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Each vehicle in your fleet directly contributes to your bottom line profitability. A productive vehicle is obviously increasing your bottom line while unproductive vehicles are chiseling away at your profit because there are expenses that continue even if the vehicle is underused. This includes insurance, vehicle registration fees, and even maintenance to keep the vehicle in good shape and ready to roll just in case.
Determining Vehicle Profitability
Before you can take any action, you must know whether a vehicle is profitable, marginally so, or a cash drain on your operation.
There are two methods to evaluate profitability: Actual cost or estimated cost. Once you have determined your monthly operating expenses using either method, you can divide that number by the number of days in a month and determine the estimated amount of overhead a specific vehicle needs to earn per day.
If the vehicle is rolling, it is assumed that the client in the vehicle is paying for the chauffeur’s wages and the fuel consumed. However, the insurance, vehicle payment, registration, and repair and maintenance (R&M) are all overhead costs that must be paid for using your gross profit.
It is important to note that while the chart on the right shows actual expenses in a single month, each vehicle will need a set of tires and several oil changes per year that are not reflected in the chart of actual expenses. This can easily add another $400 per month in operational costs and cut your gross profit in half in the sample chart.
The estimated chart uses the 2009 IRS standard of 55 cents per business mile driven as an estimate of the cost of fuel, maintenance, and wear and tear. Payroll expenses are workers’ compensation insurance and the employer’s portion of payroll. Also remember that each vehicle must contribute to mortgage or rent payments and the salaries of non-driving support staff.
The Vehicle is Losing Money
If you determined this, you must stop the bleeding immediately just as you would a human because the result of uncontrolled bleeding in either case is death. The most obvious option is to sell the vehicle immediately. The fastest possible sale is probably most likely achieved by listing the vehicle on eBay. You should hope for a buyer far away from your community to avoid someone buying the vehicle and turning around to compete against you with your former vehicle.
Traditional sales methods such as For Sale signs, used car circulars, and classified ads also may be employed. If you owe more than you can obtain from selling the vehicle, you will have to proceed based on your financial situation. One option is to sell the car anyway and come up with the difference out of pocket to pay the finance company and obtain the title for your new buyer. This keeps your credit clean while eliminating the debt.
Another option is to voluntarily return the car to the finance company. While this might cause a blemish on your credit, it may mean the difference in long-term survival. If you are optimistic that the economy will rebound, you may want to consider storing the vehicle and preserving it for later use if the car is paid off, nearly paid off, or can be paid for by other vehicles in your fleet.