Vehicles

Is It Time to Mothball, Sell, or Return?

Jim Luff
Posted on August 21, 2009

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. 

Mothballing

If you store a vehicle for the long term, there are certain considerations that can help preserve your vehicle while keeping it in a condition to return to service with minimal work. This includes storing the vehicle with very little fuel for safety reasons and to avoid stale gas being run through the engine when the vehicle is placed back in service. It would be a good idea to have an oil, lube, and filter service performed as well so the oil sitting in the oil pan over a long period of time is clean and free of sludge.

Remember to start the vehicle at least once a month to allow the clean oil to circulate through the engine and keep it lubricated. It also will help preserve your battery by allowing it to charge up during this time. Spray all hoses with a silicone treatment to prevent cracking and drying out. Spray the tires with Armor All or similar product and then cover the vehicle during storage, even if stored inside.

Once you have done this, contact your insurance carrier to discontinue coverage for this vehicle. You may run into problems if you are still making payments, since most loans require the vehicle to be fully insured until paid off. Even if you are not obligated to maintain insurance, your carrier may balk at the lack of coverage in fear that you might jump in the vehicle on a whim and have an accident.

However, in these tough economic times, your insurance agent should be able to help you with this matter. When the registration renews, you can avoid any payment by declaring the vehicle to be non-operational.

This decision is an important one because paying the registration will allow you to place the car back in service without a lengthy trip to the DMV office. In most cases, you can bind insurance coverage on the car with a simple phone call and be back in service in an hour.

Extending Life

If you must extend the life of your vehicles, there are many things you can do to keep a vehicle looking good, running well, and earning money. If the exterior and interior are in great shape but the engine has excessive miles or shows signs of wear and distress, you can buy a low-mileage used engine from a wrecking yard for $800 to $1,000 and pay a mechanic to install it.

You also may want to consider a new transmission at the same time and invest another $1,000. If the engine and transmission are good, you may consider a cosmetic facelift. This has been a common tactic in the airline and charter bus industry for years.

A new carpet, new headliner, and upholstery can give your vehicle a whole new look and clients won’t even know it is the same vehicle they rode in last year. A fresh paint job and new tires can do wonders for the outside appearance of vehicles and keep them looking fresh while you ride out the economy. You can purchase the current model wheels for your five-year-old car and make it look new.

Tips for Storing Your Vehicle

  • Store with minimal gas
  • Perform lube, oil, and filter change
  • Spray hoses with silicone spray
  • Treat tires with Armor All or similar product
  • Discontinue insurance coverage
  • Obtain non-operational permit from DMV
  • Store covered — even if inside a garage

Extending Your Vehicle’s Life

  • Replace the engine with a slightly used one
  • Repaint the vehicle
  • Replace carpet, headliner, and upholstery
  • Replace wheels and tires for a fresh new look
  • Replace the transmission
  • Replace upper and lower suspension control arms

Related Topics: maintenance tips, vehicle turnover

Jim Luff Contributing Editor
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