It's official. The U.S. economy has experienced one of the slowest economic periods in recent history. Businesses are worried, consumers are cautious, and investors are downright jittery. What does this mean for the fleet card business? Well, like everything else in the petroleum industry, that depends on whom you ask and where they’re located. But the consensus is that although the lively pace the market during the last few years has slowed considerably, fleet card business is a vital component for many businesses.
A Difficult Time
Many consumers, uneasy about shrinking nest eggs, are sharpening bargain-hunting skills and keeping an eye on credit card debt. The same can be said for fleet card users.
“The status of the fleet card industry impacts card issuers, marketers and the fleets themselves,” said Benton Routh at Fleetcor. “As the price of gas increased during the last year, demand for fleet cards went up. But with the economic changes, companies of all sorts are watching and monitoring fuel and fleet spending.”
According to Marcie Verdin, senior vice president of large market segment – commercial products at MasterCard Worldwide, for fleet managers, a tough economy can provide opportunity for cost savings in some areas, while making it difficult to rein in spending in others.
“For example, in a down economy it may be easier to find preferred financing when purchasing new vehicles,” Verdin said. “On the flip side, a recessionary economy can mean volatile gas prices, making it impossible for fleet managers to manage and forecast fuel budgets. It may also bring challenges when fleet managers look to sell pre-owned fleet vehicles for a strong price, if their typical buyers are finding it more difficult to obtain a loan.”
Michael Thompson, senior vice president of sales and marketing at Fleet One, agrees. “The current economic conditions are certainly having an effect on fleets and any provider of fleet fuel cards,” Thompson said. “I am not aware of any sector in this economy that is seeing great gains, except perhaps hedge funds. Fleets have fewer loads to carry, fewer construction jobs to send workers to, and fewer service calls as consumers pull back their spending. The result is fewer gallons are being purchased by our fleet clients, and that means fewer transactions are made on our fuel card than we have historically seen.”
And with the price of fuel changing each week, fleet managers are working hard to manage employee spending and control operating expenses.
“The ability to obtain detailed fleet payment information and employ robust reporting tools is crucial to managing these expenses,” Verdin said. MasterCard’s issuers are seeing fleet managers becoming increasingly interested in valid motor fuel fleet data such as price per gallon, type of fuel and quantity purchased.
“We see them using this information more and more to manage their budgets and monitor employee compliance,” Verdin said. This detailed payment information can also help companies save costs by providing visibility into commonly used vendors—such as those used for fuel and maintenance purchases—and can help in negotiating preferred vendor relationships with tailored cost savings.
Fleet One’s current business proposition to fleets is one that allows them to save on fuel expenditures. “As fleets focus on how to conserve fuel consumption and reduce costs in this economy, the value proposition to fleets to use fleet cards makes more sense than ever,” Thompson said.
From a card issuer perspective, ample access to cash and working capital is one key to extending credit to the fleets. “I've seen some of our competitors modify their credit policies to reduce the number of fleets approved for credit, as well as shorten payment terms,” Thompson said. “While this is not true at Fleet One, I certainly understand the reasons an issuer would want to reduce their cost of carrying the fleet receivable and reduce potential exposure.”
Of course, a recessionary economy creates an array of considerations that fleet operators need to keep in mind when incorporating fleet cards into their business.
Thompson advises that if a fleet operator already has fuel cards, they need to pay more attention than ever to the activity on those cards and the purchase habits of their drivers.
“The information is provided, but it is up to the fleet manager to use the information,” he said. “Are you managing drivers by having them purchase at lowest cost retailer locations? Are you making sure they comply with your routes? Have you compared the actual MPG on each vehicle to insure there is no fraud? Have you put processes in place to ensure the proper grade of fuel is purchased?”
As Verdin pointed out, another important issue fleet managers should consider is implementing a program with broad merchant acceptance. “The MasterCard Fleet Card is accepted at all fuel merchant sites, which ensures efficiency and maximum cost savings,” Verdin said. “Broad merchant acceptance prevents drivers from wasting time and fuel looking for sites where their fleet card is accepted.”
Also, look at the ability to customize the card program and individual card options to suit specific fleet business needs. For example, the MasterCard Fleet Card program offers both vehicle and individual employee cards, authorization features that provide driver, vehicle ID and odometer information, variable card spending controls by amount of purchase, type and transaction location and the ability to change purchasing authorization and spending criteria quickly and easily.
“These features allow for greater payment flexibility and ensure the card program provides effective and informative spend data for the fleet manager, enabling greater visibility into spending, which can help control costs,” Verdin said.
Curbing the Trend
So how can marketers and retailers best pitch these programs to fleet operators in this economic environment—particularly when combined with dropping fuel costs?
“One way to promote fleet card programs is to offer discounts, savings and rewards programs,” Verdin said. By offering these opportunities to save on regular fuel and food-related purchases, merchants can improve customer loyalty and boost in-store revenue. Additionally, prominently displaying specific fleet card acceptance can help retailers attract more customers. Fleet card programs with a broad network of merchant partners save time and money for fleet managers and drivers, as they provide a one-stop-shop for fuel, food and other items.
Also, typically there are no significant costs associated with fleet card programs. For example, MasterCard’s issuers work closely with their fleet customers to provide MasterCard-supported, customized reporting and other expense management tools that help fleet managers streamline processes, gain visibility into employee spend and ultimately save money.
“Additionally, the type of payment information provided by these cards can often help fleet managers negotiate discounts with vendors and enforce compliance with company policies, further reducing costs,” Verdin said.
As most recessionary economies indicate, the amount of defaults on loans and other business initiatives often rise.
“We are seeing more and more companies are sensitive to the price of fuel and bad debt is running a lot higher,” Routh said. “Whoever owns the receivables owns the debt.”
That’s why many issuers are seeing an increase in the number of marketers going from a self-service to full-service fleet card program, whereby the issuer owns the debt. “Many marketers have a hard time handling bad debt from fleets, so more and more depend on the issuer to handle the receivables,” Routh said.
As Thompson explained, most third-party fleet card companies take the risk for non-payment by the fleet.
“Our bad debt has gone up as the fleet's ability to pay has been reduced,” Thompson said. This would also be true for retailers that may carry their own receivables from their fleets.
“As with any card program, there is some risk,” Verdin said. “When working with business customers to provide fleet card programs, issuers must gauge risk and closely monitor card programs according to their individual business models.”
Today, the petroleum industry seems to be regaining some confidence. It is hard-won confidence, coming in the midst of a recessionary economy. But it is a hint, at least, that there may be some light at the end of the tunnel.
While costs of fuel have fluctuated, the U.S. Energy Information Administration (EIA) states fuel prices increased from $1.64 in 2003 to $2.85 in 2007. For 2008, fuel prices peaked at an average of $4.15 per gallon in June 2008, with that average declining to $2.43 at the end of October 2008.
Verdin points out that fleet card programs can help identify areas for cost reduction and help manage operating expenses, especially during times of fluctuating fuel costs. And the overall state of the economy will play a key role in a fleet’s ability to obtain and retain these credit programs.
“The ability to offer credit to fleets is a key component for any fleet card issuer, whether it is a third party fleet card or a retailer,” Thompson said. “The credit markets may have an effect on a fleet's ability to get a fleet card and the terms they desire. Positive changes to the fleet card issuing industry will likely evolve from technology enhancements, allowing fleet owners and managers more control over their expenditures and further reducing their costs associated with operating the fleet.”
And experts agree that while the cost of fuel has dropped recently, it will likely continue to be volatile. “Now is the time to put programs in place that will save the fleet money, regardless of the price of fuel,” Thompson said. “Some retailers have also introduced cash and credit pricing. If a fleet uses credit cards to buy fuel, they may be paying a higher credit price, versus a lower cash price, which most fleet cards enjoy.”
As Verdin points out, as the fleet card industry continues to evolve, new challenges, such as green fleet initiatives, alternative fuels and rising prices, will push fleet managers to find additional ways keep track of costs, automate processes and save money. One example of the way MasterCard is working to help fleet managers manage these changes is the addition of product codes to its fleet card programs, designed specifically to advise fleet managers when E85 or ethanol, biodiesel and many more fuels are purchased.
“In the future, fleet managers will continue to look for card programs that provide more detailed and accurate payment information to help identify areas of improvement, reduce overall spend and negotiate with vendors,” Verdin said. Fleet card managers will also continue to look for fleet card programs that offer the broadest acceptance possible for both fuel and maintenance.