When setting up a lease agreement, it is essential to have customized structures for assets in different operational scenarios. It is highly unlikely that a fleet will have 100% of its assets traveling the same number of miles per year, particularly if they are domiciled in multiple locations, on different routes, or on different duty cycles. Leases should be structured to account for these differences.
Once lease terms are set, the use of each asset should be considered to avoid both overusing assets and underusing them. Fleets want to avoid paying over-mileage penalties and additional maintenance and repair bills for overused assets. Conversely, they want to avoid paying for unused miles.
Excess mileage penalties aren’t usually large, and it’s not necessarily a bad thing to slightly overuse an asset. However, a fleet runs into problems if it begins to operate the asset outside of its most efficient lifecycle.
To gain visibility into each asset, the fleet must share odometer readings with its lending partner. This data can be found on the asset’s on-board computers, odometer readings taken during the most recent preventive maintenance or repair event, or from fuel card reports.
The next step is to compare the current usage of each asset with its rental structure. This analysis will predict the number of miles the asset is likely to accumulate over the term of the lease based on the number of miles already driven. This will help both the fleet and the lessor see if the asset will be above or below its mileage as it nears the end of the lease term.
Business intelligence software can be used to write the formulas once the odometer readings are obtained. Using business intelligence software, each asset can be mapped, making it easy to see which assets are overutilized and which are underutilized.
Fleets need full visibility into asset usage to ensure they aren’t paying for miles that won’t be used (underutilized assets) or running trucks at the beyond the mileage conditions of the initial rental contract.
While mileage data should be collected monthly, data analysis can take place on a quarterly basis, starting six months to one year after the end of the lease. Starting before a significant number of miles have been accumulated will give false projections. But waiting for the end of the lease term to approach is not a good idea, because the fleet will not have enough time to adjust operations to correct overuse or underuse. These adjustments may include placing an asset in a different lane, changing location, or other performance changes.
Tracking mileage within the financial structure throughout the life cycle of the asset is vital as it will take time for the fleet to correct the problem. A good finance partner will use data and technology to help the fleet ensure that each asset is performing optimally within its finance structure.