The Fleet Services Division within the City’s General Services Department (GSD) is responsible for procurement for all vehicles assigned to Council-controlled Departments. GSD also provides maintenance services for the vehicles, except those assigned to the Los Angeles Police Department (LAPD) and Los Angeles Fire Department (LAFD).

While departments determine their vehicle needs to perform operational functions, GSD staff work with departments to establish vehicle specifications and administer all vehicle procurement functions. The three Proprietary Departments (Los Angeles World Airports (LAWA), Port of Los Angeles (POLA), and Los Angeles Department of Water & Power (LADWP)) each procure, maintain, and administer their own vehicle fleets, which include passenger vehicles.

Each of the departments listed in Figure 1 utilize a Vehicle Management System (VMS) to track maintenance and repair of City-owned vehicles. Important data such as vehicle mileage and procurement/maintenance costs are generally tracked in VMS. However, the current systems utilized by Council-controlled Departments lack features such as data sharing with other City management systems (e.g., FMS) and integration with GPS/telematics technology.1

While the systems are based on a similar platform, each department uses its VMS differently; therefore, comparisons of average cost data between departments should be performed with caution. (Appendix I provides summary operational and financial statistics that were calculated using departmental VMS data.)

The average age of the City’s passenger vehicles maintained by GSD is eleven years old. While GSD uses 10 years as the targeted lifecycle for sedans, we noted that 70% exceed that criteria, with 22% more than 15 years old. Since older vehicles typically require more corrective maintenance, the City inherently requires additional resources to maintain aging vehicles over the long term.2

Citywide Vehicle Purchasing is Subject to Financial Limitations and Constraints

The City’s budget identifies three funding sources for the City’s Vehicle and Equipment Replacement Program: 1) Municipal Improvement Corporation of Los Angeles (MICLA) Financing; 2) General Fund; and 3) Sewer Construction and Maintenance Fund (SCMF).3 For FY 2018-19, the total proposed budget for citywide vehicle and equipment replacement was $90 million; 24% of that amount was allocated towards 674 non-emergency passenger vehicles, as noted below.

As demonstrated above, MICLA funds are primarily used for vehicle and equipment replacement. MICLA is a non-profit financing entity that was formed to assist the City in acquiring capital assets through the issuance of bonds, certificates of participation, and commercial paper. MICLA provides the necessary capital to purchase replacement vehicles at advantageous interest rates.

The City and MICLA enter into lease-purchase agreements, where MICLA serves as the lessor. In the debt agreements, the City has covenanted to make payments corresponding to MICLA’s debt service requirements and related costs. Currently, MICLA funds cannot be used to pay lease costs with an external (non-City) entity, though all lease obligations for capital equipment count towards the City’s debt limit.

By restricting the use of MICLA funds for purchases of capital assets and equipment, the ability of the City to pursue alternative vehicle procurement strategies (i.e. leasing) is constrained. Alternative procurement strategies currently require non-MICLA funding sources, such as the City’s General Fund. An example of this is a General Fund budget allocation of $1.4 million in FY 2018-19 for the leasing of 235 all-electric vehicles for use by the LAPD (LAPD Lease).

GSD Study: “The Fleet Leasing Option and Maintenance Alternatives”
Historically, the City has generally opted to purchase passenger vehicles and maintain them with GSD staff.

In December 2012, GSD management performed an internal analysis (Leasing Option Report) that evaluated leasing and maintenance options for the City’s vehicle and equipment fleet. Within the internal report, GSD noted that, “leasing vehicles may or may not be the most cost effective option or prudent method of acquiring and fielding vehicles.” Further, the report stated that, “when City departments independently enter into lease agreements without the benefit of professional fleet management, they will be inclined to choose the lease that appears to have the lowest cost based on upfront calculations without considering the entire lifecycle.”

The GSD report primarily included lifecycle cost analyses for specialty equipment; however, there was a lifecycle cost analysis performed on a passenger vehicle: the 2013 Ford Explorer XLT Sport Utility Vehicle.

GSD concluded it would have cost 26% more over the life of the vehicle to lease rather than purchase the Ford Explorer. Variables such as interest rates, maintenance costs, lease payments, administrative costs, and remaining equity were all estimated and included within the analysis. The GSD report summarized their conclusion by stating that, “if lease management costs were excluded (…), good arguments could be made for either decision [to lease or to purchase]. [However], when management costs are included, leasing becomes cost prohibitive.”

Contrary to this conclusion, our analysis in the following section demonstrates that cost savings and non-financial benefits (e.g., improved safety and technology) may be achievable through bulk leasing of passenger vehicles.

1 The City’s Council-controlled Departments with vehicle maintenance responsibilities (i.e., GSD, LAFD, and LAPD) are in the process of upgrading their respective VMS and related systems.

2 GSD indicated it has submitted multiple budget requests for a five-year investment strategy to replace all units past their life cycle; and noted that although not all requested funding has been provided, it continues to provide safe and reliable equipment to its customers.

3 GSD indicated there are additional sources used to fund the City’s vehicle and replacement program, such as Sanitation Equipment Charge, Street Lighting Assessment Fund, and Recreation and Parks Turf and Small Equipment Replacement Fund.

As a vehicle ages, corrective maintenance becomes more costly and eventually may exceed the value of the vehicle. This concept is demonstrated in the economic theory of vehicle replacement, illustrated by the figure below.  

Ideally, a vehicle or piece of equipment should be replaced around the time the rise in annual operating costs begin to outweigh the decline in annual capital costs – that is, when the two cost curves intersect and the total cost curve begins to turn upward.

Optimal vehicle lifecycles may vary depending on the type of vehicle, how it is operated, and the quality of maintenance provided. Most organizations develop a recommended replacement cycle for each class or type of vehicle, which will approximate the optimal replacement cycle for the units in that particular class.

The City Should Implement Alternative Procurement Models to Meet Operational Needs, Enhance Service Delivery, and Improve Vehicle Safety

As the City’s passenger vehicles age, there are opportunities to strategically replenish the fleet using approaches other than purchasing. Leasing is a common practice for federal, State, and local government agencies to consider when procuring passenger vehicles. Each vehicle procurement scenario is unique, requiring analyses related to financing, utilization, and lifecycle costs.

Vehicle Procurement Decisions Require Complex Analysis

Several financial and non-financial factors need to be considered for each vehicle procurement decision.

In addition, there are both financial and non-financial factors to consider in assessing lease versus purchase decisions.

Within the GSD Leasing Option Report that supported vehicle purchasing over leasing, cost estimates for maintenance and administration were used to analyze lifecycle costs. The labor rate used in the analysis ($53/hour) was calculated using budgeted salaries and the number of authorized positions from the City’s FY 2012-13 Adopted Budget. However, using actual labor data from the VMS, and including indirect overhead costs, produces higher projections for the cost of ownership.

An Adjusted Analysis Based on Cost/mile of City-Owned Passenger Vehicles Favors Leasing

According to GSD staff, VMS data for labor costs is calculated using actual salary and overtime expenses divided by the actual number of productive labor hours related to preventive and corrective maintenance. Using this methodology, GSD calculated hourly labor rates between $72 and $75 during the five most recent fiscal years. However, VMS maintenance costs do not include overhead costs such as fringe benefits and compensated time off paid; or an allocation of departmental administration and support costs.

To account for these factors, we calculated the average per mile cost (excluding fuel) for all passenger vehicles maintained by GSD, and applied an indirect overhead rate to the labor costs associated with preventive and corrective maintenance. By adjusting labor costs for these indirect costs, the average annual cost of ownership increased from $5,586 to $6,202 (Type A vehicles) and $6,404 to $7,316 (Type B vehicles), when applying a target lifecycle of ten years or 100,000 miles.

The U.S. General Services Administration (GSA) has a framework that allows federal agencies to lease sedans, light trucks, and SUVs directly from a pre-approved list of vendors for a period of one to five years. The list, referred to as GSA Schedule 751, primarily includes model year 2018 vehicles and a mix of different vehicle types (i.e., gasoline, hybrid, electric). Monthly lease costs are directly passed through GSA to the vendor. Although the specific vehicles listed on GSA Schedule 751 may differ from vehicles in the City’s fleet, and the City is not authorized to use these GSA leasing agreements, this example demonstrates that cost savings may be achieved through bulk leasing. A review of the monthly lease costs for Type A and Type B vehicles on GSA Schedule 751 shows lower annual costs than the adjusted annual ownership costs shown in Figure 6.

Preventive or corrective maintenance services are not included as part of the standard lease terms offered by vendors on GSA Schedule 751. However, it is important to note that: (1) new vehicles are less likely to incur significant costs associated with labor and parts; and (2) vehicles are covered by the manufacturers’ standard warranty (three years, 36,000 miles) and some include roadside assistance. For issues not covered by manufacturer’s’ warranty, the City could provide services using GSD personnel, contract with external service providers, or purchase maintenance coverage directly from the lessor.

In addition, administrative costs associated with tasks such as developing vehicle specifications, negotiating lease terms, and processing monthly lease payments are not included in the estimated annual costs noted. However, it is possible that the City may realize cost savings even when these costs are included, particularly with Type B vehicles.

Reduced Maintenance Costs and Enhanced Vehicle Safety Could Be Achieved Through Leasing

In general, vehicle leases are structured to ensure that the value of a vehicle is maintained at reasonable levels. Typically, this is a major factor in determining lease costs, and requires the lessee to adhere to maintenance and mileage limitations throughout the term of the lease. For example, the LAPD BMW Lease has mileage limitations of 10,000 and 12,000 miles per year, and requires vehicles to be serviced by certified high voltage mechanics to avoid safety issues. Since these requirements are incorporated into the City’s monthly lease payments, minimal maintenance service costs are incurred by City staff.

From a safety perspective, leasing would also appear a superior option since vehicles would be replaced/renewed at expiry of the lease term, which would be significantly shorter than GSD’s targeted lifecycle of ten years for sedans. New models may be equipped with the latest safety features such as backup cameras, automatic emergency braking, electronic stability control, and blind-spot warning systems. Therefore, as leased vehicles are replaced, safety is consistently addressed and the cycle of improving safety is perpetuated.

Although each vehicle procurement decision varies, other jurisdictions have successfully implemented vehicle leasing programs as a strategy to lower maintenance costs and acquire newer vehicles. In 2011, the City of Chicago initiated a pilot program that leased 125 nonemergency light duty vehicles. Based on the results of the pilot, Chicago’s fleet managers gradually expanded the number of leased vehicles to 400, or approximately 40% of their nonemergency light duty fleet.

4 $2.4 million for 884 cars (Type A vehicles), and $5.9 million for 1,303 light trucks/SUVs/vans (Type B vehicles).

DASH Buses
With most departmental offices located within the Downtown Los Angeles area, the City’s general policy is for employees who are headquartered Downtown and are not assigned a vehicle to utilize DASH buses to conduct City business within the Downtown area. City Departments encourage employees to utilize DASH by providing prepaid bus passes to employees for business trips within the Downtown area. This policy eliminates administrative costs related to the use of pool vehicles and/or mileage reimbursement, and also eliminates any parking costs or space requirements that would be necessary if a vehicle were utilized. The policy also reduces the need for general pool vehicles to be used for relatively short-trips within the Downtown area; however, factors such as convenience, availability, passenger counts, and traffic should also be considered.

Personal Vehicle Mileage Reimbursement
Another transportation option available to some City employees is providing reimbursement for the use of a personal vehicle in conducting City business. This is a common practice for some City employees, including building inspectors and tax auditors who conduct their work at various field locations, as their job requires. Employees must be approved to receive mileage reimbursement by their department General Manager or Board Executive Officer, and adhere to policy guidelines in order to qualify for mileage reimbursement. In addition, employees and/or officers that are certified for mileage reimbursement are also subject to review and approval by the City Administrative Officer (CAO).

Excluding fuel and indirect costs, the City’s average cost per mile for using fleet cars is $0.56. While comparable to the IRS mileage reimbursement rate (currently $0.545 per mile), the cost difference is greater after considering indirect costs (an estimated $0.62 per mile), and even more when fuel costs are included (estimated at $0.759). Therefore, it would appear more cost effective to pay mileage reimbursement than to provide general pool vehicles. However, if mileage reimbursement were available to substantially more employees, additional administrative costs would be incurred to manage and support the mileage reimbursement processes and required approvals.

Los Angeles County’s general motor pool of 250 passenger vehicles is much smaller than the City’s total pool of passenger vehicles (GSD and departmental assigned). Instead of maintaining a large fleet of passenger vehicles, Los Angeles County allows mileage reimbursement for employees who are designated as permittees by their department management. According to LA County Internal Services Department (LA County ISD) staff, the main reason for allowing employees to claim mileage reimbursement is because of the cost-prohibitive nature of assigning (or making available) a County-garaged vehicle to every employee who may have a business need for one. Mileage reimbursement is also a more viable solution for County workers, since County office locations are spread over such a large geographical area, covering over 4,000 square miles.

Telephone/Video Conferencing
General pool vehicles are commonly used by City employees to travel to meetings. Another alternative is for City employees to better leverage modern communication technologies. In many cases, telephone or video conferencing can be considered a viable substitute for conducting an in-person meeting. By investing in and encouraging the use of modern communication technologies, the City would reduce the frequency of need for general pool vehicles.

9 Adding the additional incremental fuel cost of $0.13/mile, based on an assumed fuel cost of $3.25/gallon and assumed average 25/mpg for passenger vehicles.

Considering How to Best Utilize and Engage Fleet Management Companies

It is a common practice for large agencies to execute service agreements with external fleet management companies. In addition to service agreements with vehicle leasing arrangements, several fleet management companies specialize in assisting large organizations with many aspects of fleet management, including vehicle procurement, maintenance, and administration.

For example, the County of Los Angeles generally outsources all vehicle maintenance. Costs for services to maintain vehicles assigned to County departments are directly billed to those departments, as time and materials costs invoiced by the vendor, plus an ISD indirect charge of 14.14%. The current contracted “Light Mechanical” labor rate is $69.48; including the indirect charge, this equates to a County department cost of approximately $80 per labor hour.

The County’s general motor pool includes approximately 250 passenger vehicles, and ISD Fleet Services acts as a “rental agency” for County departments. Consistent with the County’s internal service chargeback policy, departments are billed by ISD based on a daily rate schedule; rates are based on cost recovery and vary depending on vehicle type.

Included in GSD’s Leasing Option Report (as discussed in Section I), was a consultant’s survey of 11 large public agencies regarding leasing and outsourced maintenance. Eighty-two percent of Review of Citywide Passenger Vehicle Motor Pools Research & Analysis | P a g e 16 the surveyed agencies outsourced a portion of their vehicle maintenance. In addition, the majority of the surveyed public agencies utilize a combined purchase and leasing procurement program, and three agencies stated their fleet was comprised of about 20% leased vehicles and 80% purchased.

Agreements can be constructed in a way that harnesses the expertise of City staff, while seeking optimization of citywide vehicle procurement and maintenance practices. Structuring an agreement with one or more of these companies for portions of fleet management activities warrants consideration, and could significantly improve the cost effectiveness of maintaining passenger vehicles.

In addition, the City may benefit from partnering with fleet management companies that specialize in technology such as vehicle GPS/telematics. Installing this technology on light duty passenger vehicles would improve the City’s ability to monitor vehicle usage and collect data that could be used to make fleet-related management decisions.

Partnering with Transportation Network Companies Could Provide Innovative Employee Transportation Solutions

Recent advances in transportation technologies have disrupted traditional transportation service models. Transportation Network Companies (TNCs) such as Zipcar, Uber, and Lyft have significantly increased the cost effectiveness, availability, and convenience of on-demand vehicular transportation, especially within large metropolitan areas such as Los Angeles.

With several TNCs already operating within the local area, the City could leverage the network capabilities of TNCs by establishing formal partnerships that provide enhanced transportation services to City employees at favorable costs; reducing the need for the City to procure and maintain so many passenger vehicles.