Maintenance Contracts - why they can cost you a lot of money

 TOPIC 5

Blessing or Liability? 

  Maintenance Contracts became mandatory by intuitions financing new vehicle transactions to reduce associated risks in repossessing vehicles that have been “cannibalised”, furthermore this critical function also provides a certain amount of comfort for larger fleet Operators who have no interest in providing technical facilities to service what is considered a costly non-core element in their business. Of course this concept is also considered by OEMs and their dealer networks as an integral part of capturing aftermarket business and rightly so, as it keeps out “pirate” parts suppliers.

 

  With all the advantages offered to Operators simply by contracting out a highly technical core element of their business; who in their right mind would argue against the concept of Maintenance Contracts (MCs)? So much for the up-side but this is not where it ends.

  As there is simply no other finance option for so many under-capitalised Operators,  why then do many continue operating in-house fleet facilities? The answer is simple; being left with no option, these Operators grasp at an opportunity to minimise vehicle replacement cycles and reach for extended economic life of their costly and perishable investments. Replacing a vehicle also means increasing leverage ratios (debt) and increasing working capital needed to meet high monthly repayments.

  Many fleet operators however believe that owing to the difficulties in providing in-house fleet services they resort to contracting out in this regard, with a belief they can dispense with justification for a fleet manager and associated expenses, not realising the critical need for a suitably experienced technical person to manage the maintenance contract provider (MCP) – and this is where it starts costing a lot of money!

Do it properly or leave it to the professionals

  It begins with investing capital in automotive equipment (trucks) to provide the most cost-effective lifetime revenue generation, as well as, investing in who makes the decisions and carries them out over the economic life of the asset; usually five to seven years?

  Next, who negotiates and manages the fleet maintenance contract and service provider (dealer) over the period of the contract (up to five years and/or limited km)? This is a long time to “live” with one service provider.

  The maintenance contract (MC) concept however is flawed in as much as it has two masters: The first is Fleet Owner’s interest, this is to secure the best possible deal at the lowest cost. Second, the Service provider (dealer), structures the contract to ensure the customer abides strictly to the terms and conditions of a cleverly-worded contract, designed to yield profitable business for the service provider, with minimum risk over an extended period, at the lowest possible business risk.

The most costly disputes are those associated with exceeding service intervals and driver abuse

  Another flaw in many MCs is that the service provider (dealer) will not accept responsibility for vehicle roadworthiness or downtime, even when such loss of availability is the result of a manufacturer’s warranty claim or faulty workmanship on their part.

  Dealers will not guarantee turnaround times associated with any service or repair and often disputes liability for payment, and such can contribute to further delays in vehicles returning to service. 

  While this Topic was chosen to alert RTOs about contracting out fleet maintenance and repair, there is one more incredibly important issue to consider and this is the Owner and/or Proxy’s personal liability for toadworthiness of the vehicle.
 

In the case of articulated vehicles, failure to implement a satisfactory Semi-trailer maintenance policy means the drawing vehicle’s fitness is also seriously compromised.

  Talkingtrucks.co.za specifically chose to bring this critically important Topic up for discussion and trust it will receive the attention of all Fleet Operators large and small.

Another critical question: In the event of a serious accident who takes responsibility if the truck is found to be unroadworthy?

Let’s have your responses to this - the 5th of 10 Topics under discussion this year.

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