The Business Case for Full Compliance:‘Best Practices’ Performance at Lower Cost

automot ive f leet & leas ing assoc ia t ion wh i te paper ser ies • vo lume 12

ExEcutivE SummaryFor half a century, fleet compliance has been popularly

defined as the process of operating in accordance with regula-tory and legal requirements. No fault here, but a more relevant real-world definition puts stronger emphasis on a company’s own internal policies and performance standards, a set of corporate rules and regulations mandated by management because they can protect the company’s interests and add strategic value.

To the rules of behavior that govern fleet operations and the actions of fleet managers, we can add a variety of other business best practices, industry professional standards and specifica-tions, manufacturer warranties and disclaimer agreements, all of which make compliance a complex, difficult undertaking.

What can happen if your company’s fleet is not compliant with these rules and regulations? The possible consequences, all costly, include:

} Fines} Downtime} Vehicle/fleet impoundment} Higher operating costs} Loss of business} Criminal prosecution} Civil litigation} Warranty default} Loss of employment

Full compliance is synonymous with best-practice perfor-mance, and that means a fleet is operating at peak efficiency. Success in achieving full compliance is built on a partnership of fleet user and fleet management provider, a partnership in which the abilities of both combine to deliver requirement-specific solu-tions that favorably impact your fleet strategy and success.

This white paper tells you everything you need to know and do to make your compliance strategy successful, describing best practice business and technology tools, techniques and tactics that help keep your fleet on the road serving customers, lever-aging system and process efficiencies and minimizing risks and liabilities for your company.

tHE BuSiNESS caSE FOr FuLL cOmPLiaNcE: ‘BESt PracticES’ PErFOrmaNcE at LOWEr cOSt

By the time you finish reading this white paper, your list of fleet rules and regulations—that long, complex body of legal re-quirements, industry standards and corporate policies you must comply with—may already have gotten longer.

Somewhere, somebody in some federal, state or local government office, or with an industry group, or perhaps within your own company, is likely devising another rule, specification or policy that soon could make your compliance burden even heavier.

Ten years ago, that list probably included just a few IFTA/IRP and DOT items. But the last decade has seen the fleet manage-ment paradigm undergo a dramatic shift due to heightened social and business consciousness of safety, the environment, corpo-rate ethics and privacy. And so your list has grown to include scores of requirements—i.e., FASB, the environment, records storage and disposal, Sarbanes-Oxley Act of 2002, negligent entrustment, information security and privacy, manufacturer war-ranties, disclaimer agreements and more.

With more corporate compliance officers and programs in place than ever, compliance today is mission-critical, touching every office and function from one end of the corporate hall to the other. Fleet managers like you are besieged not only to follow the law, but also to comply with management-mandated policies because these can help build the company’s business position.

Fleets failing to meet their compliance requirements expose owners to risky consequences such as higher operating costs, criminal prosecution and loss of business. Case in point: non-compliance with truck weight limits could result in fines—if you get caught—but it also means you are violating the capacity at which the truck works best. In addition to basic safety issues, the overloads put extra strain on the engine and cut fuel efficiency. If that truck develops engine problems, the manufacturer may be able to trace the trouble back to the excessive weight, and forfeit your warranty. This non-compliance thus risks DOT fines, higher fuel and repair costs, downtime, lost productivity and potential criminal negligence, higher insurance fees and even lawyer expenses.

Welcome to the Age of Compliance.

the Business case for Full compliance: ‘Best Practices’ Performance at Lower costby Automotive Resources International

cOmPLiaNcE iS WOrk, But it aLSO WOrkS FOr yOuWe refer here to full compliance, defined as operating in ac-

cordance with all applicable federal, state and local regulations, and relevant industry standards/specifications, third-party manu-facturer warranties and disclaimers, business best practices, as well as your company’s own internal policies and performance standards. Full compliance is synonymous with best-practice fleet performance, which means that your vehicles are operating at maximum efficiency and highest productivity at the lowest cost.

As the information presented over the next several pages shows, success in achieving full compliance is built on a partner-ship of fleet user and fleet management provider, a partnership in which the abilities of both combine to ensure that car, truck and equipment fleets:

} Stay legally and safely on the road in support of the company’s mission;

} Leverage the performance efficiencies and economies available through current industry best practices and the latest technologies; and

} Remain strategically aligned with company fleet goals.

cOmPaNy POLicy & StaNDarDSThe best place to start is with establishing and enforcing an

internal fleet policy because this typically has more immediacy and urgency for fleet managers. The provider’s first job is to understand your business and rules by which your company operates, capture relevant data on every aspect of the fleet’s operation, and identify all applicable internal and external compli-ance requirements.

Then, with all data collected, you work together to design a fleet management program that keeps vehicles compliant with those standards and rules. In this first step, it is important to create a fleet policy which formulates enforceable ground rules for vehicles and drivers, covering every facet of operation from selecting, driving and maintaining vehicles to keeping drivers safe and protecting the company from legal liability and financial loss. Your policy statement should cover these essentials:

} vehicle Selection. Including order placement, delivery and turn-in of used vehicles, use of short-term rental vehicles, etc.

} Legal Operation. Rules on safe, legal, non-abusive operation of the leased vehicles, vehicle use by spouses and other family members, and operating the vehicle outside the U.S.

} Safety. Cell phone and other electronic device use while driving

} accidents. How to report an accident or vehicle dam-age

} violations. Payment of parking and moving violations} Fuel Policy. Including fuel card restrictions, limitations

and security} Preventive maintenance Scheduling. Arranging for

proper maintenance of the vehicle} Expense & mileage reporting. Keeping proper

records and reporting on vehicle use and expenses} Licensing. Registration renewals, changes of name or

address and state transfers} insurance. Liability insurance requirements} remarketing. Taking the vehicle out of service at the

right time, with the highest possible returnCommunicating to drivers the need for compliance is vital to

fleet policy success. The best way to achieve cooperation is to solicit the participation of all affected departments and vehicle user groups. By involving them in the decision-making process, you strengthen the likelihood of their buy-in and support. Make the fleet policy statement easily accessible to drivers and manag-ers by posting it on the company Intranet. Also, having a pro-gram that solicits and captures drivers’ buy-in online facilitates subsequent policy enforcement.

As part of your annual policy review, reemphasize the im-portance of compliance for optimizing fleet performance and cost control. But also use these events to survey your drivers and give them an opportunity to express their views on the internal rules that govern them.

telematics innovations make Fleet inroadsTelematics is playing an ever more important role in com-

municating with drivers, monitoring and improving non-compliant behavior. Today’s technology enables fleet users to track non-compliant vehicles, identify drivers who speed habitually, deviate from planned routes, over-idle their vehicles, etc. Some devices can even have drivers review remedial instruction on compliance policy and take tests to improve performance.

Two recent examples show the growing value of telematics. One company had carefully mapped out efficient driving routes. After the firm installed GPS systems that recorded actual vehicle movements, it realized that drivers were not sticking to specified routes. The company then enforced a policy banning side trips and backtracking, a decision that produced fuel savings totaling 17% more than the cost of the telematics system.

Another company took a similar approach, but it singled out excessive speeders. Once the company addressed that issue and the drivers, it lowered fuel costs by 30% and improved driver behavior, reducing the number of speeders from 70 to 0!

rEGuLatOry cOmPLiaNcE

Keeping up with the myriad of federal (EPA, DOT, IRS and SEC, to name a few), state and local regulations governing fleet management is an endless job—and every fleet manager’s nightmare. Missing payment or paperwork deadlines, submit-

ting completed forms with errors and similar mistakes can result financial penalties, delays and even in the authorities grounding an entire fleet.

Make sure your provider has the resources, experience and work ethic necessary to meet the requirements of regulatory compliance so that you are not mired in the day-to-day details of:

} Licensing, including iFta/irP. Covering a broad spectrum of fleet activities, licensing ensures that vehicles are properly registered and compliant with all federal and state regulations. The International Fuel Tax Agreement is an agreement between the states of the U.S. and Canadian provinces to simplify the reporting of fuel use by motor carriers that operate in more than one jurisdiction. The International Registration Plan is a registration reciprocity agreement among states of the U.S. and provinces of Canada providing for payment of license fees on the basis of total distance operated in all jurisdictions. Your management services provider can play a major role in helping you keep your fleet’s com-mercial vehicles on the road 24/7—and avoid unneces-sary legal penalties, delays, etc.—by handling these IFTA/IRP compliance requirements:

1. Initial title and registration2. State transfers3. Renewals4. Corrections5. City and county decals6. Duplicate registrations7. Replacement plates 8. IFTA stickers9. Medium/heavy truck title and registration (IRP plating)10. Trip permits11. Fuel permits12. Temporary permits

} DOt regulations. These requirements are intended to help you eliminate unsafe driving practices. By keep-ing the qualifications and certifications of your drivers current, you also avoid DOT infractions and penalties, and you help keep those drivers safe. A crucial part of your overall fleet policy is compliance with all company, vehicle, FMCSA (Federal Motor Carrier Safety Adminis-tration), Hazmat and driver regulations, including the Omnibus Transportation Employee Testing Act of 1991, a regulation that requires drug and alcohol testing of safety-sensitive transportation employees.

} Environmental. Carbon strategy is becoming a major business issue in corporate boardrooms. Expanding regulatory requirements, executive accountability and economic incentives are all exerting pressure on cor-

porations to put green fleets on the road. In its editorial for June 2007, Automotive Fleet noted that more and more fleet managers are turning to their providers for help in meeting these management-mandated environ-mental regulations cost-effectively. Such planet-friendly, cost-conscious fleets require sophisticated technology, expertise and resources, and pose a major challenge for all in the automotive supply chain. Today, the lead-ing fleet providers are making progress in lowering fuel consumption through strategies that improve vehicle, driver and fleet operating efficiencies.

The process of coloring a fleet green starts with ac-tivities that measure a fleet’s carbon footprint, including fleet profiling/benchmarking, determining relationships between fuel use and driving practices, interpreting the impact of airborne CO2, NOx and other chemicals. Through vehicle right-sizing, spec’ing/selecting vehicles by work application, alternative fuels, fuel management, upfitting, telematics-based route efficiency planning, driver training, and various best-practice green solu-tions, providers are putting more customer fleets on the road that are both environmentally- and fiscally-respon-sible—and in compliance with corporate mandates as well as the relevant regulations listed here:

1. 1992 Energy Policy Act (EPAct) 2. The 1990 Clean Air Act Amendments (CAAA)3. Clean Fuel Fleet Program (CFFP)4. Federal and California Exhaust and Evaporative

Emission Standards for Light-Duty Vehicles and Light-Duty Trucks

5. Motor Vehicle Emissions Federal Test Procedure 6. State, County, and Local Anti-Idling Regulations

} OSHa requirements. Fleet users should take care not to overlook compliance with health and safety regula-tions for the work environment and with the vehicle safety inspections required by OSHA.

} tax regulations. These cover the following tax laws for each state where fleet vehicles are located:

1. Sales Tax2. Personal Property Tax3. 2290 Highway Use Tax4. Fuel Tax

Your provider should be equipped to handle the above filings and tax payments for you, tracking payment history and renewal dates, completing necessary forms, and making timely, accurate payments. This work keeps vehicles legal and avoids potentially costly shutdowns and late payment fees. Also, if a vehicle sale or transfer creates a refund opportunity, the provider should act on your behalf and pursue the refund.

} Financial reporting. Compliance with Sarbanes-Oxley is required to ensure accuracy and prevent accounting errors and fraudulent practices in financial disclosure. Adherence has to be part of every fleet policy.

} international Operation. Any firm doing business globally has not only the above to think about but also international laws. Your fleet policy should make it clear that international operations are also responsible for compliance. Regulations include:

1. International Trade Law2. International Sale of Goods3. World Trade Agreement

} records retention & identity management. Com-panies must also meet state and federal requirements on proper handling and disposal of records containing personal information.

iNDuStry StaNDarDS & SPEciFicatiONSThis compliance category consists of a loose agglomeration

of best practices, standards and specifications developed by industry professional organizations. Many industries and individ-ual companies rely on them as much for establishing consistent methodology as for setting high performance standards. Among those impacting fleets and fleet management are:

} Financial accounting Standards Board. FASB is a private, not-for-profit organization that develops ac-counting principles and sets accounting rules designed to protect the public. FASB principles affect fleet opera-tions in the following areas:

1. Buying vehicles that use alternative fuels 2. Emissions compliance 3. Fuel consumption 4. Utilization 5. Driver monitoring 6. Licensing 7. Reporting to state and federal regulatory agencies

WarraNtiES & DiScLaimErS

This type of compliance deals with manufacturers’ agree-ments covering the vehicles that fleet users order, operate and maintain. Examples:

} vehicle Ordering & Operation. Manufacturers offer extended warranties on vehicles, for bumper-to-bumper coverage, as well as the powertrain, and other components. Your provider should help with analyzing the extended warranties and, if the warranties offer economic benefits, coordinate their purchase at time of vehicle acquisition. Your provider should also make sure the manufacturer’s warranty clock is “reset” to com-mence when a completed vehicle is delivered. For heavily

upfitted units, this can save many months of warranty. Capturing the many dozens of warranty dates for

chassis, bodies and components is a huge piece of work, but an important element in the proper manage-ment of future warranty repairs. A concerted effort needs to be made to collect this information during the order and delivery process.

} maintenance regulations. Manufacturer warranties covering fleet vehicles, parts and equipment can number in the hundreds. The sheer volume and the myriad cover-age details make it difficult for fleet users to keep track of warranty registration, start dates, recovery process, etc. In maintenance, for example, engine and transmis-sion requirements typically cover not only intervals but also types of fluids, valve adjustments, and more. To help you comply with these requirements, ask your provider to track serial numbers and keep ongoing records of war-ranty start dates and other necessary data.

Fleet Policy for a tough EconomyIn uncertain business conditions, most companies require

their fleets to operate under a variety of cost constraints. Some go so far as to require even more efficiency and better fleet performance on the same or lower budget. Your fleet manage-ment provider should make every effort to align its capabilities and resources to support your productivity and cost control mandates, looking for savings opportunities and ways to keep vehicles and drivers on the road working. The examples below show how compliance strategies helped two different companies generate significant efficiencies and cost savings:

} A company with a decentralized fleet gave unit managers the option to purchase new vehicles as they saw fit, even when surplus vehicles sat unproductively in storage. The firm implemented a policy of utilizing surplus vehicles before placing new orders, and streamlined a process for locating them. Now, when a unit manager needs a vehicle, he or she is required to look in the database first before buying new. If a suitable unit is available, the company captures significant savings by avoiding unnecessary purchases. A recent analysis showed that compliance with this policy has already saved the com-pany $500,000 simply by reallocating vehicles.

} Another company had a special pricing arrangement with a particular glass vendor, but the majority of its drivers were arranging glass repairs with other vendors. Their costs were running 25% higher than those of the pre-ferred vendor. Following a driver re-education program on vendor selection policy, this company saw preferred vendor usage jump from 38% to 56%, representing a 4.5% overall savings in a one-year period.

cONcLuSiONCompliance is a cumbersome imperative that makes harsh

demands of fleet managers. It relates to everything you do, and it is constantly re-defining and expanding your work. But its value far outweighs the inconveniences. Compliance helps you keep your vehicles working legally, safely and efficiently, protecting vehicles and drivers and mitigating the firm’s exposure to risk.

Even more important, compliance goes beyond rules and regulations to business value, by helping you reduce unneces-sary costs. All too often, managers attempt to control fleet costs on the backend. But the best time to do this is before it occurs, and the way to do this is by establishing policies and procedures that keep your fleet fully compliant with the law, corporate policy and any other fleet standard or mandate, policies that inhibit un-necessary spending and protect the company’s bottom line.

Partnership can help you make compliance work. Fleet man-agement companies today recognize that fleets and fleet manag-ers are under more pressure than ever to operate at the highest levels of efficiency. Go to your provider for help in designing a program that has compliance, best-practice performance and cost economies built-in so that your fleet of vehicles can make an even stronger contribution to your company’s success. n

Anyone interested in learning more about the business benefits of compliance is encouraged to call ARI at 1-800-477-4715.

SOurcES & rESOurcESIn addition to our own extensive fleet management library, ARI re-

searched a variety of government, business and industry sources in the development of this white paper, including:

“Adopt a Comprehensive Fleet Policy,” International Council for Local Environmental Initiatives. Accessible at http://www.greenfleets.org.

Automotive Fleet, “Fleet Policy Is the DNA of Your Fleet,” February 4, 2003.

Automotive Fleet, “10 Milestones That Changed Fleet Management,” May 30, 2008.

Automotive Fleet, “How to Develop a Corporate Culture of Fleet Policy Compliance,” August 5, 2008.

Brown, Aaron. “Safety Hazards – Accident Blackspot,” Accountancy Age, March 20, 2008.

“Business Fleet White Paper: Z15 Safe Practices for Motor Vehicle Op-erations — An ANSI Standard 2006,” J. J. Keller & Associates, Neenah, WI. Accessible at http://www.jjkeller.com. Click “Knowledge Center.”

Cobb, Brian. “Business benefits and ROI calculations of an integrated fleet optimisation solution,” IBM Corporation, Armonk, NY.

“Employer Policies,” European Road Safety Observatory. Accessible at http://www.erso.eu/knowledge. Search “Fleet Policy.”

“Federal Fleet Policy,” “Fleet Management Review,” and “Guide to Federal Fleet Management,” a series of documents published between 2003-2006 by the Federal Fleet Policy Council of the General Services Administration (GSA), Washington, D.C. Accessible at http://www. gsa.gov. Click “Policy.”

“Fleet Driver and Management Policies and Procedures,” State of Wis-consin. Accessible at http://www.doa.state.wi.us.

Fleet Financials, “10 Ways to Increase Driver Compliance with Fleet Policy,” May 4, 2001.

Fleet Financials, “How to Increase Fleet Policy Compliance,” October 13, 2004.

Fleet Research Quarterly, “Policy and Administration of Corporate Vehicle Fleets,” Executive Report Vol. 6 No. 1, 1st Quarter 2008, Chattanooga, TN.

Fortune Magazine, “A 35 mpg future for your car,” December 12, 2007.

Government Fleet, “Cost Control Starts with the Company Driver,” Octo-ber 13, 2006.

“Greening Your Fleet,” Volvo Car Corporation. Essay accessible at http://www.volvocars.com/intl/salesandservices/fleetsales/Pages/default.aspx. Cllick title.

Hunt, Robert H. “Cutting Edge Fleet Safety Strategies,” ACIG Insurance Co., Dallas, TX, November 2005.

National Association of Fleet Administrators (NAFA). Accessible at http://www.nafa.org. Search “Fleet Compliance.”

Nesbitt, Kevin and Daniel Sperling. Fleet Purchase Behavior: Decision Processes and Implications for New Vehicle Technologies and Fuels, Institute of Transportation Studies, University of California, Davis.

Online Learning Program, Institute of Car Fleet Management, Washing-ton, D.C. Accessible at http://www.icfm.com.

Pattullo, Scott. “Taking Control of Fleet Costs.” Paper was presented at NAFA Fleet Management Institute meeting held in Atlanta, GA, April 2004.

Peterpaul, Luanne M. Esq. “Is Your Motor Vehicle Record Program In Compliance With The Fair Credit Reporting?” Paper was presented at NAFA Fleet Management Institute meeting held in Atlanta, GA, April 2004.

Rawlings, David. “The Path to a Successful Fleet,” a series of seven articles from Deloitte & Touche, June 2003. Accessible at http://www.deloitte.com/dtt/home. Search title.

Risk Management Fleet Policy, Groupama Insurance Co., Ltd., London, England. Accessible at http://www.groupama.co.uk.

Schneider, David K. “The Power of Vision – Building a Resilient and Sus-tainable Supply Chain,” David K Schneider & Company LLC, March 2008. Accessible at http://www.dksco1.com. Click “Presentations & Papers.”

Sinclair, Mark. “The Cost of Going Green,” Accountancy Age, July 17, 2008.

Supply Management, “Keep Your Eye on the Road,” September 7, 2006.

U.S. Government and Relevant Federal Agencies. All are accessible at http://www.firstgov.gov. For Environmental Protection Agency (EPA), Transportation Department (DOT), Department of Energy, Treasury Department, Internal Revenue Service (IRS), Securities Exchange Com-mission (SEC), Government Accountability Office (GAO), General Services Administration (GSA), Office of Management & Budget (OMB), Occupa-tional Safety & Health Administration (OSHA) or other relevant agency, click “A-Z Agency Index,” then click agency name.

“The World Has Changed - Tax Risk Management & Compliance,” a white paper by PriceWaterhouseCoopers, New York, NY. Accessible at http://pwc.com. Search title.