Monday, February 16, 2015

50 Shades of ........

Fifty Shads of….Utilization
Over the years I have learned that there are as many definitions of fleet utilization as there are bus operators in a given room.  Some owners define their fleet’s “maximum utilization” as every bus in their fleet producing one revenue move every day.  Others operators define their fleet’s “maximum utilization” as the maximum hours that a driver can legally drive every bus in the fleet every day.  Clearly there are many definitions and none of them are necessarily right or wrong. 
Regardless of what your definition, one fact remains absolutely true; buses are not getting less expensive.  With the average cost of a 45’ motorcoach tipping the scales at over $600,000 per unit, we have to face the fact that every available minute better be a billable minute. 
On a recent visit to one of our appraisal clients I was reminded of the ultimate definition of “maximum fleet utilization”.  This particular operator runs a very busy bus company with over 200 units in their fleet.  In all fairness, these buses almost never operate beyond a 50 mile radius of their home base.  The amazing thing about this fleet is that the nearly 100 percent of this fleet operates between 18 and 20 hours a day, 7 days a week, 365 days a year.  Which leaves me to ask, how can you do this? 
I asked that very question of the company’s Vice president of Motorcoach Operations, and got the following response.  “If our CEO had his way, these units would be operating 24/7/365, but that is just not possible”.  He went on to explain that in their operation if the buses are available less than four (4) hours a day, there simply is not time to clean, maintain, fuel and provide the fleet with adequate preventive maintenance. 
These short turnaround time frames require a very well-choreographed operation that includes an aggressive maintenance staff and preventive maintenance program.  Well refined computer and software systems to track, schedule and clean the units in the given time frame and nearly 200 in-field daily driver changes. 
All of these things left me wondering, how many operators could squeeze more revenue out of the valuable assets they already have?
 Whatever your definition of “maximum fleet utilization” looks like, I would love to hear from you. 

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Wednesday, September 24, 2014

We Found 2.5M Dollars Of Hidden Equity In A Customer's Bus Fleet.

We are often asked why it is really necessary to have an Annual Bus Fleet Appraisal and last week we had a great example to answer that very question. 

One of our clients called us and explained that they were in the middle of negotiation with a new lender.  They gave us an appraisal assignment to review a “previous outdated” fleet appraisal, update it, and provide them with a current appraisal to substantiate the value of their fleet for the bank.  We gathered updated mileage, CAPX expenses, fleet updates and other key information necessary to produce an accurate and true picture of value.  When we were finished, we discovered that there was an additional $2,500,000 of Orderly Liquidation Value (OLV) over the previous appraisal. 

We sent our customer the draft, asked them to review it and then call us for their approval to finalize the document.  When our customer called, he was amazed that even with depreciation; we were able to find additional value on a fleet of 50 buses.  There were a couple of factors that contributed to the shift in values.

First, when we reviewed the market and comparable units available for sale (often referred to as comps or comparable units) and we found this particular market segment has strengthened over the last couple of years.  The bus market has always been a strong “supply driven” market and when late model pre-owned buses are scarce, buyers will pay a premium to get them.

In addition, it turned out the operator had replaced several engines, transmissions, and interiors during the previous few months which made a large difference in overall OLV.  As busy operators replace major components and invest in equipment upgrades, it is easy to lose track of all the value that they put into the units over time.  After all, when you are running a bus company, maintaining and upgrading your fleet is really just all part of doing business, right? 

To further leverage the cost of major maintenance and refurbishing, most CFO’s and accountants get aggressive when it comes to capturing and utilizing the depreciation of these major purchases.  This however is still only two thirds of the equation.  Most people forget that there is a third way to leverage the money that you have already spent and put into your equipment. That’s where are Annual Fleet Appraisal can really help you drive your bottom line.

When operators update or replace major components in their buses, they are really increasing the value of the bus on the open market.  It is important to remember that for every dollar you put into a unit, you might get 70 cents back when you sell the asset depending on the age and mileage of the improvement at the time of sale.

In the case of our customer a number of factors occurred that made a significant increase in the OLV value of his fleet.  Strong industry market segments, few pre-owned buses available on the market for sale in this market segment, and our ability to uncover the significant amount of capital that was invested in the fleet, made a big difference in the overall OLV value.  In fact it made a $2.5M dollar difference. 

With most lenders today loaning 85% of OLV, our operator will be able to utilize approximately $2.1M dollars in loans against his operating line that is being secured by his fleet.  That means that our operator could purchase roughly (4) four new motorcoaches or (17) seventeen new shuttle buses this year.  That ability for him to expand his business in this way is a big deal and we are very grateful that he called us to help.

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Phone 503-883-6300

Thursday, September 11, 2014

Refurbishing Is One Key To Preserving Bus Fleet Values

Preserving the values of your assets is a big deal in an age where the manufacturing cost of new equipment is higher than ever before.  There are many ways to keep your equipment in demand when it comes to the market, and thereby keep its value as high as possible. 

Many operators choose refurbishing as a way to maintain a high curbside appeal for their customers while delaying the purchase of newer, more expensive, equipment. Refurbishing comes in many forms.  Some operators change out interiors, replacing seat covers, cushions, headliners, sidewalls, dash fabric and flooring.  

Bus Striped of its interior being prepared for Refurbishing
New Interior By Sardo Bus & Coach Upholstery

Another popular option for refurbishment is reworking the exterior panels, stripping down the paint, and completely repainting the bus from the ground up.  This option can make your bus look years younger and much more attractive.

Bus Being Sanded and Prepared For New Paint

Bus After Being Repainted

In many cases, if your bus roles up to pick up a load of passengers, it smells good inside, has a fresh interior and a nice glossy paint job on the outside, many customers will mistake it for a new bus.  This can make a huge difference in your bottom line, when it comes to making new bus payments. 

While it is a fact that if you put a dollar into refurbishing your bus you might only get .60 to .70 cents out, in most case it makes sense to age your fleet a few extra years than to enter into a premature replacement cycle.  Of course, not all markets will allow for that strategy, but refurbishing is an option that many operators have found to be extremely helpful to their bottom line.

There are many dealers in the United States and Canada that can help you estimating refurbishing cost.  In addition there are interior companies such as Sardo Bus and Coach Upholstery that have mobile road crews that will come right to your facility and replace your interior on site. 

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