How did a state-wide transit agency not only curb excessive spending, but also achieve $500,000 in fleet management cost savings in one fiscal year?

Fleet Background

As the nation’s third largest transit agency, NJ TRANSIT reliably moves nearly 223 million passengers through major points in New Jersey, New York and Philadelphia. However, their non-revenue generating support vehicles were steadily diminishing in value, ultimately driving up costs.

Like many in the transit sector, NJ TRANSIT purchased non-revenue fleet vehicles with the intention of replacing them within industry standards. However, due to budgetary constraints year after year the fleet grew older and mileage crept upwards. Many trucks were showing their age; several needed engine replacements and entire transmission and body parts had rusted, resulting in maintenance expenses that significantly inflated operating costs. In addition, older models resulted in poor fuel economy and mediocre resale values. A thorough fleet management cost analysis helped them change their model and turn this situation around.

Objective

So how did this traditionally conservative agency not only curb excessive spending, but also achieve $500,000 in maintenance savings in one fiscal year? By questioning the status quo and adopting a leasing acquisition model, which significantly improved NJ TRANSIT’s overall bottom line.

Approach

Like most transit agencies, NJ TRANSIT operated under the acquisition model of “purchase, power through, then purge.” Vehicles were purchased with a sole job function, driven and utilized for many years (well past an optimum or even recommended replacement schedule), and then finally purged once they were found to be beyond economic repair.

On average, an NJ TRANSIT light duty truck was at least 11 years old with roughly 125,000 miles, and many were well over 150,000 miles. Often times, these trucks had rusty beds restored, and some had entire engines or transmissions replaced by onsite maintenance garages.

As a transit agency, their purchasing power was dependent upon state funding. Budgets fluctuated which resulted in inconsistent vehicle ordering. Through a strict purchasing model, about forty-five vehicles per year were replaced; however, the fleet needed at least 100 vehicles – the worst of the worst – to be replenished.

Instead of accepting the status quo of doing things the way they were always done, NJ TRANSIT, working closely with the Holman team, conducted an extensive analysis of the benefits of leasing compared to their existing purchasing model.

Fleet Management Cost Analysis

The most attractive option resulted in a hybrid purchase/lease model. Leasing provided NJ TRANSIT the extra capital it needed to fund more vehicles in a single year while also purchasing specialty vehicles that were crucial to the operations.

• $500,000 – Reduction in maintenance spend in the first year.
• 101 – The number of new light-duty trucks added to the fleet in the first ordering cycle.
• $219,000 – Additional savings returned to NJ TRANSIT from Holman’s innovative remarketing strategy.

Projected Fleet Cost Savings/ Benefits and Results to Date

In the first year of the Holman partnership, NJ TRANSIT ordered 101 light duty trucks in the initial vehicle cycle. In the past, to obtain this number of vehicles in a single year would have required millions of dollars in state funding. Operating new model year vehicles resulted in additional advantages as well such as increased fuel economy and decreased downtime. Within the first year of NJ TRANSIT’s partnership with Holman, the agency reduced its maintenance spend by approximately  $500,000.

On top of the fleet maintenance cost savings from operating a newer fleet, the transit agency also saw significant remarketing returns.

Previously, when it was time to take vehicles classified as beyond economic repair out of service, NJ TRANSIT would send these units to state auction. Sold in front of a limited audience, state auctions produced meager resale values. NJ TRANSIT received $6,000 for two vehicles combined.

However, through Holman’s multi-pronged remarketing strategy, NJ TRANSIT’s trucks received maximum exposure both online as well as through live auctions. This resulted in double the returns, many times as much as $12,000 – $13,000 for two vehicles. In the first year of this partnership, NJ TRANSIT generated almost $219,000 from its oldest, most heavily used vehicles.

In addition, using online and live auctions to sell the retired units, vehicle sales remained within the fleet budget, instead of the general fund. This additional capital could be used against future purchase orders and not from taxpayer dollars, which was also something the agency was not able to do before partnering with Holman.

NJ TRANSIT demonstrated how a hybrid acquisition model could be successful and produce significant savings to its bottom line. Thanks to thoughtful fleet management cost analysis and the financial leeway leasing provides, the agency now has over 175 new vehicles in its fleet and is on track to replace the rest. In addition, remarketing returns resulted in a cash flow stream that was previously unavailable to the agency.