Government fleets are undergoing massive changes. New technologies, policy reversals and the end of Australian manufacturing are shaking up the sector as never before. Graeme Philipson and Marie Sansom investigate.

Australia’s public sector is the largest buyer of vehicles in Australia. Of the 1.25 million new vehicles sold in Australia last year, over 50,000 were bought by agencies and authorities at all levels of government.

And that doesn’t count those bought by individuals who work for governments, who acquired their vehicles as part of a salary package through a novated lease.

The massive size of the government vehicle business gives the sector a range of characteristics that set it apart from other vehicles sales. But the sector is changing significantly, affected by changes in technology, economics and government policy.

One of the biggest changes will be the end of vehicle manufacturing in Australia. At one stage Australia had six major car manufacturers, a number now down to three – Holden, Ford and Toyota. In the last year all of them have announced the end of manufacturing in Australia – Ford by the end of 2016 and Holden and Toyota by the end of 2017.

The Department of Finance has had a policy since 2012 that Commonwealth departments and agencies must lease or buy Australian-made cars wherever possible, exceptions being vehicles used for national security or law enforcement. At state level, there are wide variations in the proportion of Australian-made vehicles in each fleet.

For example, three-quarters of Queensland’s state government fleet was manufactured overseas in 2013. In comparison, VicFleet, which manages the Victorian government’s standard motor vehicle policy, stipulates that only vehicles substantially manufactured in Australia should be leased or bought, although it recognises that fleet managers looking for small cars will have to go elsewhere.

In fact, all levels of government in Australia have been buying small cars from overseas for a while now because the Australian motor industry no longer makes them, the smallest being the medium-sized Holden Cruze.

With the demise of local manufacturing and the policies that relate to it government departments and agencies will soon have a much wider range of models to choose from for their medium-sized and larger vehicles too.

But not yet. Cars are still being made in Australia. A Victorian Government list of vehicles approved for executive salary packaging, updated as recently as August 2015, is still limited to Australian-made vehicles.

The ‘prestige’ category is limited to the Holden Calais, Ford Territory (the high-end Titanium mode), and Toyota’s Aurion Presara and Camry Atara SL. There follows a list of ‘upmarket’ and ‘base’ models – all of them Australian made Fords, Holdens and Toyotas.

The continuation of the ‘Buy Australian’ policy in the face of the impending shutdown of the local industry has some fleet managers concerned. It is an axiom of sound financial management that the purchase of vehicles late in their lifecycle be avoided, because of the low resale value of discontinued models. But in this case misplaced economic patriotism has trumped financial prudence.

But gaps are appearing. Last year the Commonwealth ordered nine armour-plated BMW 7 series high-security sedans for use by politicians and visiting dignitaries, replacing the ageing fleet of Holden Caprices. They cost $525,000 – each – but that was justified on the basis that no bulletproof cars were made in Australia. Holden said it could have supplied custom-made cars cheaper, but had not been asked to tender.

Cars of the world

It is a precursor of what is to come. When government fleet buyers are released from the obligation of having to appear to do the right thing by buying Australian, they will have the same choice that private fleet buyers and individuals have had for many years.

Indeed, it is that wider choice that has been one of the drivers of the demise of the Australian car industry. Long lauded by manufacturers as one of the eight or so countries in the world that could manufacture cars from the ground up, from initial concept and design through to when they rolled off the production line, Australian vehicle manufacturing became increasingly uncompetitive, at the same time that economies of scale and improved manufacturing techniques have seen the average cost of imported vehicles plummet.

The high tariff walls protecting the Australian industry were progressively dismantled, starting with the Button Plan in the 1980s. The public voted with their wallets and imported cars became the norm in Australia, with locally made cars suffering a declining market share that finally proved terminal.

Successive governments propped up the industry with grants and tax breaks, but they finally had enough. The public also stopped caring, and the final decision by the three companies to withdraw from local production was met with comparatively little opposition. There was almost a collective sigh of relief.

Public sector fleet buyers and managers will face a number of new strategic challenges in the wake of what will be the biggest market shake-up in decades. The choice of vehicles and plant has never been greater as new competitors from Korea, Europe and now Indian and China all vie for the public sector market and seek to make their mark. Cars will be cheaper, but with a much larger range of models, maintenance will become a bigger issue.

There is a lot of business in government fleet sales. The largest fleet is that of the NSW Government, which owns or leases over 25,000 vehicles – 4000 of them in the police force alone. The Commonwealth fleet contains over 12,000 vehicles – 7000 passenger vehicles (including SUVs) and over 5000 light and heavy commercial vehicles. Half are leased and half are owned.

Victoria’s VicFleet has nearly 10,000 vehicles. The other states all have fleets roughly in proportion to their populations, and most local government authorities have their own fleets. Brisbane City Council, by far the largest LGA in Australia, has 3800 vehicles. There are well over 200,000 vehicles in government fleets around Australia.

Why have a government fleet at all?

There are other significant challenges facing the industry besides the end of ‘Buy Australian’. Indeed, the very concept of a government vehicle fleet is under question and nowhere more so than in NSW after Finance Minister Dominic Perrotet signed StateFleet’s death warrant in August.

Statefleet, which was formed in 1990 to bring together the disparate fleets owned or managed by various departments and agencies, operates within the Department of Finance, Services and Innovation. It provides services such as advice on salary packaging, the SmartPool pooling system, ExtraCar (a short term car rental system), and the sales of ex-fleet vehicles.

StateFleet will be disbanded around mid-2016 and the state’s government agencies will instead deal directly with a panel of private fleet leasing and management companies.

Mr Perrottet has said that the new procurement model would save $1 billion in capital over four years from axing StateFleet’s armada of passenger and light commercial vehicles, which will be gradually wound down.

Mr Perrottet said the current model cost around $240 million annually to implement.

“Today the NSW Government spends hundreds of millions of dollars buying, owning and maintaining one of the biggest car fleets in the country,” Mr Perrottet said. “I’d like to see this capital freed up and invested in frontline services and productive infrastructure.

“Our new fleet management model features a diversity of supply options that will improve service quality, make use of car-sharing and drive value for taxpayer money.

“The Government shouldn’t be competing with the private sector for fleet leasing and management services,” Mr Perrottet said. “This arrangement will be more cost effective, increase competition and allow government to access best practice in fleet management.”

The government is also proposing to use car-share companies like GoGet in metro areas as an alternative to government pool cars in a bid to save money.

The new model represents a fundamental shift away from securing big buy price discounts from manufacturer and dealers for bulk purchasing towards shorter-term, demand-driven services that widens options for the public service and lets the private sector in on the action.

Executive Director of Australasian Fleet Management Association, Mace Hartley, said that some of the Association’s government members managed their fleets in-house, some outsourced them and others ran them under hybrid arrangements: there was no clear winner.

“The decision to adopt one over another is often dependent on the knowledge base and expertise within the organisation, including access to systems etc,” Mr Hartley said.

“The ultimate goal of any organisation is to run an efficient and cost effective fleet that fulfills the needs of the organisation in a safe and environmentally friendly way.

“It’s worth noting you can’t outsource your workplace health and safety obligations so regardless of who manages your fleet, the organisation is still responsible.”

He said that opening fleet management to the private sector and sparking competition could lead to cost savings but it should also be remembered that fleet leasing and management companies aimed to make a profit.

The Commonwealth outsourced the management of its fleet to private operator sgfleet under the Howard Government and it remains majority owned by South African logistics company Super Group. In its first full year of operation as a listed company it showed a revenue increase of 9.5 per cent, to $171.4 million, with profits up 14.4 per cent. There is indeed money in fleet leasing.

Western Australia outsourced its fleet management to Westfleet, part of Matrix Group, in 1996. It seems that government-owned vehicles are an endangered species in Australia.

The technological imperative

The outsourcing trend is only partially being driven by an ideological push towards privatisation by conservative governments. Technology is also playing its part. The rise of services like GoGet and Uber are being enabled by the disruptive nature of the Internet, which is also ‘disintermediating’ many other industries.

The examples are legion. Music and video publishing and distribution, retailing, the replacement of news with social media – we are in the midst of a revolution. The old leasing models are also being challenged.

The Commonwealth gives improved technology as one of the reasons for a reduction in the size of its fleet. “The size of the fleet is reducing, partially because of improved usage analytics and lifecycle management,” said a spokesperson in the Department of Finance, who was reluctant to go into too much detail about the many challenges facing the industry.

(Government News had some difficulty getting anyone to go on the record for this article, such is the sensitive nature of many of the issues surrounding fleet management in the public sector. Large amounts of money and not a few careers are at stake).

Analytics has been one of the key trends in the ICT industry in recent years. It is allied to the concept of ‘big data’ –many industries now have much more information at their disposal, thanks to the ubiquity of Internet-based communications. The so-called ‘Internet of Things’ is tailor-made for fleet management, with GPS location based applications and sensors delivering information on everything from petrol consumption to driver behaviour to route optimisation.

A major industry has grown up around using the technology to squeeze maximum efficiency out of every asset. Motor vehicles, which are expensive and fast-depreciating items with many components and a relatively short lifespan, are prime targets for lifecycle management techniques made possible by the use of big data and improved analytics.

Two leading companies in this market are Fleetmatics and Fleet Analytics. Dublin-based Fleetmatics has a significant Australian presence since its 2013 acquisition of Sydney-based Connect2Field, which had developed a suite of cloud-based field service management applications. That product is now called Fleetmatics Work.

Then there are technology changes in the vehicles themselves. Hybrid vehicles are more popular in government than elsewhere, and it is likely the same will be true of electric vehicles (EVs). Both hybrid vehicles and EVs are significantly more expensive than petrol and diesel vehicles, but the capex/opex price differentials are changing and the alternative technologies are improving.

Fleets, where specific models and technologies can be mandated, are able to take a lead on the implementation of new technologies, and governments often like to be seen to be taking a lead in such matters as fuel efficiency. And let us not even talk of driverless cars, the first Australia trials of which are about to be conducted in Adelaide with the active support of the South Australian Government.

Government fleet management is a complex and fast-changing landscape. Things will look very different just a few years from now. The days of phalanxes of six-cylinder Australian-made ex-government vehicles passing through the auction yards are coming to an end.

The world is changing. So, in many cases reluctantly, must fleet management.

This story first appeared in Government News magazine October/November 2015.