well does equipment match your crews and work type?
Material Based OH Rate Allocations
What is the Equipment and how well does it match?
Unit Based costing
Uniformity of work unit – LF of Asphalt Pavement?
Equipment Project Costing
And now for something completely different…Slide28
State of California AB-32 - Low Carbon Fuel StandardAffects all carbon fuel consuming industriesMultiple regulations affecting the construction industryEnforcement
and fines are issued by local ARB districts
Fines
can be as high as $10,000 per day for violations
Scheduling
of equipment replacement or retro-fitting is critical
New
regulations coming into effect will increase equipment budgets by as much as 50%
Series of deadlines which vary by Fleet size and Equipment size
CARB Rules and Issues for ContractorsSlide29
The Construction Industry is subject to many regulations under AB-32, but mainly these 6:Periodic Smoke Inspection Program (effective 7/1/1999) – On-Road Diesel VehiclesTire Inflation Regulation (effective 9/1/2010) – On-Road Vehicles
MRS - Truck
and Bus Regulation (effective 1/1/2012) -
On-Road Diesel
Vehicles
Heavier vs Lighter – 26,000lb GVWR LSI - Large
Spark Ignition Engine Regulation (effective 1/1/2009) -
Off-Road Gas, Propane & CNG
Engines. Forklifts et al.
PERP - Portable
Equipment Registration Program (effective 1/1/2006) - Portable Diesel Vehicles (non-self-propelled). Air Compressors et al.
In-Use
Off-Road Diesel Vehicle Regulation (effective 1/1/2014) -
Off-Road Diesel
Vehicles. Backhoes et al.Idling Policy (effective 6/1/2008) & 5 minute limitFleet Labeling & Reporting (effective 1/1/2009)Fleet size – Small < 2,500 hp; Large >5,000 hpCARB Rules and Issues for ContractorsSlide30
For More Information:www.arb.ca.gov/html/lawsregs.htm
CARB Rules and Issues for Contractors
Thank You for coming