"1^0- IS

FILE COPi

NBSIR 75-961

The Police Patrol Car: Economic

Efficiency in Acquisition,

Operation, and Disposition

Institute for Applied Technology

National Bureau of Standards

Washington, D. C. 20234

Prepared by

Law Enforcement Standards Laboratory

National Bureau of Standards

Washington, D. C. 20234

June 1976

Prepared for National Institute of Law Enforcement and Criminal Justice

Law Enforcement Assistance Administration

U.S. Department of Justice

Washington, D. C. 20531

Rosalie T. Ruegg

Final

1

NBSIR 75-961

THE POLICE PATROL CAR: ECONOMIC

EFFICIENCY IN ACQUISITION,

OPERATION, AND DISPOSITION

Rosalie T. Ruegg

Institute for Applied Technology

National Bureau of Standards

Washington, D. C. 20234

Prepared by

Law Enforcement Standards Laboratory

National Bureau of Standards

Washington, D. C. 20234

June 1976

Final

Prepared for National Institute of Law Enforcement and Criminal Justice

Law Enforcement Assistance Administration

U.S. Department of Justice

Washington, D. C. 20531

•"•t.u Of

U.S. DEPARTMENT OF COMMERCE. Elliot L. Richardson, Secretary

Dr. Betsy Ancfcer^Johnm. Auiatant SBcrHafv for Sehnee mid T^chnohgy

NATIONAL BUREAU OF STANDARDS. Emett Ambler. Acting Director

ACKNOWLEDGMENTS

This report was prepared by the Law Enforcement Standards

Laboratory (LESL) of the National Bureau of Standards, under

the direction of Jared J. Collard, Acting Manager, Vehicles

Program, and Jacob J. Diamond, Chief of LESL. Appreciation is

extended to the many police departments and commercial

enterprises that cooperated in this study.

ii

PREFACE

Expenditures for police patrol vehicles exceed those for

any other item of equipment purchased by law enforcement

agencies. With growing sizes of fleets, increasing diversity

of vehicles for specialist jobs, and an increasing number of

options available for acquiring, maintaining, and disposing of

vehicles, the management of police fleets is becoming

increasingly complex.

The police fleet manager, in his efforts to provide

suitable transportation to meet department requirements , has a multiplicity of objectives: to provide a fleet of the

composition and size necessary to perform department duties; to

provide vehicles which have adequate performance capabilities,

meet safety requirements , satisfy officer morale and comfort

criteria, and contribute to the desired public image; and to

provide the vehicles at lowest possible cost.

In turn, the manager is confronted with a number of

decisions regarding provision of the fleet. He must, for

example, decide what types of vehicles and how many to buy;

what optional equipment is required; what utilization practices

to follow; how to secure the vehicles; what type of maintenance

and repair facilities to have; how much preventive maintenance

to schedule; when to replace a vehicle; and how to dispose of

used vehicles

.

The alternative courses of action are likely to have

unequal efficiencies in terms of resulting costs, but the

"best" decision is not always apparent. Information and

techniques are needed which will help the police fleet manager

secure an effective fleet in the most economical way. In the

words of one such administrator, "the need for information in

this field is great. A study of existing practices and the

success of the various types of operation should be documented

so that the police administrator may make intelligent

decisions." Elimination of inefficiencies in police fleet

management can significantly reduce the cost of police services

and result in substantial savings of public funds

.

A brief summary of this report, entitled Life Cycle Costing

of Police Patrol Cars : Summary Report , was published as

National Bureau of Standards Interagency Report NBSIR 74-471,

in March 197 4.

iii
I. (.!•• (..'
THE POLICE PATROL CAR: ECONOMIC EFFICIENCY

IN VEHICLE ACQUISITION, OPERATION AND DISPOSITION

CONTENTS

Page

Preface iii

List of Tables vii

List of Exhibits xi

Executive Summary 1

1. Introduction 15

2. Methodology of Life Cycle Costing 21

2.1 Life Cycle Costing 22

2.2 Break -Even Models 32

3. Cost Analysis of Police Patrol Vehicles 33

3.1 Critical Cost Elements 33

3.2 Cost of Vehicle Acquisition ......... 35

3.2.1 Purchase Price, Resale Value and

Depreciation Cost 35

3.2.2 Cost Saving Practices in Buying and

Selling 47

3.2.3 Lease vs. Buy 71

3.3 Operating and Maintenance Costs 100

3.3.1 Operating and Maintenance Costs for

Patrol Cars of Different Sizes .... 100

3.3.2 Operating and Maintenance Costs by

Type of Expenditure, and as a Function

of Driving Environment, Usage Rate,

and Mileage 103

3.3.3 Selection of Maintenance Facility:

Centralized or Decentralized Organization and Location —Police Shop,

Municipal Garage, or Private Vendor . 108

3.4 Cost Effects of Alternative Vehicle-Driver

Assignment Plans: The Personal Car Program . Ill

3.4.1 Description of the Personal Car

Program 112

3.4.2 Vehicle Costs Under the Personal Car

Program: Empirical Evidence 113

3.4.3 A Cost Comparison of a Personal Car

Program with a Minimum Fleet/Multishift Car Plan: A Hypothetical

Example 120

V
3.5 Patrol Car Replacement Decisions 128

3.5.1 Replacement Methodology 130

3.5.2 Replacement of Police Cars: Illustrative Cases 142.

3.6 Life Cycle Costs of a Typical Patrol Car . . 159

4. Summary 161

Appendix A—Police Fleet Practices 165

Appendix B —Sample Leasing and Maintenance Agreements. 191

Appendix C —References » • •

1/

vi
LIST OF TABLES

Table

Number Page

1 Discounting Formulas 27

2 Discount Factors, 2% Interest Rate 29

3 Discount Factors, 10% Interest Rate 30

4 Discount Factors, 15% Interest Rate 31

5 Typical 1972-1973 Price Quotation for a 4-Door

Standard Size, Popular Model Patrol Car . . 36

6 Average Base Prices of Ford, Chevrolet,

Plymouth, Dodge, and American Motor's Cars,

By Model 38

7 Estimated 1972-1973 Prices of Different Models

of Police-Accessorized Patrol Cars 39

8 Estimated Resale Values and Depreciation Rates

for Two Year Old Patrol Cars Recently Sold

by a Few Police Departments 4 0

9 Derivation of Annual Depreciation Rates for

Patrol Cars Owned by Different Types of

Police Departments 42

10 Estimated Resale Values for Patrol Cars, by

Model and Type of Department, Over a Four

Year Period . . . . „ 4 3

11 Typical 1973 Prices of a Representative

Selection of Add-on Equipment for Patrol

Cars 4 5

12 Annual Cost of Patrol Car Equipment 4 6

13 Comparative Annual Ownership Costs of Standard

and Intermediate Size Patrol Cars, by Modelline, Age, and Department Type 4 8

14 "Holding Costs" for Selected Items of Car

Accessories 54

15 Comparison of Annual Depreciation Costs

Associated with Two Approaches to Ownership

of a More Expensive Patrol Car 57

16 Cost Comparison of Visi-Bar Light System with

a Bubble Light 59

17 Acquisition Cost of Purchasing Compared v/ith

Finance Leasing 80

18 Estimation of Garage Staff Requirements and

Annual Labor Cost 84

19 Estimation of Equipment Cost 8 6

20 Estimation of the Cost of Parts 90

vii
21 Estimation of Garage Building Cost 91

22 Estimated Annual Cost of Performing

Maintenance In-House 94

23 Estimated Annual Cost of Contracting

Maintenance Work 95

2 4 Operating and Maintenance Costs by Size of

Police Patrol Car 101

25 Operating and Maintenance Costs of Private and

Fleet Cars, by Size of Car 102

26 Operating and Maintenance Costs by Type of

Expenditure, Over the Life of a Sample of

State Highway Patrol Cars 104

27 Maintenance Cost for a Sample of City Patrol

Cars by Type of Expenditure and Mileage

Interval of Occurrance 106

2 8 The Effect of Different Driving Environments

and Vehicle Usage Rates on Operating and

Maintenance Costs of the Patrol Car .... 109

29 Comparative Maintenance Cost per Mile for

Vehicles Maintained in a Sample of Police

Shops, Municipal Garages and a Commercial

Garage 110

30 Experience of a Large City Police Department

with a Personal Car Program 116

31 Expenditures and Receipts for a Personal Car

Program (PCP) and a Multi-Shift Plan (MSP) . 122

32 Annual Ownership and Operating Costs of a

Personal Car Program (PCP) and a Multi-Shift

Plan (MSP) Under Alternative Conditions . . 125

33 Illustration of Simple Approach to Calculation

of Optimal Replacement Point: Minimizing the

Average Cost Per Period 132

34 Illustration of the Use of an Annualized Cost

Model to Determine Optimal Replacement Point 134

35 Illustration of the Use of a Present Value

Model to Determine Optimal Replacement Point 136

36 Maintenance and Repair Cost as a Function of

Mileage for Samples of Patrol Cars, by Type

of Department 14 9

37 Optimal Patrol Car Replacement, Based on

Maintenance and Repair Cost for a Sample of

29 Cities, Assuming Average Annual Mileage

of 40,000 and a Six Percent Quarterly Depreciation Rate 150

viii
153

154

38 Optimal Patrol Car Replacement, Based on

Maintenance and Repair Cost for a Sample of

29 Cities, Assuming Average Annual Mileage of

40,000 and a Depreciation Rate of 10 Percent

Per Quarter

39 Optimal Patrol Car Replacement, Based on

Maintenance and Repair Cost for a Sample of

29 Cities, Assuming Average Annual Mileage

of 40,000 and a Depreciation Rate of 20

Percent Per Quarter

40 Optimal Patrol Car Replacement, Based on

Maintenance and Repair Cost for a Sample of

29 Cities, Assuming Average Annual Mileage

of 80,000 and a Depreciation Rate of 20

Percent Per Quarter

41 Optimal Patrol Car Replacement, Based on

Maintenance and Repair Cost for a Sample

of 29 Cities, Assuming Annual Mileage of

20,000 and a Depreciation Rate of Six

Percent Per Quarter

42 Optimal Patrol Car Replacement, Based on

Sample Data for Maintenance and Repair Cost

from a Medium Sized City Police Department,

Assuming Annual Mileage of 30,000 and Rapid

Depreciation . . 43 Optimal Patrol Car Replacement, Based on

Sample Maintenance and Repair Cost from a

Large City Police Department, Assuming

Annual Mileage of 30,000 and Rapid Depreciation

44 Optimal Patrol Car Replacement, Based on

Sample Maintenance and Repair Cost from a

State Highway Patrol, Assuming Annual

Mileage of 30,000 and Moderate Depreciation. 158

45 Annual Life Cycle Cost of a Typical Patrol Car

Operated in 1972-1973 162

155

156

157

ix

LIST OF EXHIBITS

Exhibit

Number Page

1 Factors Influencing Fleet Requirements and

Major Decisions in Fleet Management 19

2 Schematic Illustration of Alternatives of Fleet

Operations 20

3 Critical Cost Elements to be Considered in a

Life Cycle Cost Analysis of Police Patrol

Cars 24

4 Fixed and Variable Vehicle Costs 34

5 The Pattern of Resale Values for a Bottom-ofthe-Line, Standard Size Car in Private Use. . 65

6 Overall Level of Used Car Prices , Seasonally

Adjusted, 1967 to 1973 67

7 In-House Vs . Contracting-Out Maintenance : The

Breakeven Point 96

8 The Optimal Replacement Point 129

9 An Illustration of the Replacement Calculation

When the Replacement Vehicle Differs from the

Existing Vehicle 139

10 Cumulative Maintenance and Repair Cost as a

Function of Mileage for Patrol Cars of a

Medium Size City 144

11 Cumulative Maintenance and Repair Cost as a

Function of Mileage for Patrol Cars of a

Large City 14 5

12 Cumulative Maintenance and Repair Cost as a

Function of Mileage for Patrol Cars of a State Highway Patrol Department 14 6

13 Average Cumulative Maintenance Cost as a

Function of Mileage for Patrol Cars of

Different Make and Model 148

14 Expenditures and Receipts for a Typical Patrol

Car: Cash Flow Diagram 160

15 Composition of Patrol Car Costs, Direct Cost

Only 163

xi

EXECUTIVE SUMMARY

There are many different choices to be made with respect to

police vehicle acquisition, utilization, maintenance, and

disposition. Cost comparison among the different alternatives

is an important element in the choices to be made. To make

valid cost comparisons , it is necessary to employ the

techniques of life cycle costing. This means the inclusion of

first and end costs, and operation and maintenance costs, as

well as the conversion of costs to an equivalent basis to take

into account differences in the timing of expenditures.

This report uses life cycle costing techniques to examine

the costs of some of the alternative approaches to patrol car

acquisition, operation, maintenance, and disposition. Although

the great variability among departments makes it inadvisable to

think in terms of uniform fleet management rules, the findings

of this study are expressed as general guidelines where

appropriate. The analytical methods used in the cost

comparisons are described, illustrated, and recommended as

useful decision tools for fleet managers. In addition, a

descriptive overview of existing police fleet practices is

provided in a number of tables on fleet composition, patrol car

selection and accessorization , car utilization practices,

maintenance, and replacement policy.

Specific questions addressed by the study are the

following

:

1) What are the cost effects of purchasing different sizes

of patrol cars and different optional equipment?

2) What are the advantages and disadvantages of direct

ownership of vehicles as compared with leasing vehicles?

3) How do the costs of contr acting-out maintenance compare

with the costs of an in-house shop?

4) What are the effects of alternative utilization

practices on fleet costs?

5) How often should vehicles be replaced?

6) What method of vehicle disposition is most efficient?

Supersedes Life Cycle Costing of Police Patrol Cars

:

Summary

Report , Rosalie T. Ruegg , National Bureau of Standards

Interagency Report, NBSIR 74-471, March 1974.

1
The focus of the study is on patrol cars, by far the

predominant kind of vehicle in most police fleets. The methods

and techniques are, however, applicable to other types of

vehicles

.

Information for the study was obtained through interviews

and correspondence with State, city, and county police fleet

supervisors; interviews and correspondence with managers of

commercial fleets, automobile manufacturers, dealers, leasing

businesses, and auto auction specialists; review and analysis

of internal records , manuals , reports , data banks and surveys

of police departments and other organizations; review of

published literature , and attendance at meetings dealing with

fleet management.

r Following is a brief summary of the major topics treated in

the report, together with the principal findings:

LIFE CYCLE COSTING METHODOLOGY AND POLICE FLEET MANAGEMENT

A chapter on life cycle costing methodology explains the

techniques used to compare the costs of alternative systems. A

life cycle costing (LCC) approach to fleet management examines

efficiency over the life of the police transportation system,

rather than focusing on only one area of cost, such as initial

expenditure. The study discusses the following procedures,

which are essential to performing life cycle costing:

1) Specification of the desired objective or goal; e.g.,

the objective might be to secure police warning light systems

with certain performance characteristics.

2) Identification of the alternative means or systems by

which the objective may be accomplished; e.g., to lease model A

lights on a five year full-maintenance lease or to buy model A

or model B lights.

3) Identification of all relevant cash flows, and their

expected timing, associated with each alternative.

U) Conversion of the cash flow for each alternative to an

equivalent base by means of discount factors, to reflect the

opportunity cost of money.

5) Summation of discounted costs for each alternative.

2
6) Comparison of life cycle costs of alternatives, and

selection of the alternative with the least life cycle cost.

Because costs of alternative systems may differ both in amount

and in time of occurrence, a comparison of discounted costs

over the lives of systems may differ markedly from the

comparison of the undiscounted sums of present and future

expenditures. For example, a comparison of the cost of two

warning light systems —an aluminum bar with two rotating lights

at each end and a roof -mounted light with four rotating bulbs--

comparable in their level of conspicuity, showed the following:

Although the bar light had a higher purchase price, the model

examined was less expensive than the bubble light over the

lives of the systems.

The analyses of police fleet problems performed in the

study show that LCC techniques can be profitably applied to

many different kinds of problems which regularly confront the

fleet manager. By providing a more complete understanding of

the cost effects of alternative decisions, LCC can improve

efficiency

.

Contacts with a number of police departments showed,

however, that many do not keep cost records adequate for good

management control. In order to assess the effects of

alternative fleet decisions, up-to-date cost information is

necessary. In developing a good cost accounting system,

departments may find helpful the guides, programs, and cost

control systems for fleet management which are currently

offered by both commercial and public organizations.

In addition to the problem of inadequate cost records , many

departments appear to have accounting systems which result in

disincentives to efficient management. Failure to charge or

credit appropriate cost centers may cause managers to neglect

certain costs in their decisions. For example, it may be more

profitable for departments which receive no direct credit from

their used vehicles to cannibalize them for parts retrieval,

rather than to sell them at the optimal time or transfer them

for use by other departments of government, even if the latter

means of disposition are more cost effective for the local

government at large . A proper charge-back system can provide

efficiency incentives.

3
COST-SAVING PRACTICES IN BUYING AND SELLING

The study investigates managerial practices for reducing

vehicle depreciation costs. Specific practices which are

considered include procurement; model selection; length of

ownership; selection of accessories, color, and equipment;

reconditioning; timing of resale; and method of car disposal.

Procurement

A brief examination of specification preparation and bid

acceptance by police departments leads to the following

conclusions

:

1) Although it is not always economical to accept the

lowest bid, many departments continue the practice, believing

that they have no alternative or that justification for

departing from low bid is too difficult. It was found,

however, that procurement regulations are often written to

allow exceptions to low bid acceptance. Justification for

refusing low bids on the basis of projected higher eventual

costs in depreciation, operation and maintenance is usually

difficult. Departments appear more successful in rejecting low

bids on the basis of higher cost of parts , cost of changing

inventory, cost of additional maintenance equipment, and cost

of retraining mechanics , cost differences which are easier to

document than the former

.

2) Cost may be reduced by avoiding unusual and unnecessary

features in the specifications , by taking advantage of research

and test results and illustrative specifications available from

other departments, and possibly, by joining in group buying

efforts. Although most of the major car manufacturers no

longer offer quantity discounts to fleets, special services,

delivery priority, or reduction in the dealer's profit margin

may be attained by submission of specifications jointly with

other departments. Care should be taken, however, to avoid a

pitfall common to group buying: the acceptance of an

unsuitable vehicle.

Model Selection, Length of Ownership, Accessorizing and Color

Based on representative purchase prices, resale values, and

associated patrol car depreciation, the following conclusions

are reached regarding practices for reducing depreciation:

4
1) Depreciation cost on patrol cars can usually be reduced

by choosing less expensive, smaller cars (provided they can be

effectively used) . Typical annual cost savings^ of about $140

can be achieved by a medium-size city department, by moving

from the standard, top-of -the-line model to the standard,

middle-of -the-line model, and about $160 more can be saved by

moving from the middle to the standard, bottom-of -the-line

model. A total annual cost reduction in depreciation of $300

is therefore possible by moving from the standard, top-of -theline to the standard, bottom-of -the-line model. The potential

savings in depreciation is even larger by moving from standard

to intermediate automobiles: a standard, middle-of -the-line

car operated for one to two years by a medium-size city

department was found to cost from $500 to $600 more annually in

depreciation than intermediate, middle-of -the-line models.

2) The heavier the utilization (or the poorer the

condition of the cars at time of replacement) , the greater the

savings in depreciation by buying bottom-of -the-line cars. The

cost impact of harder utilization and poorer car condition may

be seen by comparing the relatively higher depreciation typical

of city-owned patrol cars with that typical of State patrol

cars of similar model.

3) Extending the period of ownership reduces average

annual depreciation. For example, for a standard, middle-ofthe-line patrol car operated by a State highway patrol

department, extending the ownership period from one to two

years typically decreases annual depreciation by nearly $400.

Increasing the period from two to three years , decreases annual

depreciation by another $300. (The relationship between

depreciation and running costs over time is discussed below

under Replacement of Patrol Cars.)

4) Purchase of expensive, luxury-model patrol cars

generally cannot be justified in terms of costs alone, although

they may be justifiable for other reasons, such as performance,

officer morale, or appearance. If a luxury model is selected,

suitable accessories, good condition, and early replacement are

necessary to preserve the car's resale value, but extensive

accessorizing and early replacement to preserve resale value

nevertheless are not generally cost effective.

5) Empirical data suggest that depreciation cost may be

reduced by the selection of "non-patrol car" colors and color

These figures are based on 1972-1973 model year prices.

5
diversification within the fleet. In other words, uniform

black and white vehicles have a lower resale or trade-in value

than the more popular colors

.

6) Considering cost only, luxury accessories on patrol

cars are seldom worthwhile, particularly in the case of bottomof-the-line cars or those sold after several years' usage with

high mileage and/or in poor condition.

7) If middle or top-of -the-line cars are purchased and

early resale is planned, inclusion of luxury accessories and

elimination of the austere police car appearance will usually

be desirable from the standpoint of cost.

Reconditioning, Timing of Resale, and Method of Disposition

An examination of practices surrounding patrol car disposal

results in the following conclusions

:

1) Selective reconditioning appears to be efficient, with

an average expenditure of approximately 10 percent of the

estimated value of the car as a reasonable rule-of -thumb . This

percentage may be increased somewhat for cars with greater

potential consumer appeal.

2) Normally, it is most efficient to purchase and dispose

of cars early in the model year. However, depreciation costs

tend to level off between late spring and late summer, rising

sharply again thereafter. In consequence, purchase and

disposal delayed until spring can be further deferred without

significant penalty.

3) If enough cars in relatively good condition are

available for frequent sales, retail methods of disposal— such

as a police auction—if administratively feasible, will likely

be cost effective.

U) If cars are in poor condition, or if a good local

market does not exist, wholesale disposal (such as consignment

to an auto auction, or sale to used car dealers or

wholesalers), is relatively quick and avoids costly storage and

built-in depreciation.

5) Given an equitable cost accountability system, the

transfer or sale of cars to other departments of government

6
where there is less need for high performance vehicles may be

beneficial to police departments (as well as the local

government) by reducing annual depreciation cost.

6) Although net trade-in prices are usually low, trade-in

may appeal to departments without attractive alternatives,

possibly providing advantages of preferential service,

convenient and timely disposal, and low disposal cost. Care

must be taken to determine the true net cost of the new

car/trade-in bid, since high trade-in allowances often mask

high new car prices

.

VEHICLE LEASING AND CONTRACT MAINTENANCE COMPARED WITH

OWNERSHIP AND SELF -MAINTENANCE

In connection with vehicle acquisition, the study looks

both at ownership and leasing. The types of leases are

described and the relative merits of the different types of

leases are discussed from the standpoint of police fleets.

There are three basic types of lease agreements:

1. the finance lease,

2. the net lease,

3. the maintenance lease.

The finance lease provides vehicles, but makes no provision for

maintenance and operating services . The lessee controls and

pays for all maintenance and operating costs and reimburses the

lessor for any resale loss (or receives any resale gain) when

the vehicle is turned back to the lessor for disposition. The

net lease, like the finance lease, makes no provision for

maintenance or operating expenses, but unlike it, is closedend, with no financial adjustment for variation in actual

depreciation. The maintenance lease includes provision for

some maintenance by the lessor, the amount ranging from very

limited to comprehensive.

It was found that, while the finance lease is the most

prevalent form of lease used by private fleets, the maintenance

lease is favored by many police departments. Chief reasons for

preference for the maintenance lease were that: 1) it offers

small and moderate size departments a possible reduction in

service costs due to economies of scale achieved by the lessor;

and, 2) it offers departments of all sizes a possible escape

from existing poor maintenance arrangements.

7
The claim is often made that leasing is not a viable

alternative for police fleets. However, the experience of

police departments with leasing suggests that such claims are

not valid. Examples of actual lease arrangements were found

whereby departments avoid or reduce potential problems and

achieve considerable control, flexibility, and dependability

with leased fleets. No impediments to police fleet leasing

were discovered which by nature appear insurmountable.

After consideration of lease arrangements and police

experience with leasing, the costs of leasing and buying are

compared. Two basic questions are addressed: Is it economical

to secure use of patrol cars through a lease and, is it

economical to secure maintenance through a lease or other

contract arrangement with outside parties? The cost

comparisons lead to the following general conclusions

:

1) Without the tax advantage that private firms enjoy,

there appears to be no general cost advantage to police

departments from leasing vehicles for full-time use on a

finance lease, i.e., of securing only the use of the car

without provision of maintenance. A cost comparison of finance

leasing with buying a car suitable for patrol work indicates a

substantially larger cash outlay for leasing than for buying.

But, the more relevant comparison of discounted cash flow shows

that the estimated present value of leasing is not considerably

more than purchase. Special motives, such as the

implementation of a more regular and frequent replacement

policy or the freeing of funds for alternative purposes having

a higher expected rate of return may nevertheless influence

some departments to consider financing of vehicle acquisition

through leasing.

2) There is a critical level of utilization, i.e., rate of

use per time period, below which short-term rental of a vehicle

becomes cheaper than purchase. This critical level of

utilization is indicated by the ratio of the annual cost of

vehicle ownership to the annual cost of full-time renting (at

short-term rates). For example, if ownership costs are

estimated at $3,000 per year and the rental cost (at short-term

rates) for one year at $4,000, then it is cheaper to buy the

vehicle if it is to be used more than 75 percent of the time;

otherwise, rental is cheaper.

8
The report compares costs of providing maintenance through

an in-house police garage with costs of contracting maintenance

to private garages , and estimates the breakeven point—that

fleet size/mileage at which the alternatives are equal in cost.

Based on the estimated cost data, and assuming a police shop

wage rate of $8.00 per hour and an outside charge of $12.00 per

hour, the breakeven point comes at approximately 90

vehicles/3,150,000 fleet miles (5.1 million km), at a cost of

about $200,000. With smaller fleets/lower mileage, contracting

maintenance appears to be cheaper; with larger fleets, selfmaintenance appears cheaper

.

To test the sensitivity of the analysis to the specific

cost assumptions, the breakeven point is recomputed for

alternative wage rate differentials and equipment and building

expenditures. For a police labor rate of $5.00 per hour and a

private garage rate of $15.00 per hour, only at fleet sizes as

small as about 10 or fewer vehicles is contracting out more

economical than self -maintenance . Of course, a relative change

in labor rates in the opposite direction can be expected to

have an opposite effect, pointing up the need to make

comparisons based on actual inputs encountered in a given

situation

.

The analysis indicates the following:

1) Even if wage rates in police shops are substantially

below labor rates for commercial garages (say, $5.00 per hour

compared with $15.00 per hour), contracting maintenance appears

the more efficient policy for fleets of fifteen cars or less.

2) If there is little wage differential between police

shops and commercial garages , contracting maintenance appears

cheaper than self-maintenance even for fleets as large as about

100 cars.

3) Even for very large fleets, contract maintenance may

offer an efficient short-term solution to existing arrangements

which provide poor service

.

4) Due to possible reductions in in-house administrative

cost, a full-maintenance lease (offering both finance and

service) may be an efficient means of contracting-out

maintenance, even though the finance aspect of the lease by

itself offers no particular advantage.

9
OPERATING AND MAINTENANCE COSTS

The study discusses operating and maintenance costs for

patrol cars , presents empirical data for cars of different,

sizes and for cars used at different rates and driven in

different environments, and discusses ways of cost reduction.

Based on a sample of more than one thousand patrol cars

operating in twenty-nine cities, the study concludes that

selecting smaller cars for patrol work offers savings in fuel

costs, but may not offer the savings in maintenance costs

usually obtained by use of smaller cars for other purposes. In

fact, the sample data showed a small rise in maintenance cost

as car size decreased. Nevertheless, overall running costs of

smaller-than-standard cars in the sample were less than running

costs of standard and larger cars. The findings suggest that

standard and larger cars may not cost significantly more to run

for patrol purposes than smaller cars, but additional study is

needed to validate these comparisons.-^ However, even with little

difference in running costs, the savings in depreciation costs

of a smaller-than-standard car typically make it the efficient

choice, given that it can be used effectively.

Sample data show that congested traffic conditions lower

gasoline mileage significantly, and raise maintenance cost by

about 2.0 [ per mile (1.2 [/km) (see table 28). On this basis,

we would estimate significant potential savings from decreasing

the frequency of stops and starts and reducing the idling of

the motor

.

Life-time operating and maintenance costs for a sample of

State highway patrol cars show gasoline and oil costs

accounting for a little more than half of the total $3,660 per

car in average running costs, and maintenance cost a little

less than half the total. Data for a sample of city patrol

cars show that maintenance costs exceed gasoline and oil costs.

A breakdown of the type and cost of maintenance and the

mileage interval of occurrence for sample city patrol cars

shows an increase in maintenance cost per mile as mileage

accumulates, rising from an average of 2.5 [ per mile for new

cars in the sample to 4.6 [ per mile (1.5 [/km) for cars with

more than 60,000 miles (96,000 km). The data indicate the

expenditures incurred for the various mechanical components

,

and at what mileage particular kinds of problems arise. For

Note that the empirical data used in the analysis predate the

substantial rise in gasoline prices , which would likely

increase the relative cost advantage of the smaller car.

4 Again, the reader is reminded that the data do not reflect the

recent large rise in gasoline prices.

10
example, during the first 10,000 miles (16,000 km) of

operation, repairs to the ignition and lighting systems are the

largest single cost for mechanical components and by 20,000

miles (32,000 km), brakes begin to account for an important

share of cost; at 50,000 miles (80,000 km) transmission work

becomes large, and at 60,000 miles (96,000 km) the power train

system is expensive to maintain.

Practices reported by police departments for reducing fuel

cost included specification of octane requirements among

vehicle types, and elimination of the need for and availability

of higher octane gasoline whenever possible.

The study also discusses the organization and location of

maintenance facilities, i.e., centralized vs. decentralized

facilities, police shop, municipal garage, or private vendor,

and presents cost data for samples of departments with

different types of facilities, adjusted for differences in

average wage rates. On the basis of sample data and a priori

reasoning, it was concluded that, other things being equal, the

possibility of economies of scale and consideration of

transportation costs to and from the facility, support the

municipal garage for small, centrally located fleets, and

either a system of decentralized municipal shops or contractual

arrangements with scattered private vendors for small dispersed

fleets. For larger fleets, the organizational structure of the

maintenance facility —police, municipal, or privately

operated—is probably less important from the standpoint of

costs alone.

COST ANALYSIS OF THE PERSONAL CAR PROGRAM

The report describes the nature and possible benefits of a

personal car program whereby each officer is assigned a car to

be used for his or her personal, off-duty use, as well as for

regular duty. Empirical cost data from existing personal car

programs are presented and discussed. Capitalization and

running expenses of a full personal car program are compared to

costs of a minimum fleet/multi-shift plan, in which cars are

assigned to a vehicle pool.

The primary benefits claimed for the program are reductions

in crime and in accidents, increased criminal apprehension, and

greater citizen security. Other attributed advantages, such as

11
higher officer moral and safety and improved public image of

the police, pertain to internal department operations. Cost

reduction is also sometimes cited as an advantage of the

program.

Empirical information provided strong evidence, but not

conclusive proof , that running costs of personal cars are less

than for multi-shift pool cars, but there is also some evidence

that the costs are not substantially different. Better care of

the personal cars, stemming from increased officer

accountability, responsibility, and pride in the cars, provides

some rationale for possibly lower running costs of personal

cars.

Costs of a personal car program are compared with costs of

a multi-shift plan for a hypothetical department with 200

officers. Given the particular assumptions regarding cash flow

patterns, per-mile running costs, off-duty mileage, and

depreciation rates, the following observations were made.

(1) The costs of the two plans are about equal if

personal cars are used off-duty sparingly, are

replaced every three years (as compared with

annual replacement for pool cars) , maintain their

annual resale value about as well as private cars

,

and incur running costs less than half as much as

the pool cars

.

(2) The personal car program costs much more than a

multi-shift plan —about double in the case

examined—if personal cars are used extensively

off-duty, are consequently replaced every two

years instead of three, and if they incur about

the same per mile operation cost as multi-shift

cars .

(3) Under each set of assumptions a very large

reduction in running costs is required to

equalize costs of the programs.

Empirical evidence that casts doubt on a large reduction in

running costs for personal cars , suggests that most personal

car programs will probably cost substantially more than multishift plans. The program therefore will usually not be

justifiable in terms of fleet cost alone. However, the value

12
of benefits from the personal car program may exceed associated

costs; hence the program may be justifiable in terms of

increased net benefits.

REPLACEMENT OF PATROL CARS

The investigation of replacement decisions revealed at the

outset that, due to substantial variation in costs among

vehicles and departments, it is not advisable to think in terms

of a uniform economic replacement time for patrol cars. A

sounder approach is for individual departments to determine

their optimal replacement policy in light of their particular

cost experience.

The purpose of the study, therefore, is not to define the

economic life of patrol cars in general, but rather to describe

and to illustrate with police fleet data the techniques for

determining optimal replacement. Certain of the observed

relationships between fleet characteristics and economic life

can, however, be expressed as general guidelines for the

development of policy within individual departments

.

The concept of economic life and the development of

replacement models is based on the fact that incremental

running cost tends to increase with mileage and age, and

incremental depreciation cost tends to decline with age of the

vehicle, such that there is a point at which combined running

expense and depreciation are a minimum per unit of

time/mileage. Techniques for identifying the replacement time

which minimizes the uniform annual cost, or present value, of

long-run fleet costs were found suitable for application to

police fleets.

For practicality and efficiency, departments generally need

a dual approach to replacement decisions. For the purpose of

budgeting and for control, it is useful to predict the average

economic lives of the various types of vehicles , based on past

costs and resale values. Predicting average life will indicate

the approximate number of replacements which will be required

over the coming period. A second decision approach is needed

for replacing individual vehicles, which may differ

substantially in their costs, within their group. Where review

on an individual vehicle basis is infeasible, the former

13
approach will allow the manager to set a more informed general

replacement rule

.

The use of police cost data in a replacement model produces

a variety of replacement schedules, ranging from replacement in

the first year to no replacement until necessitated by safety,

performance and other factors . Results are quite sensitive to

the rate of car utilization, the rate of depreciation, and the

pattern of maintenance costs. The following generalizations

are made on the basis of case examples

:

1) The faster the rate of depreciation at the outset, the

greater the advantage of retaining vehicles longer.

2) The lower the rate of utilization, the greater the

advantage of retaining vehicles longer.

3) Maintenance and repair costs must increase fairly

sharply with age and mileage for declining depreciation per

unit time to be offset.

4) Declining performance and reduced reliability are vital

factors in determining replacements if cars depreciate rapidly

at the outset or have costs which do not escalate significantly

with increased use.

Thus, a very rough rule is to replace relatively early

(perhaps in the first year of operation) those vehicles which

depreciate slowly (i.e., whose resale values are well

maintained), are used moderately to heavily, and whose running

cost per mile is rising over time. But for cars which

depreciate rapidly, are used at low rates, or whose running

cost per mile do not escalate significantly with increased use,

costs may be reduced by keeping them as long as safety and

performance criteria permit.

TYPICAL COSTS

An examination of sample data shows that the cost in 1972-

73 of owning and operating a standard size, middle-of -the-line

patrol car might typically exceed $4,000 on a uniform annual

cost basis. Depreciation appears the largest single part of

total direct costs, with maintenance, repair, tires, gas, and

oil together accounting for a comparable part.

In closing, the report reminds the reader that there are

considerable opportunities for cost reductions in police fleet

management, many of which are examined in the report.

14
THE POLICE PATROL CAR: ECONOMIC EFFICIENCY

IN VEHICLE ACQUISITION, OPERATION AND DISPOSITION

1 . INTRODUCTION

The purpose of this report is to compare the costs of some

alternative approaches to fleet acquisition, operation,

maintenance and disposition, using life cycle costing

techniques to make the comparisons. Where appropriate, the

findings of the cost comparisons are expressed as general

guidelines for fleet management. In addition, the report

describes and illustrates methods that can be used to treat a

host of other decision problems related to provision of police

transportation. It also provides an overview of existing fleet

practices. The broad objective of the report is to provide the

police fleet manager with information which will assist him in

efficiently managing the fleet.

The focus of the study is on the patrol car, by far the

predominant kind of vehicle in most police fleets. Since a

number of models and makes of different size and performance

capability are, in fact, used for patrol purposes, the study

implicitly deals with several categories of patrol cars, rather

than a single type of car. In addition, the empirical sections

contain some cost data related to other types of vehicles, such

as administrative and undercover cars , motorcycles and

scooters, and vans and wagons. The methods and techniques

which are applied in the study to the patrol car, are also

applicable to the other types of vehicles.

A life cycle costing approach is taken because it looks for

efficiency over the life of the police transportation system.

This approach avoids the common decision-making pitfall of

preoccupation with initial cost, to the relative neglect of the

stream of operating, maintenance, and repair costs and the

eventual return from resale. A life cycle costing approach

also facilitates analysis of the cost effects achieved by

altering elements in the system, such as the size of the

vehicle or the length of operational life. With a shortsighted approach to fleet management, attempts to reduce

15
expenses in one phase of fleet provision may lead to cost

increases in other areas. For example, a vehicle with a lower

initial purchase price may experience a larger net depreciation

than a vehicle with a higher purchase price. Keeping vehicles

longer may reduce average annual depreciation, but this

reduction may be more than offset by rising annual maintenance

and repair cost and disruption of police service resulting from

increased breakdown. All costs are important from the

standpoint of efficiency.

The emphasis is on costs, rather than other attributes of

alternative fleet systems and practices. Although non-cost

advantages and disadvantages are assessed for some of the

alternatives , no full attempt is made to measure and compare

benefits of the alternatives . Since alternative systems and

practices will likely yield unequal benefits, differences in

their total costs do not conclusively demonstrate relative

merit. It is left to the decision maker to evaluate the costs

of alternatives in light of performance, safety, comfort,

appearance, and other criteria, and to base his choice on his

own priority of objectives. For instance, a finding that one

size of car is "X" dollars cheaper over its life than another

by no means implies that all police departments should have

that car. Rather, it provides the fleet manager with

information regarding the cost effects of the decision. He

must decide whether other considerations outweigh costs.

The difficulty of empirically isolating and evaluating cost

effects of alternative fleet systems is the chief limitation

and shortcoming of this report. The diversity of accounting

procedures and data banks —or lack thereof —hampered

construction of compatible data samples for test purposes , but

even more of a problem were the multiple variables affecting

the data

.

Police departments operate in diverse environmental and

operating conditions , hence it was sometimes difficult to know

what dollar cost to assign to a given alternative. For

example, large metropolitan departments have considerable incity driving, operate in a relatively small area, and may face

stringent budgetary constraints; State Highway Police have a

high proportion of high-speed non-stop driving, and are likely

to have greater financial leeway; small, rural departments may

operate few cars and have little opportunity to utilize

sophisticated management techniques. Furthermore, a department

16
may not have control over its fleet decisions, perhaps due to

past commitments or preemption by higher bodies of government.

Rules applicable to one department may not be suitable for all.

Each cost comparison could have been a lengthy study unto

itself. For these reasons, guidelines have been couched in

terms of particular fleet circumstances or characteristics.

In addition to those problems addressed herein, there

remain a host of other decision problems in fleet management.

Specifically excluded from the scope of this research at the

outset were two problems which are crucial from the standpoint

of fleet effectiveness, namely (1) determination of the optimal

mix of vehicles, and (2) deployment of the vehicles in the most

effective way. The effectiveness of a police transportation

system depends upon successful resolution of these problems,

just as the efficiency of the operation depends upon correct

decisions regarding purchase., maintenance, and disposition.

These problem areas have been researched elsewhere, but remain

fertile ground for additional analysis.^

Another area requiring more extensive investigation is the

subject of preventive maintenance. Additional research and

experimentation is needed to develop cause-effect relationships

between vehicle breakdown and resulting downtime, and various

police car preventive maintenance schedules

.

In addition, broader data bases are needed to establish

more firmly the relationship between rates and types of

utilization and corresponding maintenance and repair costs. In

fact, as automotive technology and design change, continual

update is necessary to detect changes in the relationship.

It would also be desirable to explore further the personal

car program, to assess its benefits. The emphasis here is on

cost effects.

Several efforts related to this one are presently underway

to extend the state-of-the-art of fleet management. The

American Public Works Association, Research Foundation, is

conducting a comprehensive two-year program to improve fleet

operations of local, State, and provincial governments.

Agencies accepted as participants in the program are offered

advisory service, an optional cost management system,

newsletters and special reports . Four manuals , dealing with

maintenance reporting, equipment acquisition, utilization, and

See for example, Jan M. Chaiken £ Richard C. Larson, Methods

for Allocating Urban Emergency Units , NTIS Report No. PB^^

208549, New York Cityl The Rand Institute, May 1971.

17
replacement, preventive maintenance scheduling, and parts

inventory and warehouse control, are to be forthcoming from

this program.^ The California State Highway Patrol is currently

engaged in a study of the relationship between patrol car

mileage and operating, maintenance, repair cost and

depreciation. The resultant report should shed further light

on optimal replacement policy.^ Interested readers should be

alert for these and other related studies in fleet management.

For background, exhibits 1 and 2 illustrate the major

decisions in police fleet management. Exhibit 1 lists the

factors which determine the demand for transportation service

by a police department (i.e., what ) , and then the major

decisions which must be made to provide the transportation

service (i.e., how). (There is no attempt here to show the

sequence of decisions nor their interrelationships.)

The broad objective of all police fleet managers is largely

the same; to provide transportation service to meet the

department's requirements, in light of budgetary and other

constraints , such as traditional practices , environmental

conditions, personalities, and other factors dependent on local

conditions. This broad objective might be amended to specify

that fleet provision be cost-effective. Variations among

departments are then revealed not so much in aim, but in

method, that is, how the service is provided.

Making fleet decisions involves choices among alternatives

for a number of subordinate operations or fleet subsystems.

Many configurations of these subsystems are possible: Exhibit

2 depicts a modified decision tree to illustrate some of the

alternative ways to operate a fleet. ^ A department might, for

example, adopt utilization policy "C," calling for the use of

the cars on a 3 shift/day basis, car rotation among officers,

and a 10 percent backup pool. After determining the number of

vehicles needed, the department may choose to purchase them.

6

The American Public Works Association, Research Foundation,

1313 East 60th Street, Chicago, 111. 60637.

7

Bob Rutherford, Manager, Fleet Information System, California

State Highway Patrol, 2812 Meadowview Road, Sacramento,

California 95832, telephone interview, June 1973.

8

The reader is reminded that this study is not intended as a comprehensive investigation into all possible decisions which

confront the fleet manager. Exhibits 1 and 2 show major

decisions which are addressed by this study.

18
Exhibit 1

Factors Influencing Fleet Requirements

and Major Decisions in Fleet Management

OBJECTIVE OF FLEET MANAGEMENT ; Provision of transportation service to meet department

requirements at least cost.

DEMAND FACTORS ; Police Functions

Department Size

Size and Environmental Characteristics of the Area Served

Budget and Other Constraints

Fleet Deployment Policy

Target Fleet Performance Levels

Safety

Morale (Vehicle Appearance and Comfort)

Reliability and Availability

Functional Performance (Size, Speed, Handling)

FLEET DECISIONS ; Vehicle Management Program - Delegation of Responsibilities

Methods of Systems Control

Vehicle Selection - Type Vehicle

Make

Model

Color

Accessorizing

Vehicle Utilization Factors - Number of Shifts (or mileage)

Per Day Driver Assignment

Number of Vehicles - For Regular Use

For Backup Pool

To Buy or Lease Vehicles and Related Equipment

Maintenance Program - Nature of Facility

Preventive Maintenance Schedule

Replacement Cycle

Method of Vehicle Disposal

19
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rather than leasing under one of the several alternative plans

available. It may then decide to maintain and repair its

vehicles in a police shop / rather than to utilize a central

garage or private garage; it may carry out a comprehensive

preventive maintenance (PM) program, rather than wait for

failures to occur, it may replace cars at 60,000 miles (96,000

km), instead of 40,000 or 80,000 (64,000 or 129,000 km), or any

other possible replacement time. Lastly, the department may

sell used cars at retail auction, rather than trade them in, or

wholesale them to used car dealers.

The order of decisions shown in Exhibit 2 has the semblance

of sequential order, but the decision process is interwoven and

much more complex than illustrated. The problem of determining

the economically optimal fleet arrangement requires, in theory,

a simultaneous solution. We can see the joint nature of

decisions from the following illustrative interrelationships.

A higher utilization rate implies the need for a smaller total

number of cars, but a larger backup fleet relative to the

number of cars in regular use. Decisions regarding the

utilization and maintenance of vehicles will influence the

optimal time of replacement. Reliability and availability

goals can be achieved in any of a number of ways ; by

increasing the size of the fleet to provide more backup

vehicles or lower utilization rates; by instituting a more

effective preventive maintenance program to replace unscheduled

maintenance with scheduled; by selecting vehicles less subject

to breakdown; or by reducing the length of the replacement

cycle to keep the fleet newer. The kind of vehicle, its

accessories and condition (which reflects utilization rates,

driver assignment, maintenance program, and replacement cycle),

will influence the optimal method of disposing of the vehicle.

It is the purpose of this study to investigate the cost

effects of making the choices in police fleet operation which

have been set forth. However, in order to perform the cost

analysis, it has been necessary to simplify, thereby not fully

accounting for the above interactions.

2. METHODOLOGY OF LIFE CYCLE COSTING

Analytical methods can be applied to the host of problems

of choice which confront the fleet manager. A brief

description of methods follows, for the purpose of providing

21
further explanation of the methodology used in this study and

additional information to the interested police fleet manager

who may wish to apply these methods to problems not dealt with

directly in this study.

The reader is reminded that this chapter may be passed over

without loss of continuity and understanding of succeeding

chapters, although attention to the methodology is probably

worthwhile. The material is not exceedingly technical, is

presented in simplified form, and should cause little

difficulty for the reader unfamiliar with these methods.

2.1 Life Cycle Costing

Life cycle costing (LCC) is one of a number of analytic

approaches to problems of choice.^ It is a tool useful in

choosing among alternative systems of durable capital goods. ^0 In

short, the approach calls for identification and calculation of

all relevant costs associated with each alternative system over

its entire operational life, conversion of costs to

equivalency, and summing for purposes of comparison. In the

case of vehicle fleet management, life cycle costing of

alternative systems of vehicle operation should take into

account cost of acquisition, maintenance, operation,

depreciation, and disposition, as well as managerial and other

relevant costs. A more in-depth discussion of the concept as

applied to law enforcement fleet management follows.

Life Cycle Costing (LCC) analysis includes the following

steps

1) Specification of the objective to be achieved and any

constraints

2) Identification of the possible alternative systems

which can accomplish the desired objective, given the

constraints

3) Determination of all relevant cash flows and the

expected timing of the cash flows for each alternative, at

current prices; where quantification of costs is not feasible,

notation of the qualitative effects.

4) Conversion of the cash flow for each system to an

equivalent base (discounting of costs)

Cost-benefit analysis, cost-effectiveness analysis, and

various forms of cost models are all examples of methods for

making systematic comparisons in quantitative terms . They

differ in emphasis and context, but are similar in purpose and

general principle

"^^There appears to be an increasing trend in government to use

the concept of LCC in the contract definition phase of

contracts in order to promote overall efficiency of projects.
5) Summation of all discounted costs.

6) Comparison of quantitative and qualitative costs of

alternatives in light of constraints , and selection of the

preferred system.

Let us now consider in greater detail each of these tasks

in the context of LCC of police vehicles

:

Specification of Objective and Constraints

There are any number of specific objectives, in addition to

the broad objective of providing transportation service to a

law enforcement group. For example, an objective in car

selection may be to choose the vehicle with the lowest life

cycle costs, with the constraint that the vehicle meets minimum

performance criteria. Similarly, the objective of the

maintenance supervisor may be to maintain vehicles at the

lowest possible cost, while achieving a target availability and

reliability rate. By showing cost differences among

alternative ways of meeting those objectives, LCC assists the

decision maker in the efficient allocation of tax dollars.

Identification of Alternatives

We see in exhibit 2 some of the major decision steps in

fleet operations. As was explained, however, each step may be

accomplished in a number of ways. The fleet manager should aim

for flexibility, resourcefulness and creativity in identifying

possible solutions to his problems.

Determination of Costs

A thorough LCC analysis should include identification and

inclusion of all relevant costs , from the costs related to

acquisition through costs involved in final disposal. Exhibit

3 summarizes the fleet cost elements identified in this study.

In order to avoid excessive expense in making the cost

calculations, it is desirable to utilize any available

shortcuts in the estimating procedure. As pointed out

elsewhere in the report, this may result in a loss of accuracy,

but a "ballpark" estimate will often suffice.

Some costs may not be practicably expressible in dollars,

e.g., cost of additional downtime or decline in driver safety

23
Exhibit 3

Critical Cost Elements to be Considered in a Life Cycle Cost

Analysis of Police Patrol Cars

First or Acquisition Costs ;

1. Preparation of specifications, testing, and other

procurement-related costs

.

2. Purchase price of the vehicle, including delivery

costs and factory accessories.

3. Add-on equipment cost.

4. Equipping/modification labor cost.

5. Lease or purchase cost of tools, equipment, and facilities

which may have to be used in connection with the vehicle

acquisition

.

Operation Costs :

6. Gas, oil, and tires.

7. Preventive maintenance program - parts and labor.

8. Other repairs - parts and labor.

9. Accident costs not covered by insurance.

10. Cost of maintaining spare-parts inventory.

11. Incidental expenses (parking, storage, washing).

12. Insurance (net of recovery).

13. Down-time costs - scheduled and unscheduled,

14. Other shop and administrative overhead.

End Costs ;

15. Final reconditioning cost.

16. Selling expenses.

17. Resale or salvage value of the vehicle (a negative cost).

24
or morale. It may be preferable to express these costs in nondollar terms rather than to use highly arbitrary or

questionable dollar estimates. In any case, these cost

elements should be taken into consideration.

Cash Flow and Conversion to Equivalency; The Use of Present

Worth and Annual Cost Models in LCC Analysis

After the analyst has identified the alternative ways of

achieving a given objective and has determined all cash flows

(positive and negative) associated with each alternative, he

must then determine the time at which they occur . A convenient

procedure is to set up a cost model in which negative values

are shown as costs and positive values as negative costs. The

costs and their timing for each alternative under consideration

can be illustrated by constructing a cash flow diagram, such as

that shown later in the paper in exhibit 14 . Since money has a time value, and since the costs of alternative systems may

differ both in amount and in time of occurrence, it is

necessary to make the expenditures for each system equivalent

in order to compare them. Thus, the analysis of alternative

plans with different expenditures over time requires more than

a simple summing of present and future expenditures. The

analyst has two options: he can, using the appropriate

interest rate, compute either (1) the present value of the

alternative systems for an equivalent period of time, or (2)

the annual cost of each system.

The fact that there is an opportunity for investment which

will yield a return causes a dollar spent today to be valued

more highly than a dollar to be spend later, apart from any

consideration of inflation.

12

There are other closely related techniques for comparing

alternatives such as computation of the rate of return on

investment. The conversion of costs to an equivalent annual

basis was the method favored in this study. A fuller account

of techniques for comparing alternatives can be found in most

text books on engineering economy, such as Eugene L. Grant and

W. Grant Ireson, Principles of Engineering Economy , New York:

Ronald Press Co .

, and books on Cost Analysis^ such as A. J.

Merret and Allan Sykes , The Finance and Analysis of Capital

Projects , London: Longman, 1971. The author relied

extensively upon B. J. Keely and J. W. Griffith, Resource

Optimization Using Cost-Benefit Analysis, K-G Associates

Training Manual, K-G Associates, Dallas, Texas.

25
There are six basic discounting formulas which are used to

move values in time so that they may be compared on an

equivalent basis. These formulas are shown in table 1 together

with their standard nomenclature and standard shorthand

notation . 1-^

Formula 1, the Single Compound Amount formula (SCA) , is

used to determine the future value, F, of the present sum, P, N

years hence, discounted at a rate of i.

Formula 2, the Single Present Worth formula (SPW) , is used

to determine the present value, P, of a future sum of money, F,

to be received or spent N years in the future, when the

discount rate is i.

Formula 3, the Uniform Compound Amount formula (UCA) , is

used to determine the future value, F, of an annual payment. A,

over N years with a discount value of i

.

Formula 4, the Uniform Sinking Fund formula (USF) , is used

to determine the size of an annual payment. A, necessary to

produce a given future sum of money, F , in N years with a

discount rate of i . i . . . Formula 5, the Uniform Capital Recovery formula (UCR) , is

used to determine the amount of the annual payment. A,

necessary to recover a present sum of money, P, over a period

of N years with a discount rate of i.

Formula 6, the Uniform Present Worth formula (UPW) is used

to determine the present value, P, of a series of payments. A,

over N years at a discount rate of i.

All values should be expressed in constant dollars; i.e.,

in terms of the general purchasing power of the dollar at the

time the comparison is being made. Where there is a reasonable

basis for estimating real changes in the cost components (other

than general price inflation) , estimates may be adjusted to

reflect such changes

.

The interest formulas shown were not all used for cost

comparisons in this study; mainly equations 2 and 5 were used.

All six are described for completeness.

26
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Most engineering economic textbooks contain calculations of

these different formulas for various values of the parameters i

and N, and $1.00. Tables 2, 2, and 4 are examples of these

discount factors and are reprinted here for the convenience of

the reader

.

As an example of how the tables can be used, assume that it

is desired to find the present value of a future cost, such as

the present value of a $5,000 cost expected to^be incurred 3

years from now, given a discount rate of 10%, The appropriate

algebraic formula is No. 2,

p = F r~^i, or p = $5,000 r ^

1.

L(i+i)^J L(i+.io)3J

Instead of performing the indicated computations , one could

refer to the single present worth column, SPW, of Table 3 at

the row for year 3, finding the factor .7513 for F = $1.

Multiplying this factor by the specified future cost yields P = $3,757, the present value of a $5000 cost expected in 3 years.

With a discount rate of 2%, use of table 2 would lead to a

calculation of P = $5,000 (.9423) = $4,712; at i = 15% (table

4) , P = $3,288.

A similar calculation for an expected expenditure farther

in the future (say 8 years, with i = 10%) indicates a present

value of the $5,000 equal to $2,333.

These simple calculations illustrate the point made earlier

that proper assessment and comparison of costs must take into

account when each cost is to be incurred. In the above example

it may be noted that: (1) the higher the discount rate used,

the less the present value of an expected future expenditure;

and (2) the longer the wait until the future cost is incurred,

the less the present value of the future cost. Thus, a fleet

decision which requires a large initial outlay is actually more

costly than an alternative decision calling for the same amount

spread out over some future period. Similarly, benefits to be

received in the future are worth less the longer they are

deferred and the higher the discount rate.

The minimum discount rate which agencies of the Federal

Government have been directed to use is 10 percent. Ten

percent represents an estimate of the average rate of return on

private investment, before taxes and after inflation.

28
Table 2. Discount Factors

(2% Discount Rate)

Year SCA SPW UCA USF UCR UPW

N P-F F-P A-F F-A P-A A-P

1 1 . 020 .98 04 1.000 1 AAA 1.000 1 A O A 1 . OzO n A Q A

u . y a u 2 1.040 .9612 2.020 .4951 .5151 1.942

3 1.061 .9423 3.060 .3268 .3468 2.884

4 1.082 .9238 4.122 .2426 .2626 3.808

5 1.104 .9057 5.204 .1922 .2122 4.713

6 1 . 126 .8880 ^ O ft O 6.308 .1585 ^ T O C .1785 5 . 601

7 1.149 .8706 7.434 .1345 .1545 6.472

8 1.172 .8535 8.583 .1165 .1365 7.325

9 1.195 .8368 9.755 .1025 .1225 8.162

10 1.219 .8203 10.95 .0913 .1113 8.983

11 1.243 .8043 T ft T "I 12 . 17 .0822 T ft ft ft . 1022 A "7 O •? 9.787

12 1.268 .7885 13.41 .0746 .0946 10.58

13 1.294 .7730 14.68 .0681 .0881 11.35

14 1.319 .7579 15.97 .0626 .0826 12.11

15 1.346 .7430 17.29 .0578 .0778 12.85

lo .7284 lo . 64 ft C ft "7

. 0537 A "7 O T. 0737 TO CO 13 . 58

17 1.400 .7142 20.01 .0500 .0700 14.29

18 1.428 .7002 21.41 .0467 .0667 14.99

19 1.457 .6864 22.84 .0438 .0638 15.68

20 1.486 .6730 24.30 .0412 .0612 16.35

1 . blo . DO UU A O O O A C O O. U5o

o

1 / . 01

22 1.546 .6468 27.30 .0366 .0566 17.66

23 1.577 .6342 28.85 .0347 .0547 18.29

24 1.608 .6217 30.42 .0329 .0529 18.91

25 1.641 .6100 32.03 .0312 .0512 19.52

JO 1 . 811 .5521 40.57 .0247 . 0447 22.40

35 2.000 .5000 49.99 .0200 .0400 25.00

40 2.208 .4529 60.40 .0166 .0366 27.36

45 2.438 .4102 71.89 .0139 .0339 29.49

50 2.692 .3715 84.58 .0118 .0318 31.42

60 3.281 .3048 114.1 .0088 . 0288 34.76

70 4.000 .2500 150.0 .0067 .0267 37.50

80 4.875 .2051 193.8 .0052 .0252 39.75

90 5.943 .1683 247.2 .0041 .0241 41.59

lOOS 7.245 .1380 312.2 .0032 .0232 43.10

Notation: SCA, Single Compound Amount; SPW, Single Present

Worth; UCA, Uniform Compound Amount; USF, Uniform Sinking

Fund; UCR, Uniform Capital Recovery; UPW, Uniform Present

Worth; P-F would read Given P, to find F; F-P would read Given

F, to find P, etc.

29
Table 3. Discount Factors

(10% Discount Rate)

Year SCA SPW UCA USF UCR UPWN P-F F-P A-F F-A P-A A-P

1 1.100 .9091 1.000 1.000 1.100 0.909

2 1.210 .8264 2.100 .4762 .5762 1.736

3 1. 331 .7513 3.310 .3021 .4021 2 .487

itj 4 1.464 .6830 4.641 .2155 .3155 3.170 ^1 1.611 .6209 6 .105 .1638 .2638 3.791

6 1.772 . 5645 7.716 .1296 .2296 4.355

7 1.949 .5132 9.487 .1054 .2054 4.868

8 2 .144 .4665 11.44 .0874 .1874 5 .335

9 2 . 358 .4241 13 . 58 .0736 .1736 5.759

10 2 . 594 . 3855 15.94 .0628 .1628 6.144

11 2.853 . 3505 18 .53 .0540 .1540 6.500

12 3.138 .3186 21.38 .0468 .1468 6.814

13 3.452 . 2897 24 . 52 .0408 .1408 7.103

14 3.797 .2633 27.98 .0358 .1358 7.367

15 4.177 .2394 31.77 .0315 .1315 7.606

16 4.595 .2176 35.95 .0278 .1278 7.824

17 5.054 .1978 40.54 .0247 .1247 8.022

18 5.560 .1799 45.60 . 0219 .1219 8 . 201

19 6.116 .1635 51.16 .0196 .1196 8.365

. 20 6.727 .1486 57.28 .0175 .1175 8.514

21 7.400 .1351 64.00 .0156 .1156 8.649

22 8.140 .1228 71.40 .0140 .1140 8.772

23 8 .954 . 1117 79 . 54 . 0126 .1126 8.883

24 9.850 .1015 88.50 .0113 .1113 8.985

25 10.84 .0923 98.35 .0102 .1102 9 .007

30 17.50 .0573 164.5 .0061 .1061 9.427

35 28.10 .0356 271.0 .0037 .1037 9.644

40 45.26 .0221 442.6 .0023 .1023 9.779

45 72.89 .0137 718.9 .0014 .1014 9.863

50 117.4 .0085 1164. .0009 .1009 9.915

60 304.5 .0033 3035. .0003 .1003 9.967

70 789.7 .0013 7887. .0001 .1001 9.987

80 2048. .0005 2047. .0001 .1001 9.995

90 5313. .0002 5312. .0000 .1000 9.999

30
Table 4. Discount Factors

(15% Discount Rate)

Year SCA SPW UCA USF UCR UPW

N P-F F-P A-F F-A P-A A-P

1 1.150 .8696 1.000 1.000 1.150 0.870

*> 1 TOO . / 3 D X • 4 D DX J. • o ^ O 3 1.521 .6575 3.472 .2880 .4380 2 .283

4 1.749 .5718 4.993 .2003 .3503 2.R55

5 2.011 .4972 6.742 .1483 .2983 3.352

6 2.313 .4323 8.754 .1142 .2642 3.784

/ Z • D DU 7 7 Q XX • u / » (\Qr\A \jy\JH A 1 fin 8 3.059 .3269 13.73 .0729 .2229 4.487

9 3.518 .2843 16.79 .0596 .2096 4.772

10 4.046 .2472 20.30 .0493 .1993 5.019

11 4.652 .2149 24.35 .0411 .1911 5.234

D^ • J1 3^ nU 1 fl ^ Q Z 7 • u u 1 Q A (^ • J. O ft 3 ^ . 4 Z X 13 6.153 .1625 34.35 .0291 .1791 5.583

14 7.076 .1413 40.51 .0247 .1747 5.724

15 8.137 .1229 47.58 .0210 .1710 5.847

16 9.358 .1069 55.72 .0180 .1680 5.954

^ 7 X / XU1 0 . IR/ D n Q 0 Q O D • U O • UX 34 • X D Dh 0 • U 4 / 18 12.38 .0808 75.84 .0132 .1632 6.128

19 14.23 .0703 88.21 .0113 .1613 6.198

20 16.37 .0611 102.4 . 0098 .1598 6.259

21 18.82 .0531 118.8 .0084 .1584 6.312

22 21.65 .0462 137.6 .0073 .1573 6.359

23 24.89 .0402 159.3 .0063 .1563 6.399

24 28.63 .0349 184.2 .0054 .1554 6.434

25 32.92 .0304 212.8 .0047 .1547 6.464

30 66.21 .0151 434.7 .0023 .1523 6.566

35 133.2 .0075 881.2 .0011 .1511 6.617

40 267.9 .0037 1779. .0006 .1506 6.642

45 538.8 .0019 3585. .0003 .1503 6.654

50 1083. .0009 7218. .0001 .1501 6.661

60 4384. .0002 2922. .0000 .1500 6.665

31
(For examples of the use of the discounting formulas to

reduce costs of alternative systems to equivalency, see tables

12, 15, 11, 18, 19, and 32.)

Summation of Costs

This step represents the actual derivation of the total

cost of an alternative over its life cycle —the sum of initial

costs, operating costs, maintenance costs, and net disposal

costs. As a simple and straightforward example, table 16

compares a "bar-light" system with an alternative "bubble

light." Although the initial acquisition cost of the bar-light

system is substantially higher than that of the other, its

annual cost, after appropriate discounting and totalling, is

significantly lower. (Table 16 will be discussed in greater

detail later in the report.) Life cycle costing thus provides a

clearer picture of the probable costs associated with

alternative decisions.

Comparison of Alternatives and Selection

While this step is self-explanatory, it may be well to

reiterate the point made earlier: it is unlikely that

quantifiable life cycle costs will be the sole standard for

decision-making. However, a more complete understanding of the

cost effects of alternative decisions cannot but contribute

towards more efficient fleet management

.

2.2 Break-Even Models r- Break-even models are used in cost analysis to determine

that value of a preselected variable which will make

alternative programs or decisions equal in costs. The breakeven point is then the value of the selected variable which

will make us indifferent from a cost standpoint between the

alternatives. To construct a break-even equation, a present

value or annual cost equation is developed for each

alternative , and then the equations are set equal to one

another, and the value of the break-even variable is

determined. For values of the variable greater than the breakeven point one alternative becomes more economical; for lower

values, the other alternative is cheaper.

Break-even analysis is useful in determining the fleet size

which would justify selected expenditures. For example, the

For reference to the literature of life cycle costing, see

entries under Cost Analysis in the list of references.

32
fleet manager might wish to know what fleet size would make an

in-house garage as efficient as contracting out maintenance; or

what number of radios would justify a radio specialist shop.

(This form of analysis is used in section 3.4 to assess

relative costs of the personal car program.)

3. COST ANALYSIS OF POLICE PATROL VEHICLES

In this part of the report the principles of life cycle

costing are applied to some problems of police vehicle

management. First, the critical cost elements are identified;

then (in Sections 3.2 through 3.5) different decision problems

are analyzed using appropriate techniques. In Section 3.6, the

cost elements developed in the previous sections are brought

together to show life cycle costs of a typical police car.

3.1 Critical Cost Elements

Exhibit 3 lists, in the approximate order incurred, the

major cost elements which are pertinent to life cycle costing

of police vehicles. For purposes of analysis, costs may also

be grouped according to their characteristics . Exhibit 4 shows

two main categories of costs —fixed costs and variable costs.

As noted in the exhibit, fixed costs are those that do not vary

with mileage or age of the vehicle, and variable costs are

those which do. However, a clear-cut categorization of costs

is difficult. For example, reconditioning costs are to some

extent variable with mileage, inasmuch as more reconditioning

is generally needed with greater wear. However, a major part

of the reconditioning process is the transformation of a

vehicle which looks like a police car into one suitable for

private purposes. Since this component is fixed,

reconditioning cost is classified as fixed. By like token,

depreciation might be regarded as fixed since it is to a large

extent unavoidable regardless of vehicle use. However, this

characteristic might more appropriately be designated as "noncontrollable, " rather than as fixed, since depreciation does

vary with both age and mileage. There may be similar questions

regarding classification of accident repair costs. Accidents

are random events , but exposure to accident increases with

vehicle use. For this reason accident costs may be considered

a function of mileage, and classified as variable costs.

33
Exhibit 4

Fixed and Variable Vehicle Costs

Fixed Costs

(Those that do not vary with the mileage or age of the vehicle.)

1. Overhead - including costs of procurement, inventory

control, cost accounting systems, depreciation of

facilities and equipment, selling expenses, supporting

systems, and general management.

2. Insurance.

3. Equipping, modification, and reconditioning costs.

4. Incidental Expenses - parking, storage, washing.

Variable Costs

(Those that do vary with the mileage or age of the vehicle.)

1. Depreciation.

2. Running Expenses.

(a) Those costs which accrue directly with mileage: gas,

oil, tires, scheduled maintenance.

(b) Those costs whose probability of occurrance increases

with mileage.

(1) Repair cost due to failure of vehicle components.

(Although not exactly predictable, studies suggest

a higher failure rate initially, due to manufacturing defects; a lower rate during the "middle

life," and a rising rate at higher mileage as

the car begins to wear out)

.

(2) Accident repair cost.

34
Though not shown in exhibit 4, leasing charges may comprise

both a predetermined and a variable element. The predetermined

part, which reflects finance charges, normal depreciation,

overhead and profit, are fixed to the lessee. The lease charge

may contain an additional variable part which reflects mileagerelated maintenance and repair cost and additional

depreciation

.

In vehicle management, greater attention is frequently

given to the variable costs--particularly running expenses

,

which are a direct function of mileage —because these generally

appear more controllable; indeed, they likely are in the short

run. Each category of cost is equally important, however, and

in the long run, all can to some degree be controlled.

Due to their different natures, the several categories of

costs shown in exhibit 4 require different interpretations for

accurate analysis and managerial action. For example, stating

fixed costs in terms of cost per mile will, by spreading costs

over more miles, give the impression that a highly utilized

vehicle is more efficient than a less used vehicle, in terms of

the fixed cost element in question. However, it would be

incorrect to conclude that the vehicle with the lower cost per

mile is more efficient and preferable to the other; they might

appear equally efficient if operated over the same mileage.

3.2 Cost of Vehicle Acquisition

This section looks first at costs associated with buying

and selling police cars, and then compares buying with leasing.

3.2.1 Purchase Price, Resale Value and Depreciation Cost

Itemized costs associated with purchase, resale, and

depreciation for representative patrol cars and their equipment

are first presented. The bases for deriving cost estimates for

patrol cars of different size and age and operated by different

types of departments are then explained.

Purchase Prices

Table 5 shows a typical price quotation (in 1972-73 prices)

for a 4-door standard-size patrol car, representative of the

popular model most widely used for patrol purposes today and

within the most prevalent price range reported. The price of

the optional equipment (approximately $660) appears about

average for this size car at the time shown.

35
Table 5. Typical 1972-1973 Price Quotation

for a 4-Door Standard Size,

Popular Model Patrol Car

Factory Cost^ $2,600

Optional Equipment

Police Package^ 100

400 CID Engine - 2BB1 67

Radio Suppression Package 4

Spotlight 6 in. MTD Left Pillar 26

Universal Single Keys 4

Release - Deck Lid Power 12

Tinted Glass and Windows 37

Remote Control Mirror-Left 10

Defogger - Rear Window 23

Trunk Light 4

Tires, Police Special 60

Air Conditioning 303

6T0

Freight 100

Dealer Preparation and Handling 50

Dealer Markup 100

Total Price $3,500

^Includes power steering, power disc brakes, and transmission.

^Includes heavy-duty alternator, battery, seats, and other

heavy-duty features.

NOTE : Based on average dealer base costs of four popular

models , and actual low bid prices reported by several

departments on 1972 and 1973 models.

36
Table 6 shows the average base prices of several car

models. The second column shows Factory Advertised Delivered

(FAD) prices for 1973 models; the third shows the approximate

cost to the dealer of the basic, unaccessorized car. The price

quotation shown in table 5, of $3,500, is assumed to be

representative of the price police paid for the middle-of-theline, standard-size car in 1973.

In order to estimate prices of different models

accessorized for patrol work, it is assumed that the prices of

fully equipped patrol cars are in the same proportions to one

another as are their basic FAD prices. This assumption appears

reasonable, given two facts: 1) the factors which dictate

using a relatively large, high performance car will likely also

require more accessories , such as higher powered engine and

heavier duty alternator; and, 2) there is a general rule that

higher base priced cars are equipped with more options than

cheaper ones in order to realize full resale potential.

Estimates of prices of cars accessorized for patrol work,

by model, are derived from tables 5 and 6, by multiplying

$3,500 (the estimated police price of the middle-of -the-line

,

standard car) by the ratio of FAD base price of each model type

to the FAD base price of the standard, middle-of-the-line

model. The resultant estimated average prices shown in table 7

are used wherever the cost analysis calls for initial car

prices

.

Car Depreciation^ ^

Depreciation (measured in dollars) is the difference

between the purchase price and the amount recovered at resale;

it is, in other words, the used-up value of the vehicle. Table

8 shows average resale prices recently received for used patrol

cars, all of comparable age and mileage, by a small sample of

state, city, and county police departments. The cars sold

differed in make, model, and condition, but all were

approximately two years old and driven 60,000 to 75,0 00 miles

(97,000 to 121,000 km)

.

Depreciation over the two years , which may also be measured

as a percentage of original car price, was significantly higher

for city departments than for state departments. This is not

surprising considering the additional wear-and-tear resulting

from urban and suburban driving conditions, the differences in

This section treats factors influencing depreciation and

estimates of depreciation costs. It does not evaluate the most

economical depreciation period; that analysis is presented in

Section 3.5.2.

37
Table 6. Average 1973 Base Prices of Ford, Chevrolet,

Plymouth, Dodge, and American Motors' Cars by Model

Approximate base

Fad base price^ dealer cost"

Standard Size (120-122" Wheelbase)

Bottom-of -Line

(Average for Ford Custom 500,

Chevrolet Malibu and Laguna,

Plymouth Fury I and Dodge Polara) $3,341 $2,573

Middle-of -Line

(Averages for Ford Galaxie, Chevrolet

Bel Air, Plymouth Fury II, and Dodge

Polara Custom) 3,678 2,832

Top-of-Line

(Averages of Ford LTD, Chevrolet

Impala, Plymouth Fury III, Dodge

Monaco, AMC Ambassador) 3,984 3,068

Intermediate Size (111-118" Wheelbase)

Bottom-of-Line (6 Cylinders)

(Averages of Ford Torino, Chevrolet

Nova, Plymouth Satelite Dodge

Coronet, and AMC Matador) 2,672 2,057

Middle-of-Line (V-8)

(Averages of Ford Torino, Nova Custom,

Satelite Custom, Dodge Coronet,

and AMC Matador) 2,829 2,178

Top-of-Line

(Averages of Ford Grand Torino,

Chevelle Deluxe and Coronet Custom) 3,023 2,328

Suggested factory advertised delivered base retail prices for 1973 models

as reported in National Automobile Dealers (NADA) , Official Used Car

Guide , Eastern Edition, December 1972. These are base prices and do not

include options, or dealer preparation.

^These are rough approximations derived by multiplying the sticker price

by .77 are recommended in "Dealing with the Dealer," Consumer Reports , April 1973, p. 2 32. Compared with a sample of dealer prices as reported

in the United Buyers New Car Catalog, these estimates are sometimes high

and sometimes low, but appear generally to be within 1 percent of the actual

price

.

NOTE: This list is intended to provide an approximation of prices, not

to show exact prices among currently competing manufacturers

.

38
Table 7. Estimated 1972-1973 Prices

of Different Models of Police-Accessorized Patrol Cars

Standard size

Factory advertised delivered

(FAD) price as a percent

of average FAD

price of standard

middle-of-line models^

%

Estimated price to

police departments,

including options^

Bottom-of -the-line

Middle-of-the-line

Top-of-the-line

91

100

108

3,185

3,500^

3 ,780

Intermediate Size

Bottom-of -the-line

Middle-of-the-line

Top-of-the-line

73

77

82

2 ,555

2 ,695

2 ,870

aPercentages calculated from costs shown in column 2 of table 6.

^Estimated prices are derived by multiplying $3,500 by the

percentages in column 2. As explained in the text, it is assumed

that the prices of accessorized vehicles are in the same proportions

as the prices of the basic cars.

^^Assumed price of accessorized, middle-of-the-line, standard-size

car. Based on total cost shown in table 5.

39
Table 8. Estimated Resale Values and Depreciation Costs

for Two Year Old Patrol Cars Sold in 1973

by a Few Police Departments

Department type

State highway patrol

County

Medium-size city

Large city

Average

resale value

$936

590

533

262

Two-year depreciation cost

expressed as a percentage of

original price of police cars^

70 (55-79)^

82 (74-89)

84 (74-89)

87°

In comparison, private cars depreciate on the average 50 percent

over a two year period, not adjusted for high mileage, and 70

percent, when adjusted for high mileage.

The first figure is the group average; the range among departments

within the group is shown in parentheses.

°No range is given in this area, because resale values were from

a single large city department.

NOTE: These data should be regarded only as a rough approximation

of depreciation experienced in general by department types. The

sample of departments upon which the table is based is small. The

cars differed in make, model, and condition, but all were approximately two years old and had been driven between 60,000 and 75,000

miles (96,000 and 120,000 km). The data were gathered by interview

and correspondence.
utilization practices and, possibly, greater attention to

resale which may be given by fleet administrators in state

police departments. In table 8, it appears that all of the

police cars sold for much less than comparable cars in private

use. However, when the higher mileage driven is taken into

account, the difference, on the average, vanishes for state

highway patrol cars

.

The data in table 8 can be used to estimate depreciation

rates for patrol cars as well as resale values as a function of

purchase price, age, and type of police department. Estimated

depreciation rates for patrol cars are derived by department

type in table 9 . Departments may be able to do better or worse

in terms of resale than shown by the estimates in table 9 , but

these rates may be indicative of average performance

.

The depreciation rates of table 9 are applied to the

estimated purchase prices of table 7 in order to estimate

typical resale values by patrol car model and by department

type, as displayed in table 10. The depreciation factors for

intermediate models have been reduced by 6 percentage points

from the rates shown in table 9 to reflect lower average

percentage depreciation incurred by intermediates as compared

with standard-size models.^' There is also some evidence to

suggest that higher line models may retain their value better

than lower line models, but in absence of documentation,

depreciation rates have not been adjusted to differentiate

between bottom, middle, and top-of-the-line models. -^^

Clearly, depreciation is influenced by many factors in

addition to model, age, and mileage, such as make, accessories,

color, and condition. The effect of these other factors

account in large part for the differences in the estimates of

resale value for cars in the various types of police

departments as shown in table 10. The impact of car condition,

which—aside from age —reflects both different utilization

practices and different driving conditions, shows up in the

variations in the estimates among department types. For

purposes of most of the cost comparisons described later, these

estimated resale values are adequate; only for the costing of

very low utilization rates does it appear necessary to adjust

these estimates

.

The percentage differential was suggested by John A. Rowley,

"Fleet Car Selection," (paper presented at the NAFA Conference)

March 25, 1973, p. 15.

18

Ibid . , p . 21

.

41
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43
The background research for this report was completed too

early to determine the effect of the Federal Odometer Law of

1973, on car resale values. Used car price guides show

significant deductions for higher mileage cars, and many

dealers appear concerned about used cars with mileage over

40,000 (64,000 km). However, the patrol car may be in a unique

position with respect to this law. In effect, the antirollback laws require truthfulness on the part of the seller,

thereby increasing the buyer's knowledge of the car's

condition. Used patrol cars are often identified as such

despite reconditioning, and are generally expected to have high

mileage regardless of the odometer reading. The odometer laws

may, therefore, tend to reduce the disadvantage of the used

patrol car relative to other high mileage, used cars.

On the other hand, the odometer laws are likely to have a

negative impact on prices of patrol cars which are not

otherwise identifiable as such. Prices offered for patrol cars

by used car dealers and wholesalers who in turn do not identify

them as used police cars at time of resale, may fall sharply

from previous levels. According to a large midwestern dealer

who specializes in sales of used police cars, the odometer law

is causing a decline in police car resale values.-'-^

Equipment Cost

The purchase, installation, repair, and removal expenses of

reusable patrol car equipment is a significant part of total

vehicle costs. A list of representative equipment for a standard size patrol car is shown in table 11. The prices

shown were recently paid by a police department, but would not

necessarily be those available to all buyers. The original

purchase price of the full equipment package shown is nearly

$1,200.

Since most of the equipment can be sold or reused on

replacement cars, the full cost is not incurred at once. Using

a 10 percent discount rate, the initial cost of the equipment

can be converted to an annual cost, in constant dollar terms,

based on the assumed life of the equipment. As shown in table

12, the annual equipment cost is nearly $700 if the equipment

is used only 2 years and no resale or trade-in value is

received, but can be reduced to about $200 if used for 8 to 10

years

.

David Copser, Midwest Auto Sales, Inc., Dayton, Ohio,

telephone interview, March 20, 1973.

44
Table 11. Typical 1973 Prices of a Representative Selection

of Add-on Equipment for Patrol Cars

Top lights^ $ 95.50

Electronic siren/public address system 185.50

Wig-wag head lights 4.50

Two amber lights rear window 13.50

Two red grill lights 13.50

Shot gun scabbard 10.00

Fire extinguisher 7.20

Push bumper 35.00

Decals 12.00

Metal trunk box 17 .00

393.70

Radio (a wide price range exists, ranging from

about $600 to $1500 for a standard model mobile

radio) 800.00

Total Equipment Costs $1,193.70 rounded to $1,200.00

For a cost comparison of two models of top lights, see table 16.

NOTE; This is not intended as a comprehensive listing of equipment

nor as an official price list. Items are those actually included

on the patrol cars of a particular state highway patrol department,

and prices are those paid in 1973, by that department.

45
Table 12 . Annual Cost of Patrol Car Equipment'

Assumed Life

of the

equipment

(Years)

First

cost

($)

UCR

factor

Discount

rate

Annual cost

of equipment

2 1,200 .5762 10% $691

4

II .3155 II 379

6

II .2296 II 276

8

11 .1874 II 225

10 If .1628 II 195

Assuming various life-periods for the equipment, no salvage value, and a discount rate of 10 percent, the initial cost of the equipment

can be converted to an annual cost basis by multiplying the first

cost by the Uniform Capital Recovery Factor (UCR) for the selected time period. For example, for a life of six years, annual cost of equipment = $1,200 x (.2296) = $276.
It is estimated that about 3 labor hours would be needed to

install the radio, and about 6 labor hours to install the other

equipment . 20 Depending on labor costs (which might range from $5

to $15 an hour), installation would cost from $45 to $135.

3.2.2 Cost Saving Practices in Buying and Selling

An expert in transportation management has estimated that a

fleet manager often can save at least 15 percent of total fleet

costs and possibly as much as 4Q,to 50 percent by applying

efficient management practices. Significant reductions are

often possible in each area of costs. This section explores

some of the methods for lowering the purchase price or raising

the resale value to reduce depreciation costs.

Model Selection

As was shown in tables 6 and 7 it is possible to reduce the

purchase price by moving down the model line from one make or

model to the next. The difference between the price of a bottom-of -the-line intermediate and a top-of -the-line standardsize car averaged more than $1000, based on 1972-1973 prices

(see col. 3, table 7).

The cost effect of "moving down the line" is, of course,

not this simple. What is important is the combined effect of

the lower purchase price, the corresponding change in resale

value, and the impact of the change on operating cost.

Table 13 compares representative ownership cost for several

car models kept for one, two or three years by two different

types of police departments. Consider for the time being only

the effect of model difference, and not age or department type.

In row 5 we can compare the costs of six different models, all

owned by a medium-size city department and kept for two years.

Based on the data developed here, the standard, top-of -the-line

model costs $142 more in annual depreciation than the middleof -the-line model, which, in turn, costs $15 8 more annually

than the standard, bottom-of -the-line . Potential savings in

annual cost is $300 per car by moving from the top-of -the-line

to the bottom. A middle-of -the-line standard car operated for

Estimates of 6 hours to install equipment other than the

radio, and 3 hours to install the radio were provided by the

Arizona Department of Public Safety, Phoenix, Arizona, May 1973.

21

Herman S. Botzow, Auto Fleet Management, (New York: John

Wiley 6 Son, 1968), pp. 4, 129.

47
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48
one year by a State highway patrol costs nearly $6 0 0 more

annually in depreciation that a middle-of -the-line intermediate

kept one year.-^^

These data suggest that depreciation costs can be reduced

by choosing less-expensive, smaller cars (provided these cars

can be effectively used) . This reasoning may not apply if, for

instance, a department has access to an exceptional or

specialty resale market for a particular model of used car

where the depreciation rates among models are significantly

different from those normally incurred. However, it should

again be stressed that a substantial difference in depreciation

rates is necessary to equalize the depreciation costs of higher

and lower priced cars. Since more expensive cars generally

have to be in good condition in order to realize full resale

potential, the rule of selecting less-expensive models whenever

possible undoubtedly is appropriate for departments whose cars

at the time of disposition are usually in poor condition.

These estimates rest on the assumptions of equal depreciation

rates for bottom, top, and middle-of -the-line models within

each size category, and 6 percentage points lower depreciation

rates for intermediates as compared with standards . Although

it has been suggested that rates of depreciation may decline as

car price increases within a particular size group, no

conclusive evidence was found. It is apparent from the cost

estimates that a fairly sizable difference in depreciation

rates would be required to eliminate or reverse the effect

shown. A check of first year depreciation on bottom, middle,

and top-of -the-line standard-size cars, in private usage,

showed little difference in depreciation rates, but to the

extent there was a difference, depreciation rates for higher

line models were greater than for the bottom-of-the-line model.

( NAPA Used Car Guide . ) It has also been said that certain

makes of vehicles depreciate less than others. Any differences

which may exist between makes are not taken into account.

23This finding is compatible with the recommendation fleet

managers to "trend towards low-line models for high mileage--

hard usage/' given by Rowley, "Car Selection," p. 11.

49
Length of Ownership

The effect on depreciation cost of keeping cars longer can

also be seen in table 13. Examine in the top three rows the

depreciation costs of a middle-of -the-line , standard car owned

for one, two, or three years. In this case, extending the

period of ownership from one to two years decreased annual

depreciation by $373, and from two to three years, by an

additional $300.

The impact of harder utilization and poorer car condition

on annual depreciation is suggested by the comparison of a

standard, middle-of-the-line car owned for two years by a state

highway patrol with the same type of car owned for the same

period of time by a city department. Annual depreciation costs

incurred by the city's car exceed the state's by a substantial

amount; in actual practice, examples of much larger differences

may be found.

The combined effects of both model and age on annual

depreciation can be seen in the extreme case in the comparison

of costs to a State police department of a top-of -the-line

standard car owned for one year with cost of a bottom-of-the

line intermediate car owned three years . The estimated annual

costs in corlstant 1973 dollars, are $2 ,038 and $788,

respectively—a difference of $1,250.

For a car in ordinary use, depreciation increases, but at a declining rate, until about the sixth or seventh year. After

this time depreciation remains about constant at a low level or

goes to zero. A patrol car, with its high mileage and

sometimes rough use, usually depreciates out much more quickly.

As was estimated in table 10 , a patrol car driven in a city

will, on the average, have lost most of its value between the

third and fourth years of use.

Accessories , Color and Equipment

From a cost standpoint alone, most accessories would be

ordered by niost departments expressly to meet functional police

requirements. It will seldom pay to add extensively to the list

of optional accessories solely for the purpose of increasing

resale value. This is especially true (1) when bottom-of -theline cars are selected and (2) when cars are sold after several

years with high mileage and in poor condition. Equipment added

in such cases will have little influence on resale values.

There are, of course, other considerations in selection of

accessories and options besides functional requirements and

cost, including officer safety, morale, comfort, and officer

and vehicle appearance.

50
In other circumstances, however, careful and selective use

of equipment and color may be used to decrease depreciation.

This may be done in two ways: (1) by giving attention to

selection of those features which are standard with the car

(i.e., their costs are included in the base price) and (2) by

adding only those accessories which hold their value well and

add to the general appeal of the car.

With respect to standard features , some departments have

reported the benefits of specifying that the department will

have choice of a variety of interior and exterior colors

without additional charge. A diversity of color choice appears

to improve demand for the used cars; prospective buyers facing

400 identical cars, for instance, are not likely to feel very

competitive. From the standpoint of resale alone, the more

distinctive the car, the higher the price. Light, pastel

colors appear to be good choices for exterior colors. Lightto-medium metallic colors seem preferable to darker metallics.^'

Although the cost savings possible through the color

selection cannot be definitively measured, some effects were

observed in the following several special cases

:

(1) Of cars disposed of by a large city department in

1971-72, unmarked colored cars sold at an average

price of about $340, compared with an average of only

$260 for black and white cars which had been marked.

The colored cars averaged several years older than the

black and white cars, but the average mileages were

similar. The greater age of the colored cars would to

some extent offset their advantages of better

condition and fewer police features, hence color may

well have accounted for the better sale prices of that

group

.

Perhaps attention should be called to the words "decrease

depreciation." There is no question that optional equipment

can raise resale value, but this does not necessarily mean it

decreases depreciation, a point often neglected.

26 This obviously does not apply to departments which are not

free to have a mixed color fleet (due to restrictive codes) , or

which choose not to, or to vehicles whose use requires a

uniform distinctive color and markings so as to be readily

identifiable

.

27Discussion of fleet car selection. Annual Conference,

National Association of Fleet Administrators, Inc., Detroit,

Michigan, March 25-28, 1973.

51
(2) In a recent sale of State police cars, white patrol

cars which had been marked sold for about $60 less

than colored patrol cars which also had been marked.

All of the cars were of comparable model, with similar

accessories and of similar condition.

(3) During 1970, in a southwestern state, resale prices of

similar white and colored state patrol cars, while

nearly identical to one another, were substantiallyhigher than those received in other states not having

a patrol fleet mixed in color. The manager of car

disposition explained that white cars sold as well as

colored ones due to the strong demand for white cars

in the hot climate, but the mixture of white and

colored cars helped raise the average resale price of

all their cars by stimulating interest in the whole

fleet;

(4) Of a group of state toll-way cars sold in 1972 to an

auto auction house which, in turn, reconditioned and

resold them, the following observations were made:

a. white cars were bought at a lower average

price from the state police department than

were colored cars , and

b. a lower price was received by the auction

house for the reconditioned white cars than

for the reconditioned colored cars .

It may also be noted that some departments diversify their

fleets even further for resale purposes by varying models and

makes, as well as colors.

The auction house made the larger profit margin on the white

cars . The advantage of the lower price paid for them more than

offset the higher reconditioning costs and lower price

received. The conclusion we can perhaps draw from this is

that, given the apparent profit potential, police departments

may tend to sell their unattractive patrol cars to to wholesale

dealers more cheaply than they could.

29

In the cases found, maintenance was contracted out to private

dealers and garages. The problems and additional costs which

might otherwise result from need for larger parts inventories,

more equipment, and loss in efficiencies of specialization by

mechanics were thereby avoided.

52
As to the cost effects of various optional accessories, the

particular combination of car and equipment seems to be very

important. Generalizations regarding the cost effects of

individual accessories are meaningful only as they relate to

particular models, other accessories, car condition, and method

of disposition.

Table 14 presents examples of the "holding cost" for

selected accessories. These data suggest that the V-8 engine,

automatic transmission, and power steering may cost little, or

even reduce overall depreciation cost. On the other hand, the

air conditioning system appears to lose nearly a third of its

value in one year, about comparable to the rate of overall car

depreciation in the first year. However, air conditioning in

top-of-the-line models in good condition has become almost

necessary in order to retain their full resale appeal. Also,

air conditioning and power features have become increasingly

regarded as expected concessions to driver comfort, just as air

conditioned environments are expected by office workers.

There are disadvantages to locally-installed air

conditioning units such as interference with the installation

of other police equipment. However, departments whose cars are

heavily depreciated at time of resale may find the ability to

rotate units an efficient way to have air conditioning.

Following are some general guidelines suggested for

accessorizing fleet cars, which may be adaptable to patrol

cars :

Taken from Rowley, "Car Selection," p. 28. Notation: B-O-L,

M-O-L, T-O-L indicates bottom-of-the-line , middle, and top.

53
Table 14. "Holding Costs" for Selected Items of Car Accessories^

Accessories on intermediate

model

Average value

of 1971 model

equipment sold

in 1972 ($)

Typical 1973

cost ($)

Holding

cost ($)

Power steering

Automatic

transmission

Air conditioning

North value

South value

Vinyl top

V-8 engine

101

203

213

225

53

116

88

177

310

76

91

(13)

(26)

97

85

23

(25)

Cost data were obtained by averaging values from three used car guides. In the examples, holding cost is defined as the difference

between the price of the equipment on a 1973 intermediate model,

and the used value for the same type of equipment installed on a 1971 model and sold in 1972. Clearly this is a dubious measure

and actual experience might produce much different experience.

Parentheses indicate a negative holding cost.

Source: Rowley, "Car Selection," p. 2 4

54
For Lower Priced Makes (i.e., Chevrolet, Ford, Plymouth,

and Ambassador)

B-O-L Keep equipment to minimum—automatic transmission,

radio, and power steering with V-8 engine.

M-O-L Automatic transmission, radio, V-8 engine, and

power steering and power brakes a must. Air

conditioning rapidly becoming mandatory for

good resale.

T-O-L These cars must be well equipped —add miscellaneous

items of equipment such as light groups, wheel

covers, white sidewall tires.

For Medium Priced Makes (e.g., Mercury, Buick, Pontiac, and

Oldsmobile)

.

B-O-L Should be equipped with automatic transmission,

power steering, power brakes, radio, white

sidewalls

.

When a more expensive car is selected, air conditioning,

power steering and other luxury features should probably be

added and efforts should be made to eliminate the austere

appearance often typical of police cars, in order to reduce

depreciation. A sales manager of a large auto auction has

expressed it this way: "Even though they (middle and top-ofthe-line cars) may have both air conditioning and power

features, 'Police Specials' with taxi cab interiors and rubber

floor mats cannot successfully be converted to desirable used

cars, at least not from a cost standpoint."^ To this end, some

departments order patrol cars with carpeting and protect it

with rubber throw mats; put on attractive tires (such as

whitewall recaps) , and add other touches to help remove the

patrol car look at resale time. These steps will be effective,

however, only if the car is sold while it is still in good

condition. If the car is kept until it is in poor condition,

the remnants of luxury features will have little impact on

resale and will merely add to purchase price, hence to

depreciation cost.

Some departments select cars for resale appeal, equip them

well, maintain them in top condition, and keep them for a relatively short time —in some cases for 40,000 miles (64,000

R. W. Edmonds, General Sales Manager, Indiana Auto Auction,

Inc., Fort Wayne, Indiana, Letter of April 16, 1973.

55
km), or less. Such practice may yield resale values quite

close to those received for similar cars in private use. ^ The

improvement in resale value, however, is contingent on luxury

accessories, a shorter period of use, good maintenance, top

condition at resale, and an effective selling program—all of

which may add to ownership costs.

Table 15 shows estimated annual depreciation costs foi: two

cases: (1) the same expensive model, but equipped with options

added exclusively for resale purposes , and sold in top

condition after one year of use with relatively low mileage;

and (2) the same expensive model, but with somewhat fewer

accessories, and sold in "average" condition after 3 years of

use. It appears that, by keeping the car longer, annual

depreciation can be reduced by about $300 to $600, even though

resale value is lowered. Thus, even if a higher-line, more

expensive car is used, depreciation costs may be lowered by

extending the service life.

It may be argued, however, that the purpose of moving up

the model line is to improve officer morale, car appearance and

car performance, and that increasing the age of the vehicle

negates the advantages of the higher model line

.

Alternatively, it might be claimed that reducing vehicle age is

intended to lower maintenance costs and downtime. ±The cost

relationships between maintenance and repair cost and age

(mileage) are examined in Section 3.3.1 From the information

presented here we can conclude that decisions to buy higherpriced cars with luxury accessories and to keep them for short

periods of time generally do not appear to be justifiable in

terms of reducing depreciation cost—although they may well be

justifiable on other grounds.

Cost savings are also possible in equipping the vehicles

,

both by eliminating any unnecessary items and by choosing

wisely among alternative model designs. Although it is not

possible within the scope of this study to make cost

comparisons among all alternative equipment systems--and there

are many—a brief cost comparison is made of two suitable

warning light systems, for illustrative purposes.

The two systems costed are: (1) an aluminum mounting bar,

having at each end a light with two rotating light bulbs, and;

(2) a roof mounted light with four rotating bulbs. An

electronic siren/P.A. system is required with each light system

The similarity in resale values were determined by comparing

used patrol car prices of a department with used car values as

reported in the National Used Car Market Report , Blue Book and

Automotive Market Report .

56
Table 15. Comparison of Annual Depreciation Costs Associated with Two Approaches

to Ownership of a More Expensive Patrol Car^

(In constant 1973 dollars)

Approach 1: Luxury Equipment, Top Condition, One Year Old - Low Mileage

Purchase Price $3 , 880^^

Resale Value 2,561 2,910=

Reconditioning Expense $2 5 0 Annual Depreciation Cost $[3,880 - $(2,561 2,910)] (1.1) + $(2,561 2,910) (.10) + 250 (1.0)®

= $1,957 1,608

Approach 2: $100 Less Equipment, "Average" Resale Condition, Three Years Old - High Mileage

Purchase Price $3,7 80

Resale Value 670

Reconditioning Expense 67

Annual Cost = ($3 ,780-670) (. 4021) + (670) (. 10) + (67) (. 3021) = $1,338

The costs of maintaining a one-year old car in "top" condition as compared with

maintaining a one to three-year old car in "average" condition is difficult to estimate.

This cost difference is ignored here, except as reflected in the assumption of higher

and lower reconditioning expenses, respectively.

^The purchase price of $3,880 is the sum of $3,790, the estimated price of an equipped

top-of -the-line patrol car (table 7), and $100, the estimated cost of additional

equipment chosen for resale appeal.

'^The low end of the range is based on a depreciation rate of 34 percent, the rate

assumed average for ordinary passenger cars during the first year, with no increase

added to reflect police use. The high end of the range is based on a depreciation

rate of 25 percent, to compare the two approaches when a substantial depreciation

advantage is assumed for the first approach.

"^As shown in table 10 and based on estimated patrol car depreciation rates developed

in table 9. ^Uniform Sinking Fund (USF) factor.

57
but need not be costed since there is little difference in

price. (With the bar light, the speaker can be mounted in the

center of the bar and the electronics housed within the car;

with the bubble light, essentially the same speaker, with a flat horn design, can be mounted under the light unit with the

electronics unit in the car.) For the purpose of comparison,

the light units are the relevant items.

Although the two systems may differ slightly in terms of

performance (e.g., the bar light appears to be more visible,

but may also be subject to theft and cause greater wind

resistance and wind noise than the bubble light) , they seem to

be roughly equivalent. Their comparative costs, including

purchase price (less salvage value), installation cost, cost of

vehicle modification necessary to mount the systems

,

maintenance costs, removal costs, and cost of repairing damage

resulting to the vehicle —would, therefore be a prime criterion

for selection.

Part A of table 16 lists the relevant costs for each

system. The bubble light is seen to have a lower purchase

price than the bar light. This comparison is often cited as

justification for buying the bubble light. However, a much

more valid comparison of costs is provided in Part B, where the

alternative costs are converted to the same annualized cost

basis. This shows that the bubble light is actually more

costly than the bar light because of the repetitive expenses of

removal and reinstallation.

If the likely higher maintenance cost of the bubble light

and its probable lower salvage value were also considered, the

cost advantage of the bar-light system would be even greater.

(See footnote b to table 16 for an explanation of these other

cost items .

)

Reconditioning

In practice , reconditioning expenditures vary greatly among

departments, and among vehicles. Some departments do not

recondition; others invest substantially in upgrading cars for

resale. This is not surprising since differently equipped cars

incur different reconditioning costs, and not all cars warrant

or merit the same amount of reconditioning.

58
Table 16. Cost Comparison of Visi-Bar Light System

With Bubble Light

(In constant 1973 dollars)

A. Costs of the Two Systems^

Bar-light system Bubble light

Purchase price

Installation costb

Removal cost*^ , Repair of vehicle

Expected life

$161.50 $115.75

5.00

1.00

0

17.50

5.00

25.00

8 years 8 years

B. Comparison of Annualized Costs

Starting with new equipment, using a 10 percent discount rate, and assuming

equipment is rotated to replacement cars every two years, the annual costs of each

system can be calculated as follows:

Annual cost of bar light (A^) : Aj = [$166.50 + $6.00

(SPW, yr. = 2) + $6.00 (SPW, yr. = 4) + $6.00 (SPW, yr. = 6) + $1.00 (SPW, yr. = 8)]

[UCR, yr. = 8] = $33.62

Annual cost of bubble light (A2) : A2 = [$133.25 + $47.50 (SPW, yr. = 2) + $47.50

(SPW, yr. = 4) + $47.50 (SPW, yr. = 6) + $30.00 (SPW, yr. = 8)] [UCR, yr. = 8] = $46.05

^The systems costed are two popular brand models; prices are 1973 catalog prices.

Several items of costs are omitted from the comparison: costs of modifying the vehicle

to make it ready for the light installation are omitted because it is estimated that

costs of switches and wiring for the two systems would be approximately the same. Costs

of subsequently repairing the two units appear likely to differ, but are not included in

analysis due to the inability to get good quantitative estimates. In addition,

differences in failure rates and repair costs are not included. In addition, differences

in failure rates and repair costs are not included. However, it was suggested by several

police fleet managers that the bar-light system is less subject to failure than the

bubble light. Thus, cost of the bubble light might be increased relative to the bar

light if maintenance costs were included. Salvage values (negative costs) also are not

included, due to uncertainty regarding appropriate values. One fleet administrator

estimated both would be worth about $25 at the end of eight years. Another estimated no salvage value for either at the end of eight years. To the extent that salvage values

do remain, it would seem likely that the bar light would have a greater salvage value

than the bubble light since it might be considered a more modern model and is less likely

to corrode or be marred during installation and removal.

b

Based on an assumed labor rate of $10/hour and estimates of 30 minutes to install the

bar light and 1 hour and 45 minutes to install the bubble light. (Estimates provided

by the Vehicle Maintenance Section, Prince Georges County Maryland Police Department;

Interview, April 1973.)

Based on a $10/hour labor rate and estimates of 5 minutes removal time for the bar

light and 30 minutes for the bubble light. Same source as above,

d

Same source as above

.

59
A rule -of -thumb used by some departments is that

reconditioning costs be about 10 percent of the estimated

resale value of the car. Based on resale values developed

earlier, we would therefore expect reconditioning costs to

range from $20 to $200 for police cars. In general, more

should be spent on newer, more expensive models, and less on

less expensive models, and those in poor condition. There are

exceptions to these guidelines, depending mainly on the type of

car. For example, elaborate reconditioning of a car with an

austere interior is unlikely to pay, even for a relatively

expensive model in good condition. Its lack of consumer appeal

will likely prevent attainment of full resale potential.

On the other hand, minimal reconditioning even if no more

than a good cleaning, is almost always worthwhile. Cars in

exceptionally poor condition may be worth more through parts

recovery than through reconditioning and resale.

Institutional Impediments and Incentives to Efficient

Buying and Selling

There may be institutional barriers to efficient fleet

management. In the buying and selling of police cars, there

may be a lack of direct lines of responsibility, communication,

and recognition between those in charge of purchasing, using,

and disposing of vehicles. For example, some police

departments have insufficient influence on decisions regarding

fleet composition, make and model selection, accessorizing, and

replacement. This lack of influence may cause morale problems

and an inferior job in managing and caring for the vehicles

provided

.

There is an obvious disincentive to efficient vehicle

disposition when the police department staff perceives no

direct benefit from achieving cost savings in depreciation. In

centralized fleet management, for example, the police

department may turn over its vehicles to another governmental

division for disposition with the proceeds from resale going

into a general fund. This may ultimately benefit the police

department, but so indirectly as to occasion comments from

police administrators such as "It makes no difference to the

police department whether it surrenders its vehicles in good or

poor condition." Departments which receive no direct credit

from their retired vehicles may find it profitable to junk cars

for parts retrieval, rather than pass the cars along for resale

60
even if more might be recoverable from resale. Such a practice

may be perfectly efficient from the standpoint of the police

department, but not from that of local government and society.

This undesirable side effect of centralizing the management

of fleets of the various units of government (such as the

police department, fire department, and sanitation department)

is ironic, since one of the main arguments for centralizing

fleet operations is efficiency—the possibility of achieving

economies of scale and better coordination among subunits.

The problem of incentives to efficient management deserves

attention. Sound cost accountability procedures which would

shift charges and credits to the cost centers from which they

arise are necessary. In this regard, it might be fruitful to

examine departments with centralized management, and to look

into their respective incentives systems.

Preparation of Specifications, Price Documentation , and Bid Acceptance

Cost savings are often possible in the purchase of

vehicles. Careful specifications can reduce costs and improve

fleet effectiveness. According to one manufacturer's

representative who has considerable contact with law

enforcement fleets , "many departments order the wrong kind of

vehicle, not really suited for the intended use, such as

pursuit cars for in-city use." He further commented that

departments often submit "weird" or obsolete specs, calling for

features which are not really needed and which add to the cost.

Attention to details can prevent unanticipated ballooning

of costs. As an example, one county fleet administrator cited

a savings of $30 per car (compared to a nearby police

department buying the same car) simply by specifying the

inclusion of preparation and handling charges within the bid

price

.

There are probably advantages in quantity buying, although the

largest car manufacturers ceased granting special discounts to

fleets in the summer of 1970. In informal conversation, a

major company representative stated that special concessions

and consideration with respect to such items as warranty

coverage and delivery are extended to two types of fleet

customer : the most important from the standpoint of volume of
business, and those who "scream the loudest." Police fleet

managers who were interviewed attest to this statement.

Departments with small fleets might therefore find it

advantageous to join in group buying. Joint efforts and larger

orders may result in a somewhat better price or better service,

in that the dealer may be willing to accept a lower profit

margin or provide additional service on larger volume orders.

"Piggy-backing" on other departments' orders or group buying

can further reduce the total cost of preparing bid proposals,

advertising, receiving and analyzing bids, awarding contracts,

and other managerial expenses.

Cooperative buying may present considerable difficulty in

interpersonal and intergovernment relationships. It is not

easy to exercise efficient, large-scale and centralized buying

techniques without abridgement of local department

prerogatives, responsibilities and vehicle requirements.

Cooperative buying also can be inefficient if smaller

departments purchase more expensive vehicles or more optional

equipment than they actually need. However, some departments

and local governments presently claim savings through group

purchasing

.

Departments can also save on costs of preparing

specifications by drawing on the experience and information

available from other departments, including research and test

results and illustrative specs . Some large department—most

notably the Los Angeles Police Department—test vehicles and

equipment and share information with inquiring departments

.

The National Association of Fleet Administrators maintains a

file of sample specifications, available to member departments.

The exchange of police vehicle procurement information is also

a by-product of intergovernmental cooperative purchasing.

Information exchange might be further and profitably

widened through establishment of a national clearinghouse or

reference service. Perhaps an existing organization already

active in the area (such as the National Institute of

Governmental Purchasing or the Law Enforcement Group of the

National Association of Fleet Administrators) could broaden its

dissemination of relevant procurement data.

Several police fleet administrators who were interviewed

suggested that procurement savings might be possible through

direct participation by state , county and city police

See, for example, Robert N. Belmonte, County of Bergen, N.J.,

"Another Look at Large-Scale Intergovernmental Cooperative

Purchasing," Journal of Purchasing

,

February, 1972, pp. 34-49.

62
departments in Federal supply contracts administered by the

U.S. General Services Administration, but this does not appear

to be possible under existing Federal law. However,

establishment of a national procurement data exchange does seem

possible under Title III of the Intergovernmental Cooperation

Act of 1968 (P.L. 90-577) : Permitting Federal Departments and

Agencies to Provide Special or Technical Services to States and

Local Units of Gove'rnments . ^

A source of current car price data for the different car

makes is useful to estimate expected costs of vehicles and

parts, and to evaluate bids. Examples are: (1) the AIS New

Car Cost Guide , distributed by the Automotive Invoice Service

Company; and , (2) the Unicom^ Directory of Used Cars . Some

police departments secure price lists from dealers or from the

manufacturers. The manufacturers also make available annual

vehicle specifications describing available options and

features , but generally not prices

.

Advance notice of planned design changes is useful for

efficient planning and coordination of vehicle and equipment

purchases. Changes in interior configuration may mean that

equipment purchased earlier will not fit later models and will,

therefore, become quickly obsolete. Close contact with

manufacturers' representatives may help to avoid this problem.

Conventional procurement practice is to accept bids from

local dealers. Many departments accept strictly the low bid,

resulting in the lowest purchase price . However , departments

increasingly have come to realize that the lowest purchase

price may not mean the lowest life cost. One department,

through low bid acceptance, changed to a model which was bid

forty cents below the department's existing vehicle model, but

which necessitated considerable expenditure for new equipment,

new parts inventory , and retraining of mechanics to make the

transition

.

Some departments believe that low bid acceptance is legally

mandatory, regardless of the overall cost effects, and in some

cases this is true. Typically, however, procurement

regulations are written to allow exceptions when low bid

acceptance would be inefficient.

A parallel may be drawn between state and local procurement

practices and Federal practices. Section 2305(c), Title 10,

^^Ibid. , pp. 47-48.

63
U.S. Code states, "Award shall be made... to the responsible

bidder whose bid...will be most advantageous to the United

States, price and other factors considered." In past practice,

the word price has been the chief or only consideration in

awarding advertised contracts. This avoids related protests

and complaints, as well as the need to justify exceptions.

With more attention being given to life cycle costs, the

Federal Government appears to be moving away from this

practice

.

Timing of Purchase and Resale

The time at which cars are bought and sold affects costs,

but the existing views and practices concerning timing are

mixed. For purchase, many departments prefer to wait until

late in the model year (e.g., late spring or early summer),

believing that they can get better prices when the change-over

to new models is imminent, and that the factory delivered

condition of the car is better due to correction of earlier

assembly line problems. Other possible reasons for delaying

purchase are the low priority given fleet sales by some

dealers, and departmental indifference to depreciation due

either to a poor incentive structure or to planned use of the

vehicle until little resale value remains.

Depreciation costs under normal conditions do not justify

delaying purchase. Cars depreciate primarily in terms of model

years: a car bought at the end of the model year is assigned a full year's depreciation cost at the time of model change-over.

This depreciation is essentially "unused" and raises annual

average cost. Therefore, a department which practices

relatively quick turnover of its fleet and emphasizes reduction

of depreciation cost should, if possible, buy vehicles early in

the model year. Any purchase price differential in early and

late buying is likely to be small —particularly since price

increases often occur during the model year.

Three main forces in the resale market affect optimal

timing of disposition—trend, cycle, and seasonal variation.

The general direction, or trend, of resale values for a given

model is, of course, normally downward. This is shown in

exhibit 5, which charts the resale values of a low-price,

standard-size car (not a patrol car) from the time of first

introduction in the fall of 1969 to late spring of 1973. The

car was priced new at $2930, sold used for $2275 at the end of

64
esm

m CO CM CM

3niVA 31VS3H ilV3 0 o c0

(1) 0

Ul

(0

H

Ul 10 0)3 CPcM > -a3 C r-io

10

X

01 (U « 4-1 3

£1 c0 in H 0

4J jii •H (0 •0 u£c

0) (0 P

01 CP

IB c K H •H3

0)

(1) flj a 4-J 01 IB 3 u0 U 3 0

nj 0 01 U a a < 0 c

01 0 a r^

01 < 01 •H

H < e

01c 01

IB 0 u 01 JJ

111 ,—1 a o

01 4J K 4-1 0

•H 10E0 Dl r- J-1 cr 3

IB 1 10

<r.

U0 fll iH 0

•a IB

lU 01

-P ^ £ 00 0 ^ Q) m 4J

M-l IB D £ C M 0 u 4J

01

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01 IB 3 H

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02 2

65
1970, for $1875 at the end of 1971, and for $1425 at the end of

1972.^5 The inset of the figure stacks the model years vertically

to accentuate the seasonal pattern. Values appear to decline

most sharply from about November through March each year, but

remain fairly constant from April through the summer months.

Exhibit 6 shows recent cyclical fluctuations in the used

car market, which appeared generally strong from early 1970

until the third quarter of 1971, but then was depressed in the

fourth quarter of 1971 and early in 1972. Buoyant or depressed

markets could alter the resale value normally expected.

Except for unusually strong aberrations in the used car

market, it appears generally most efficient to purchase new

cars and to dispose of old cars as early in the model year as

possible. If delayed until late spring, however, purchase and

disposition can usually be further delayed until late summer

with little additional depreciation cost. Any further delay

tends to result in a large rise in depreciation cost.

Alternative Methods of Car Disposal

The means of disposing of used vehicles is another factor

which influences depreciation costs. There are essentially two

methods of disposing of vehicles in the open market—by

wholesale or retail. (The variety of wholesale and retail

disposal methods are listed below.) In addition, vehicles may

be transferred from the police department to other governmental

units prior to subsequent resale. The following specific ways

of disposing of patrol cars were identified by this study: (1)

Trade-in to new car dealer upon purchase of replacement

vehicles. (2) Sale to a used car dealer. (3) Consignment to

an automobile auction house. (4) Transfer of vehicles from

the police fleet to another department of government. (5)

Periodic public police auctions. (6) Periodic acceptance of

sealed bids from the public. (7) Prearranged sale to

employees or private buyers when vehicles are retired. (8) In

the case of leased cars, disposal handled by a leasing company.

Each method has its advantages, disadvantages, and relative

appeal depending in part on the model, age, and condition of

the car, and in part on the characteristics of the police

department and the availability of alternative methods of

disposal. In considering the alternative methods from a cost

viewpoint, it should be remembered that it is the net resale

NAPA Used Car Guide , Eastern Editions, 1970 Plymouth Fury I.

66
Exhibit 6. Overall Level of Used Car Prices, Seasonally Adjusted,

1967 to 1973

$1,100 r1,075

1,050

1.025

1,000

975

950

925

900

875

850

AMR MARKET INDEX

BI-WEEKLY AVERAGES

Charted Quarterly

DEPRESSED MARKET

I I I I I I i I I I I i I I I I I I I I I 1967 1968 1969 1970 1971 1972 1973

SOURCE: Rowley, "Car Selection," p. 19.

67
value that counts; that is, it is important to take into

account the selling costs associated with each method, as well

as the price received.

Retail sale methods, which omit the middleman, appear to

yield highest prices. Methods 5, 6, and 7 above all may

include retail transactions. A comparison of NADA retail and

trade-in prices for four makes and eight popular models showed

retail prices of cars generally to be between $425 and $475

higher than trade-in prices. The City of Atlanta, Georgia,

cites "an excellent return" from the annual public auction of

its entire police passenger car lineup; prior experience with

trade-in disposition yielded poor results.

The main disadvantages of retail methods are the higher

reconditioning and selling costs which are usually involved,

and the possible delay in disposal. Since the aim is to sell

cars directly to the ultimate buyer, more attention is usually

given to detailing or reconditioning the car. Many police

departments are not equipped to do this as efficiently as

dealers. Methods 5 and 6 —police auctions and acceptance of

sealed bids —are likely to require storage from time of

retirement to time of auction or awarding of the bid, with the

attendant storage costs, insurance cost, and unused

depreciation. Advertising will probably be necessary to

stimulate consumer interest, and administrative and management

talent will be needed to successfully conduct or oversee the

sale

,

Of the retail methods, the police auction offers the

advantage of competitive bidding, which may raise prices. If

the fleet is of sufficient size to enable scheduling of

frequent auctions , the problems of storage costs and unused

depreciation may not be serious . Some departments and

governmental bodies , such as the Arizona Department of Public

Safety and the City of Seattle, hold regularly scheduled

auctions of police cars on their own used car lots. This

method is most suitable for disposal of cars in relatively good

condition with consumer appeal

.

Prearranged selling to employees or others appears to be

feasible only for small fleets. In contrast, acceptance of

sealed bids is a fairly simple method of disposal which is

manageable even for large fleets. Its main drawback is the

Al Trager , "Going, Going, Gonej " Commercial Car Journal, June

1972, 114-116.

68
necessity for storage and making vehicles available for public

inspection for a period prior to bid awarding.

Wholesaling—selling to used car dealers , to wholesalers

and brokers, or consigning to automobile auction houses —offers

the advantages of quick sale and low selling costs , but prices

may be lower than attainable through retailing. Wholesale

methods are often used by departments interested in quick sale

with little or no reconditioning. Utility, service vehicles,

and cars in poor condition usually are wholesaled . Some auto

wholesalers advertise in trade journals specifically for police

vehicles. They buy in quantity, rely on scale economies for

low reconditioning cost, and distribute the reconditioned cars

to scattered outlets , thus overcoming in part the problem of

selling a large number of look-alike cars. They sell to other

wholesalers , taxi companies , and private buyers

.

Transfer of vehicles from the police fleet to other

governmental agencies may be efficient for the overall

government unit and may also benefit the police department

directly, if charge-backs are used properly to assign costs and

credits. Vehicles which no longer meet the reliability

requirements for police work may nevertheless be adequate for

lesser demands. The Arlington County Virginia Equipment

Division, for example, selects suitable retired police cars and

reassigns them to other units requiring transportation, such as

the Public Health Office. The resulting lower average annual

depreciation costs are passed along to the police department in

the form of lower monthly rental charges . (This approach is

efficient overall only if rising maintenance and repair costs

do not more than offset the decline in average depreciation at

the time of vehicle transfer. For further explanation, see

section 3.5 on replacement policy.) If there is not a good cost

accountability system, the police department itself will

probably not benefit from intragovernmental transfer of

vehicles, even though the parent organization may.

Top disposal prices are usually not obtained through tradein to dealers. Trade-in may, however, be used to obtain

favorable servicing or special consideration in new car

delivery. In addition, it eliminates the problem of

coordinating disposal and new car delivery and the need for

storage, as well as most selling expenses.

"Special Report: The Growing Lure of Fleet Leasing."

Business Management , December 1969, pp.

38Mr. David Carter, Arlington County Virginia Equipment

Division, Arlington, Virginia, interview, 1973.

69
Perhaps the most important point to be made with respect to

trade-in is that quoted trade-in prices are often deceptive. A

high trade-in figure associated with an inflated new car price

may mean that the net new car cost (or net trade-in value) is

actually poor. A more valid approach compares trade-in with

other means of disposal by computing the net costs of the two

bids received. This can be illustrated with actual data from a police car sale in a west coast city: A new car dealer offered

$15,325.00 trade-in allowance for nineteen used cars, but the

cars were sold retail at auction for $14,436.30. Deducting the

advertising costs of $142.38, the net proceeds of $14,293.92

were $10 31.08 less than the dealer's offer, an apparently large

loss to the city from selling retail instead of trading-in . A

closer and more valid look shows that the city in fact saved

$2400, since the higher trade-in allowance masked a higher bid

price on the new replacement vehicles. The effective cost

comparison is the following:

Costs Using Trade-in Method of Disposal

Bid on 20 new cars by "X" Motors: $54,970.25

Less Trade-in Allowance on 19 cars by

"X" Motors: 15 ,325 .00

Net Cost: $39,645.25

Costs Using Auction Method of Disposal

Bid on 20 new cars by "Y" Motors: $51,529.00

Auction Sale Price : 14,293.92

Net Cost: $37,235.08

Here the bid price on the same cars from another dealer,

without trade-in, was over $3,000 less than the new car/tradein package, with a net savings of $2,410.17 possible by buying

the new cars and selling the old ones separately . Findings

regarding disposal of used police cars can be summarized as

follows

:

39

Mr. James C. Jones, Equipment Analyst, Transportation

Division, City of Pasadena, California, memo transmitted in a

letter of April 19, 1973.

70
(1) If cars are in relatively good condition, and enough

are available to permit frequent sales, a retail sales method

of disposal--preferably an auction if administratively

feasible--will likely be cost effective.

(2) If cars are in poor condition, or if there otheirwise

is no good local market, a wholesale method of disposal, such

as consignment to an auto auction or sale to used car dealers

or wholesalers , offers a relatively quick method of disposal

which avoids costly storage and built-in depreciation.

(3) V7ith an equitable cost accountability system in

effect, transfer of cars to other departments may be beneficial

to police departments by reducing annual depreciation cost.

(4) Although net trade-in prices usually tend to be

relatively low, trade-in may nonetheless appeal to departments

without attractive alternatives due to the possible advantages

of preferential service, convenient and timely disposal, and

low selling cost. But it should be remembered that quoted

trade-in prices are often deceptive, and attention should be

given to the net cost of the new car/trade-in bid.

3.2.3 Lease Vs. Buy

In recent years in commercial organizations there has been

a steady trend away from company-owned and employee-owned

fleets towards fleet-leased cars, such that the majority of

business fleet cars are now leased. Many articles citing the

merits of fleet leasing appear in fleet journals, and leasing

is frequently a topic at fleet management seminars and

conventions . These developments have not gone unnoticed by

police fleet managers, and many of them wonder whether police

departments should switch from purchasing to leasing. This

section explores the question of leasing versus buying.

Leasing Arrangements

Leasing is a method of legally obtaining possession and use

of assets for a period of time (usually a year or more) without

assuming ownership, and generally involves a combination of

finance and service. There are three basic types of vehicle

lease: (1) the finance lease, (2) the net lease, and (3) the

maintenance lease.

^^This is the practice of a few police departments, although

the trend is away from this practice.
The finance lease, which is the most popular lease among

business organizations, provides vehicles but makes no

provision for maintenance and operating services. The lessee

controls and pays for all maintenance and operating costs and

reimburses the lessor for any resale loss (or receives any

resale gain) when the vehicle is turned back to the lessor for

disposition. The period of lease is flexible, and the monthly

payment is expressed as a percentage of the capitalized value

of the new vehicle. The amount of payment declines each year

as the lessee continues to use the vehicle.

The net lease, like the finance lease, makes no provision

for maintenance or operating expenses . However , the net lease

is generally closed-end in terms of the period of lease, with

no adjustment for variation in actual depreciation. The lessee

is required to return vehicles in a condition showing only

"normal" wear. The monthly lease charge is usually a flat

dollar amount

.

The maintenance lease includes provision for some

maintenance by the lessor, the amount ranging from limited to

comprehensive. The cost of this type of lease consists of a

charge for the vehicle's use, as is made under the finance

lease and the net lease, plus a maintenance charge. Its price

is therefore higher than the other types of lease arrangements.

The lease may be either closed-end or open-end,

Within these three basic types of leases there are

countless possible variations in provisions , as well as

alternate names, such as the service lease (same as maintenance

lease) , the walkaway lease (same as the net lease) , the

guaranteed lease (net lease) , or the cost-plus lease (finance

lease under which the lessor administers maintenance control

for a separate fee) . A procedure called "sale-leaseback" does

not designate a fourth type of lease, but is simply one way of

putting into effect one of the three basic types of lease

listed here. Just what the leasing company contracts to

provide to the lessee can be determined only by a careful

reading of the contract in each case

.

While the finance lease is most prevalent for private

enterprise, the maintenance lease appears to be favored by

police departments. The discussion of leasing advantages and

disadvantages will help to explain the police preference for

the maintenance lease.

'^l Clyde W. Phelps, The Role of Fleet Leasing m Motor Vehicle

Fleet Plans of Business Firms , Studies in Commercial Financing,

No . W, Education Division, Commercial Credit Co., Baltimore,

1969, pp. 1-20.

72
A copy of an actual maintenance lease agreement between a

medium size city police department and a local dealer leasing

company is presented in Appendix B-1 . At a glance, this

appears to be an agreement for maintenance only and not a

leasing arrangement for use of the car. In fact, it is both.

The initial purchase of vehicles by the city from the leasing

company and subsequent repurchase by the leasing company from

the city, as called for in item 7 of the contract, is merely a formality designed to protect the lessor from ownership

liaibility; no purchase or resale money actually changes hands.

Under this agreement, vehicles are replaced at 60,000 miles

(97,000 km) or 3 years, whichever comes first. (For this

department, this arrangement has resulted in an annual

replacement of most of the marked cars and a replacement every

two or three years for unmarked cars.) The lessor contracts to

provide general maintenance at 6,000 miles/60 days (10,000

km/6 0 days); operating repairs, repair parts, tire maintenance

and repair, and washing as required; oil change at every 2,000

miles/60 days (3,000 km/60 days); and lubrication every 4,000

miles/60 days (6,000 km/60 days), all of which is to be

performed weekdays between the hours of 8 a.m. and 5:30 p.m.

Wrecker service and emergency maintenance for tire repair or

replacement and breakdown repairs or parts are provided on a

24-hour basis. Contract provisions specify priority service

for police vehicles , service to be provided at a place

convenient to the police department, and alternative

arrangements to be made by the lessor for contract compliance

should a strike cause the lessor to close down. Not covered

under the lease are the following: (1) decaling and

installation of special equipment, (2) repair necessitated by

accident or other casualty, (3) repair made necessary by driver

abuse or failure to follow prescribed operating instructions

,

(4) theft or loss, (5) repair of exempted damage required prior

to turning in the vehicle, and (6) gasoline. (The agreement

does cover partial reconditioning, including removal of decals

and standard preparation.) Insurance costs are borne by the

lessee. The monthly lease charge is based on a specified rate

per mile for the number of miles driven each month, with a

minimum mileage charge quoted.

Additional clauses have been extracted from several other

police leasing contracts to indicate further the kinds of

arrangements which are made and how certain problems generally

associated with police leasing are being handled:

73
(1) "The lessee shall have the option to lease additional

police cars per year up to a specified maximum."

(2) "The lessor will be responsible for maintenance of the

leased vehicles, except that gasoline, cleaning and washing,

speedometer certifications , and all forms of liability and

comprehensive insurance shall be the responsibility of the

lessee . "

(3) "The lessor will maintain a specified number of backup

cars in service, on call, both marked and unmarked in a

proportionate amount sufficient to immediately replace leased

vehicles. In addition, the lessor will maintain a specified

number of cars in inventory."

(4) "Special police equipment, such as visi-bars, flashing

lights, electronic sirens, speakers, and police radios shall be

deemed extra equipment .. .will be provided by the lessor at the

lessee's request; at prices to be mutually agreed upon."

(5) "To assure faithful performance of its obligations,

the lessor will assign its contract with the lessee to a federally regulated bank. All payments due by the lessee will

be made directly to the bank. The lessor will voluntarily

restrict its use of any money paid into the bank by the lessee

for the full term of the contract. The lessor will agree that

it will not withdraw the money paid into the bank by the lessee

except for the sums necessary to fulfill its services and

maintenance obligations .

(6) "The lessee shall be solely responsible for

disposition and retirement of department-owned police

vehicles .

(7) (As an alternative to (3) and (6)] "The lessor will

purchase from the lessee a quantity of existing patrol cars to

be used as replacement (backup) vehicles."

(8) "The lessor will perform maintenance, repairs, and

warranty repair in such a way as to keep down-time to an

absolute minimum. The repair shop will operate on a 3-shift

basis, 24 hours a day, from 8 a.m. Monday through 5 p.m.

Saturday. During these hours a specified minimum number of

fully qualified mechanics will be on duty."

74
(9) "A sufficient stock of repair and/or replacement parts

will be maintained at the lessor's repair shop to insure an

efficient flow of repairs, while maintaining the minimum downtime concept .

(10) A replacement patrol car will be provided when any

car is in the shop for service or repairs."

(11) "The lessee (police department) agrees to furnish

legal exemption certificates covering Federal excise and other

taxes to the lessor."

Contracted replacement mileage ranged from a low of

replacement every 30,000 miles (48,000 km) to a high of

replacement every 60,000 miles (97,000 km), but in most cases

the aim was to replace patrol cars about once a year and other

cars about once every two to three years

.

Terms regarding choice of car model and accessories vary,

but rates appear generally more favorable if the lessee selects

a car which permits easy disposal by the lessor, while still

meeting police requirements.

Rates vary among leasing companies and depend greatly on

the specific provisions of the contract. Sometimes the lessor

follows a flexible policy in which he adjusts the quoted rates

upward or downward depending upon the desire of the police

department to assiime or relinquish maintenance duties. The

lessor may charge by the mile, with or without a minimum

mileage requirement; there may be a flat monthly rate, or the

charge may have two components, a flat monthly rate plus a

mileage charge.

Advantages and Disadvantages of Leasing

Some police administrators who were interviewed asserted

that leasing must always be more expensive than a well-run, inhouse operation, since the lessor's profit is added to the

basic cost of operating the fleet. This point of view,

however, ignores the possibilities of economies of scale and

economies of specialization. A leasing company may supply

vehicles to a number of departments , thereby operating a

combined group of vehicles very much larger than the fleets of

any one client. Through mass purchasing, a large leasing

company may be able to overcome one of the disadvantages often

75
cited, i.e., that a private firm cannot buy at the favorable

prices extended to state and local government units. Economies

of scale may also exist in car disposal. A large leasing

company may have access to many and different types of resale

outlets and a better view of the resale market, permitting it

to obtain higher resale values than some police departments

could obtain. Thus, it is quite possible for the depreciation

cost included in the monthly lease payment to compare favorably

with that which the department would incur through ownership.

Similarly, economies of scale might be realized in more

efficient utilization of maintenance and repair equipment and

specialized personnel, and in use of automated data processing

equipment and mass paper handling methods, thereby reducing

overhead cost.

It may also be asserted that acquisition of vehicles by

lease must be more costly—from the standpoint of the drain on

the police department's budget—than department ownership,

because the borrowing cost of private firms is normally greater

than that of governmental agencies, which may float tax-exempt

securities. Apart, however, from consideration of the true

social cost of public borrowing, there are limits to the amount

of funds which government agencies may raise in this way. In

addition, restrictions are sometimes placed on the financing of

short-life capital assets by issuing securities. Also, as with

a private firm, leasing may improve the working capital

position of a public agency, thereby freeing funds to be used

for purchasing other resources or undertaking other activities

which are expected to yield positive net benefits to society.

Another argument sometimes raised against leasing by

government agencies is the absence of special tax advantages

which may accrue to private firms which lease. Since

government agencies are tax-exempt, it is true that the same

tax considerations which apply to private fleet decisions do

not apply to police fleets. Furthermore, it may be argued that

government agencies which lease forego the advantage of their

tax-exempt status, which allows them to purchase at a lower

price than leasing companies. However, as we have seen, the

government agency may be able to preserve this advantage if it

can pass the tax-exemption on to the lessor.^^

Wayne K. Armstrong, Chief of Police, Rapid City, S. Dakota,

"Should Your Department Lease Its Police Cars?" FBI Law

Enforcement Bulletin , November 1974, p. 12.

76
In addition to cost considerations, there are other reasons

why police departments might find leasing advantageous. One

advantage of leasing was cited by several police departments,

who leased: the regular streams of contracted payments

facilitated budgeting. Less resistance may be encountered from

the appropriations body to police department requests for

monthly lease payments than for funds to purchase new and/or

additional cars. One police fleet manager explained that prior

to leasing the department faced a constant, recurrent struggle

to obtain funds for purchasing replacement vehicles. The fleet

was generally old, and failing cars posed constant problems.

After acceptance of a leasing arrangement—with its one-to-two

year replacement clause —little difficulty was experienced in

obtaining annual approval of the monthly rental payments. The

average age of the fleet is now much lower and car condition

much improved

.

Another police department reported an inability to obtain

funding for the capital outlay needed to expand its fleet to

meet growing requirements for transportation. However, it

could get sufficient funding to meet the monthly rental charge

for additional vehicles on a leased basis and reported improved

vehicle availability under leasing. This same department cited

the advantage of greater ease in adjusting the number of

vehicles to actual need under leasing. Clauses in the lease

contract calling for standby vehicles immediately deliverable

from the lessor can achieve this flexibility. A lessor who

serves several departments may be able to maintain an adequate

backup inventory at a lower cost than each individual

department, since the likelihood that all clients will need

emergency replacements at the same time is rather small.

Two chief motivating forces were found for the apparent

preference of police departments for the maintenance lease:

(1) Maintenance leasing offers to small and moderate-size

departments a possible reduction in maintenance service costs

achievable through economies of scale of the lessor. (2)

Maintenance leasing may offer escape from an existing poor

maintenance arrangement.

The short-term maintenance lease provides a more flexible,

less binding arrangement than is possible through the

establishment of an internal maintenance facility. Some claim

that this rationale for leasing is a "cop-out"--an admission of

failure by the police department to operate its fleet

efficiently, and, doubtlessly, it is an indication that the

existing system is not functioning satisfactorily. However,

-^Ibid. , p. 11.

77
the roots of the problem may not lie directly within the police

department or within its power of control. If this is the

situation, leasing —if leasing is more cost-effective than the

existing system—is preferable to continuing a less efficient

operation merely for the sake of having a police- or municipalowned and serviced fleet.

A prevalent objection to leasing is that the police

department loses control of its fleet and can no longer assure

proper car selection, maintenance, and availability. It is

sometimes asserted that a lessor will not provide suitable

vehicles, that his maintenance facilities will be inadequate

for the unique and specialized police vehicle, that the

availability of police transportation (and protection) will be

subject to the whims of the lessor, and that police cars

damaged in riots or other disturbances after 5:00 P.M. will

become unavailable until the following day. However, actual

experience with leasing by police departments suggests that

most of these problems are exaggerated. The lease arrangements

presented earlier illustrate some of the ways departments

avoid, or at least greatly reduce, these potential problems. A

considerable degree of control and flexibility with a leased

fleet does appear to be possible.

Other objections to leasing and reasons for department

ownership which were given by police fleet managers included

the following: (1) tradition: "this is the way it has always

been done"; (2) an ample annual capital equipment budget; (3)

the cost and trouble of making a change in the system; (4) a

small expected cost difference between the alternatives; (5)

existing reciprocal community arrangements; and (6) pride of

ownership. The first five of these rationales for ownership in

themselves make little sense in terms of economic efficiency.

Even if a department's budget does allow purchase, this by

itself does not warrant purchase. Pride of ownership is a

psychological motive whose value is difficult to assess; but

this also appears to be a weak argument for ownership.

In summary, this investigation found no impediments to

police fleet leasing which by nature appear insurmountable. It

found several motives for police leasing aside from possible

cost advantage. It appears that leasing could, under certain

circumstances , offer cost advantages not only to small police

departments, but to departments of any size.

78
Cost Comparison of Leasing and Buying

Lease costs may cover either the cost of providing use of

the vehicle (i.e., financing), the cost of any services under

contract, or both of these. A wide variety of services may be

provided under a maintenance lease contract; hence, quoted

costs of the service part of leases vary greatly. It should

also be noted that maintenance and management services may be

leased from outside businesses by a department which owns its

vehicles, and, conversely, cars may be leased by departments

which provide their own maintenance. Two separate cost

decisions must therefore be made: (1) Is it cost-effective to

secure vehicles through leasing, and (2) Is it cost-effective

to secure maintenance and management services from outside

sources? (Attractive terms for a combination lease arrangement

may, in practice, encourage a joint decision.) The approach

taken here is to compare the costs of leasing, without

provision of services, with outright purchase, and to compare

costs of contracted maintenance with in-house services

.

Let us first compare the costs of buying a car outright to

obtaining it through a finance lease, which only provides use

of the car and not maintenance service . Assume that the lease

is open-ended, thereby requiring the lessee at the end of the

contract to insure that the lessor has received payments

equalling full depreciation. For purpose of comparison, a

present worth model is used to convert the costs of each method

of acquisition to a single cost today, with a discount rate of

10 percent.

The cost estimates are computed for a standard-size,

middle-of -the-line model, listing for $4,383 and available for

purchase by the police for $135 over dealer price, or $3,553.

In keeping with provisions of the finance type of lease, it is

assumed that the police department must make arrangements for

and bear the cost of decaling, equipping, operating,

maintaining, repairing, and reconditioning, regardless of

whether it buys the car or leases it. These costs are

therefore identical for both alternatives and can be neglected

here. A two year replacement cycle is assumed, and the

assumed depreciation rate is that estimated earlier for State

Police. For simplicity, all costs which would be equal or

nearly equal for the alternatives are omitted from the analysis

since they would not alter the choice. The cost estimates are

presented in table 17

.

The following leasing periods for different mileage rates

were suggested by a leasing company manager: 50,000+

miles/year (80,000+ km/year), 1 year least; 20,000-49,999

miles/year (32,000-80,000 km/year), 2 year lease; 0-19,000

miles/year (0-32,000 km/year), 3 year lease. Mr. Nathenson,

Manager, Leaseplans Development Corp., interview, March, 1973.

79
Table 17. Acquisition Cost of Purchasing

A. Purchase

Initial outlay = $3,553^

Resale value after 24 months = 1,066*^

Calculation of present worth:

where

Pp = the present value of the cost of purchasing.

I = the initial outlay for vehicle purchase.'^

F = the resale value anticipated at the end of

2 4 months.

i = monthly interest rate of .01."^

N = the number of monthly interest periods.

Pp = 53,553 - ($l,066

^

rL(i+.oi) ^1)J /

= 3,553 - (l,066 [r:?^])

= 3,553 - 840

Present value of the cost of purchasing the car = $2,713

Patrol Car as Compared with Leasing It

B. Finance Lease Monthly lease charge for 24 month lease = $118.00®

Reimbursement to lessor at 24th month = $477.00

Calculation of present worth:

r (1 + i)N -ii „ r

1 1

where

Pj^ = the present value of the cost of the lease arrangement

A = the uniform monthly lease payments.

i = monthly interest rate of 101. f

N = the number of monthly interest periods.

R = the reimbursement payment expected to be due at the end of 2 4 months.

p = 5,18

[ d^-OD^^-x] , 477

.01 (l+.Ol) ^"J L(i+.oi)^''_

= 2,501 + 376

Present worth of lease cost = $2,877

^Quoted dealer price plus $135 markup and preparation charge for a standard-size, middle-of -the-line car with

police package.

'^Based on a 70 percent depreciation rate over two years, the approximate average rate estimated for state police

departments in section 3.2.1. ^The acquisition cost of the vehicle may be entered into the cost equation either as an initial outlay or as a stream

of monthly payments with an interest charge. The present value of the stream of monthly payments is equivalent

to the initial outlay if the discount rate is equal to the interest charge on borrowed money.

*^For convenience, a 12 percent annual interest rate is assumed here, which is equivalent to a one percent monthly rate. ^Calculated by multiplying the dealer list price ($4,383) by the assumed monthly depreciation rate (2.0 percent) and

a monthly rate of dealer profit (0.7 percent), ($4 ,383) (.027) = $118.34. This "rule-of -thumb" method for calculating

monthly lease charges was provided by the leasing manager of a local automobile company, interview, March 1973.

^The difference between the lessee's total payments and depreciation (calculated as the difference between list price

and the resale value)

80
The comparison shows the estimated present value of the

cost of acquiring a car by purchasing to be $164 less than the

cost of leasing it. However, the extra cost of leasing is not

nearly as great as would be expected by comparing the total

monthly lease charges and depreciation reimbursement

(undiscounted) with the purchase price less resale value.

The cost estimates shown are, of course, based on a

particular set of values; the outcome would vary depending on

inputs. However, to change the direction of the difference,

the monthly lease charge would have to be reduced or the

department's purchase price increased. Contacts with several

leasing companies provided estimates of a monthly lease charge

for a car of the type and price described quite close to that

used in the example

.

According to one leasing company representative, quantity

discounts on leasing charges are sometimes offered, perhaps

$5.00 per car per month for leasing 10 to 49 cars, and $10.00

discounts for leasing 50 or more cars.^^ Thus, increasing the

number of cars leased might reduce the monthly lease charge

from the illustrative $118 to, perhaps, $110 per car.

By like token, the police department might also obtain

lower purchase prices with larger orders, so that increasing

the size of the fleet might not change the relative cost

difference. Similarly, increasing the estimated resale value

will reduce the costs of both alternatives by a comparable

amount; thus, the analysis does not appear to be very sensitive

to assumptions regarding resale value.

An alternative to the full-time lease (treated above) is

short-term rental. This may also be compared with ownership.

For those vehicles whose workload is irregular, short-term

rental offers the possibility of avoiding part of the fixed

cost otherwise incurred while the vehicle is not in use, e.g.,

insurance, depreciation, and storage. For functions requiring

incognito vehicles , short-term rental cars avoid the costs of

frequent buying and selling or reduce the tie-up of capital

otherwise required for a sufficiently diverse undercover fleet.

In these cases , the problem is to determine the critical or

breakeven level of use, at which the cost of owning each

vehicle is equal to the cost of renting.

45Leasing manager of a local leasing company, interview, March

1973.

81
A simple method for approximating the critical level of

utilization for each vehicle is based on the following

relationship: The critical level of utilization is equal to

the ratio of the annual cost of vehicle ownership to the annual

cost of full-time renting. For example, if ownership costs

are estimated to be $3,000 per year and the rental cost for the

vehicle for one year is $U,000, then it is cheaper to buy if

the vehicle is to be used more than 75 percent of the time;

otherwise, renting whenever the vehicle is needed is cheaper.

Now let us consider the major item on the service side of

leasing—that is, maintenance. Other things equal, how does

the cost of providing maintenance through an in-house operation

compare with contracting-out maintenance, either through a

lease agreement or through separate arrangements with private

vendors

Table 18 provides an estimate of in-house garage staff

requirements and related annual labor cost for different fleet

sizes. The number of service people and their cost are

estimated in a series of five steps

:

(1) The number of patrol cars in the fleet is multiplied by

the average annual mileage per car there assumed to be 35,000

miles (56,000 km) 1 to get total annual fleet mileage.

(2) Fleet mileage is multiplied by estimated labor hours

per mile to derive labor hours directly chargeable to vehicle

maintenance

.

(3) The number of labor hours is divided by 1920, the

estimated number of labor hours available per year per garage

staff person, to arrive at the number of service people

required for vehicle maintenance at 100 percent manpower

utilization

.

(4) This number is then increased by 20 percent, to take

into account labor time not directly chargeable to vehicle

repair, such as coffee breaks, and unevenness in the flow of

work into the shop. The resulting figures, rounded, are rough

estimates of total garage staff requirements.

(5) Annual labor cost is calculated by multiplying the

number of garage workers by the average annual salary, which in

turn equals the number of labor hours per person per year times

A. A. Britten, Decision Making in Vehicle Management , Report

No. S.15, Local Government Operational Research Unit TlgoRU) , Royal Institute of Police Administration, Reading, England,

1971, p. 10.

47Appendix B-2 provides an illustration of arrangements for

contracting-out maintenance to private garages

.

82
the average hourly wage rate . Annual labor costs are shown for

three alternative wage rates —$5.00 per hour, $8.00 per hour,

and $10.00 per hour.

The estimates of labor hour requirements, on a per mile

basis, are based on the average experience of a sample of

police departments in twenty-nine cities , whose average was

.0034 hours per mile (.002 hours per km). Use of this figure

unadjusted for fleet size resulted in reasonable estimates for

small-to-moderate-size fleets, but appeared to yield

overestimates for large fleets. Informal discussions with

police fleet administrators suggested that, due to economies of

scale, staff requirements probably increase at a decreasing

rate as fleet size increases, rather than linearly.

Accordingly, the estimate of average labor hours per mile was

adjusted downward at a 10 percent rate for each incremental 100

vehicles after the first 100 vehicles. (See footnote b, table

18, for a fuller explanation.)

Operating conditions reflected by the maintenance and

repair experience of the twenty-nine cities from which the

average labor hours/mile figure was taken, include a mixture of

congested in-city driving, suburban driving, and freeway

driving. Thus, the estimated labor-hours -per -mile factors

should be representative for most small to large cities , but

may be somewhat low for very large city departments whose

driving conditions are more severe than those in the sample

cities, and somewhat high for most state highway patrols which,

on the average, incur their mileage with fewer engine hours of

use than city departments

.

Clearly there are a number of reasons why garage staffing

requirements might vary considerably among departments. To

test the conclusions for sensitivity to the particular set of

assumptions employed in the analysis, the estimated costs of

manpower and other factors are varied in the final cost

comparisons at the end of this section.

Table 19 shows the procedure used to estimate the cost of

equipping a police garage. The requirements for some items of

equipment are expressed as a function of total garage staff,

while others are expressed as a function of fleet mileage. The

size of the garage staff (N) is, however, itself based on

mileage (M)

.

83
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85
Table 19. Estimation of Equipment Cost

EQUIPMENT, PRICES, AND QUANTITY ESTIMATING PROCEDURES

Equipment (E) Price (P)

Method of estimating no. units (U) required

Equipment requirements and cost for

100 vehicle8/3.5 million miles

(5,6 million km)/7 garage attendants

No. Units Cost

Life-hydraulic S 730

Air Compressor 890

Automatic transmission

tester 140 Alternator-regulator tester 150 Brake Pedal Adjustment Gage 37

1.5N, N even; 1.5N+.5, N odd

1 + (N-11

1 + lN-1]

11

1

2

2

2

S 8,030

890

280

300

74

Headlight Aiming Kit

Hydraulic floor jack

Storage Cabinets

Roll-about vacuum cleaner

109

180

67 115

218

360

134

230

Exhaust emission analyzer

Battery cell analyzer

Battery Charger

Battery tester Gasoline tanker

660

36

129

58 265

1 + (N-IJ

660

36

129

58

265

Basic tool kit

Tool stand Work bench

Mechanic's vise

Impact wrench

Belt tension gage

237

37

40

52

139

17 U

Uc = N

1 (N-1]

1,659

259 280

364 41751

Roll-about oil tank 130 U7 - 2 + 2 (N-1]

n260

Ceiling reel lub set

Drum racks

1,766 Ug = N - [N/4]

19 Uq = 4 + 4 (N-1]

10 ,596

76

Oil drain tank 94 ^10 1 + [ M-1 ] 2,680,000

188

Total performance scope analyzer 2,480 ^11 1 + ( M-1 ] e,4so,ooo

2,480

CONTINUED ON NEXT PAGE

86
TABLE 19 CONTINUED

2S. Hi-compression tester 48 48

27. Alignment rack 3,76 0

28. Alignment accessory package 266 U

29. Tire changer 4 50

30. Mechanical wheel balancer 692

12 1 + [ M-1 ] 10, §(50, 000

3 ,760

226

450

692

31. Brake shoe adjustment guide 10

84

= 1 + [ M-1 ] 12,960,000

32 . Diaphram brake bleeder

TOTAL EQUIPMENT COST FOR 100 VEHICLE GARAGE = $33,564

10

84

B. ESTIMATION EQUATION

9 Total Equipment Cost = Pi (1.5N, + .5 if N is odd) + P, (1 + [N-1] ) + Z P. {1 + [N-1] ) +

^ -TU i=3

14 18 20

Z Pi (1 + [N-1]) + Z P. (N) + Z Pi (1 + [N-1]) + P,i (2+2 [N-1] ) + i=10 U i=15 i=19 — ~TI

26 P22(N-[N/4]) + P,, (4+4 [N-l] ) + P24 d + [ M-1 ]) + Z P^ (1 + [ M-1 ] ~T7 2,880,000-- i=25 6,480,000

30 32 + Z Pi(l + [ M-1 ]) + Z (1 + [ M-1 ]) i=27 10,800,000 i=31 12 ,5^0,000

Where P = Equipment price and subscripts indicate the particular items of equipment.

N = Number of service people. M = Number of miles incurred by the fleet in one year.

[] = Largest integer not exceeding quantity in brackets.

C. ESTIMATED COSTS

Number of Vehicles Total Annual Mileage

1 35,000

10 350 ,000

25 875,000

50 1,750,000

100 3 ,500 ,000 200 7 ,000 ,000 500 17 ,500 ,000

1,000 35 ,000 ,000

1,500 52,500,000

2 ,000 70,000,000

Equipment Cost

$ 14,764

14,764

17 ,626

22,470

33,564

61,954

139 ,666

196,014

251,638

278,688

S 2,845°

2 ,845

7 ,113^

14 ,225

*rhe list of equipment, equipment prices and the general approach to estimating quantity of equipment are based on descriptions in Ludwig, Study of Police Patrol Vehicle , March 1970, pp. 161-168. Logical relationship between equipment, fleet mileage , and mechanics, described in Ludwig ' s study are expressed here in estimating equations.

''cost of equipment does not include installation cost,

cN = Number of garage service people, as estimated in table 18, M = patrol car mileage as estimated in table 18, and [] indicates the largest integer not exceeding the quantity in brackets.

'^The lower cost figure is for a more modest selection of equipment as described below in the text. ^or fleets up to 50 cars, the cost of a more modest package of equipment is assumed to be equal to (the number of vehicles i 10) x $2,845. For fleets exceeding 50 cars, it is assumed that the modest selection

of equipment is inadequate and the more extensive package of equipment is required.

87
The equipment items shown were suggested in a regent study

as necessary to perform in-house fleet maintenance. Equipment

selection assumes that only routine maintenance and repair is

done; extensive repair work is not included. Thus, the

equipment cost estimate may be somewhat inconsistent with the

estimates for labor cost, which encompasses accident repair,

modification, equipping, and reconditioning work, but not

seriously so.

The equation at the end of table 19 is used to estimate

total equipment cost. The prices of each item of equipment are

multiplied by the expression which estimates the number of

units of the equipment needed, yielding the equipment cost

associated with a given fleet mileage.

Although the list of equipment presented in table 19

excludes highly specialized equipment necessary for some kinds

of vehicle repair, the list is perhaps nonetheless extravagant

for a small operation. A more modest selection of equipment

might suffice for small garages. According to one authority,

the following items would essentially meet the basic

requirements of a small operation.^"

Lift $730

Air compressor 890

Tire changer, manual 175

Work bench with vise 100

Mechanics tools 500

Lube equipment, air . o operated, portable 250

Miscellaneous items,

e.g., drop lights,

air hose 200

Total cost $2,845

The total cost of this group, assuming one unit each, and

expressed in 1973 prices, is $2,845, compared with a cost of

ITS Herbert S. Ludwig, Study of the Police Patrol Vehicle . Report to the Law Enforcement Assistance Administration

,

Detroit: Wayne State University, College of Engineering, March

1970, pp. 164-165.

^^william Cook, Interstate Equipment Company, Interview, June

1973.

88
$14,764 for the smallest package of equipment estimated in

table 19. Determination of the most efficient type and

quantity of equipment depends on trade-offs between labor and

equipment and assessment of benefits of various kinds of

equipment; e.g., whether a power or a manual tire changer is

more efficient, and whether each bay should be equipped with

tools rather than sharing tools among bays. In-depth study of

optimal equipment/labor combinations was not intended here

,

hence the estimates shown are approximate and tentative

.

The cost of parts needed to maintain and repair vehicles is

estimated in table 20, using an approach similar to that for

assessing labor hours per mile. The average cost of parts per

mile was calculated for the sample of twenty-nine cities

operating more than 1,100 patrol cars. For the initial 99

vehicles/3 , 465 ,000 miles (5.6 million km), the resulting

average cost per mile of $.0206 was multiplied by total fleet

mileage to yield annual cost of parts required for fleet

maintenance. To reflect the possibility of achieving price

reductions through quantity discounts, the average cost of

$.0206 was reduced at a rate of 10 percent for every additional

500 vehicles in excess of 99 , and the resulting estimate of

parts cost per mile was applied to total mileage for the

particular fleet size.

The estimated cost of parts may appear high at first

glance; however, it includes the cost of tires, an item

incorporated in the sample cost data which was used to derive

the estimates. For instance, if four tires are replaced on an

average of every 9,000 miles (14,000 km) at a cost of $78 for

the four, (this figure is based on a conservative estimate of

police expenditure for tires in 1973) tire cost alone accounts

for $234 of the estimated $721 (from column 3, table 20)

expenditure over 35,000 miles (56,000 km). Considering that

accident repairs are also included in the estimation of parts

cost per mile, the parts cost estimate is probably reasonable.

Garage building costs are estimated in table 21. Building

area is based on the number of bays or service areas —one bay

for each lift—and the number of alignment racks and storage

areas required. Square footage cost is based on the national

average for a good quality , masonry service center

.

In addition to the costs of garage equipment, facilities,

and staffing, an in-house operation requires more

89
Table 20. Estimation of the Annual Cost of Parts

(In 1973 Dollars)

of vehicles Total mileage Estimated parts and

(1) (2) (3)

1 35,000 721

10 350 ,000 7,210

25 O "7 C AAA 875 ,000 18,025

50 1 T C A AAA 1 , 750 ,000 36,050

100 9 C A A AAA 3,500,000 64,750

200 "7 AAA AAA 7 ,000 ,000 "1 A C A A 129 , 500

500 17,500,000 292,250

1,000 35,000,000 525,000

1,500 52,500,000 708 ,750

2,000 70,000,000 854 ,000

^An average parts cost per mile was derived in a manner similar to the method of

estimating average labor hours per mile (see table 18, footnote b) . Parts cost for the

sample of twenty-nine city police departments, operating more than 1,100 patrol cars, was found to average $48,491 per month over an average of 2.36 million miles (3.78

million km), resulting in an average parts cost per mile of $.0206. Because this cost

per mile of parts is based on the average experience of relatively modest-size fleets,

it was felt that the figure might tend to be higher than would be typical for larger

fleets, which might obtain quantity discounts. Hence, to calculate total parts cost

the $.0206 per mile average cost was reduced at a rate of 10% for every additional 500

vehicles/17,500,000 miles (28 million km) after the first 99 vehicles/3,465,000 miles

(5.54 million km) and the resulting cost per mile was multiplied by total mileage for

that fleet size. The following schedule of parts costs per mile was used: for one through 99 vehicles, $.0206; for 100 to 499 vehicles, $.0185; for 500 to 999, $.0167;

for 1,000 to 1,499, $.0150; for 1,500 to 1,999, $.0135; for 2,000 and over, $.0122.

Parts cost for a fleet of up to 99 cars is estimated, for example, as 99 x 35,000 x .0206; cost for a fleet of 1,000 is estimated as 1,000 x 35,000 x .0150.

NOTE: Tire cost and parts for accident repairs are included in the total parts cost.

The cost for carrying parts inventory is not included.

90
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91
administrative and clerical personnel than are needed for a contract-out operation. The difference in administrative costs

of alternatives will, of course, depend upon the degree to

which fleet responsibility is delegated. Under a full-service

maintenance lease, there will be very little requirement for

in-house administrative personnel. For a small-to-medium-size

fleet, one part-time employee can probably handle the fleet

duties of the lessee. If cars are purchased and maintenance is

arranged with a number of private vendors, there will be

somewhat greater need for a fleet administrator and clerical

staff to negotiate with vendors, to ensure that the cars

receive proper care, to monitor private vendor work, and to

keep fleet records. For an in-house operation, the following

administrative and clerical personnel have been suggested by

one authority

Number Ass't.

of Fleet Fleet Steno- Total Total Estimated

Cars Manager Manager Clerk Typist Number Annual Cost

100-299 1 1 2 $17,000

300-599 1 1 1 3 23,000

600-999 1 % 1 4 30 ,000

1000-1999 1 1 1 2 5 36 ,000

2000-3000 1 1 2 1 5 39 ,000

These suggested costs for administrative personnel are

entered into the estimates given in table 22 for in-house

maintenance costs. The estimate of administrative personnel

given above for a fleet of 100-299 cars is assumed to apply

also for as few as 50 cars. For 25-49 cars, the cost estimate

is reduced by one-half and for less than 25 cars, it is reduced

by two-thirds. (At the reduced levels it is assumed that

assigned personnel devote only part-time attention to fleet

administration .

)

There are additional costs which may be incurred with an

in-house operation. These include the costs of office

equipment and supplies, data processing equipment and

50

Botzow, Fleet Management , p. 133.
personnel, and parts inventory holding cost, but estimates of

these additional cost items are not included in the analysis.

Table 22 consolidates the estimates of cost for providing

in-house maintenance and shows the equivalent annualized cost

for selected fleet sizes. Notice the very large estimated cost

of operating a single vehicle —the costs of building,

equipment, parts, and labor are not divisible beyond a certain

minimum. Note also that reducing the garage equipment to the

minimal package has little effect on the annualized cost.

Table 23 presents a rough estimate of the cost of

contracting out maintenance. It is assumed that parts costs

are the same as for the in-house operation (including tire cost

here, too) and that overhead and profit mark-up are subsumed in

the labor charge. A range of $10.00 to $15.00 was suggested as

typical of rates in private garages. Costs are based on a

linear relationship between fleet size and required hours of

contract maintenance. The labor charge is in this case,

applied only to directly allocated labor hours.

Exhibit 7 charts the estimated costs of self -maintenance

and contract-maintenance for fleet sizes of up to 150 vehicles

and 5,250,000 miles (8.4 million km). The breakeven point

that fleet size/mileage at which the two alternatives are equal

in cost—comes at approximately 90 vehicles/3,150,000 miles (5

million km), at a cost of about $200,000. With smaller

fleets/lower mileage, contract-maintenance appears cheaper;

with larger fleets, self -maintenance appears cheaper. This

outcome, however, is based on the specific assumption of a

police shop wage rate of $8.00/per hour and an outside charge

of $12.00/per hour.^-'-

Let us consider the effect if there is a greater

differential between wage rates. Assume the police shop labor

rate is about $5.00 per hour, and the private garage rate about

$15.00. Other things as before, the annual cost of ownership

is lowered relative to the annual contract cost. Only for

fleet sizes comprising about 10 or fewer vehicles is

contracting-out now more economical than ownership.

The analysis is not very sensitive to variations in

assumptions regarding equipment and building expenditure, since

these costs are amortized over a relatively long period of

time. It may be seen in row 1 of table 22 that an original

Due to revisions made in tables 22 and 23 and in exhibit 7

after publication of the surimary report, there are slight

discrepancies between this, the full report, and the earlier

summary report.

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95
i;xhil>it 7. In-House Vs. Contractinq-Out Maintenance: The Breakeven Point

(Based on a Police Shop Waqe Rate of S8.00 per hour and a Private Garage Labor Rate of S12.00 \tcr hour)

300

275 -

250

225

200

175

150

125

100

75

50

30

25

20

15

10

5

Z^*^ Cost of In-House Maintenance

Cost of /' Contracting

/ Maintenance

/

Contract-Out Maintenance

-

J L J L

BREAK EVEN POINT

In-House Maintenance

I I I 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150

I NUMBER OF VEHICLES

{ 350,000 1.750,000 3.500.000 5.250.000

NUMBER OF VEHICLE MILES

96
expenditure of $14,76 4 on equipment, shown annualized in column

3 as $2,311, adds less than $2,000 more in annualized cost than

does an original equipment expenditure of $2,845, shown

annualized in column 4 as $445.

The outcome of the cost comparison might be altered by

inclusion of additional cost elements for either alternative.

For ownership, the cost of land for the service facility, the

cost of holding parts inventory , and expenditure on computer

services and other support facilities would increase annual

costs. In the case of contract arrangements, the cost of

transporting vehicles to the place of servicing, assuming this

is greater than what would be incurred in an in-house

operation, as well as the cost of an in-house administrative

and clerical staff to administer contract arrangements would

raise the annual cost.

Another point to remember in comparing costs of leaseversus-buy alternatives is that, typically, not all maintenance

and repair work is covered by the lease, so that the real

alternatives to the department are ownership versus a

combination of leasing and ownership, rather than the all-ornothing choices treated above. If the lease requires that part

of the maintenance be performed in house, the cost of that inhouse maintenance should be added to the cost of the lease in

comparing costs of leasing with ownership. Alternatively, all

costs which will be borne, regardless of the choice made, can

be deducted from both alternatives for purpose of comparison.

As a case in point, a city police department, which now

leases twenty-three cars, was charged 6.9<: per mile (4.1<: per

km) in 19 73 for unairconditioned cars and 7.6<: per mile (4.6<:

per km) for airconditioned cars, with a minimum fleet mileage

stipulation of 600,000 miles (970,000 km) per year. Last year

the fleet totaled about 652,000 miles (about 1 million

kilometers) and paid approximately $45,000 in annual lease

payments. This was not the total cost of the fleet, since the

lease agreement did not cover equipping and decaling of cars;

accident repairs , repairs necessitated by driver abuse , or

failure to follow prescribed operating instructions;

maintenance and repair of special equipment; theft or loss;

final reconditioning; gasoline; or insurance. Additional

expenditures over the year totaled $8,100 for gasoline; $10,000

for maintenance and repair covered by neither the lease

contract nor insurance; $7,400 for collision insurance (net of

97
insurance awards); and $5,000 for part-time administrative and

clerical services . Adding these to the per mile charge raises

the total cost of leasing from $45,000 to $75,000, and from

6.9<: per mile to 11.6 <= per mile (4.1<:to 7.0<: per km). In

comparing leasing with ownership/self -maintenance , the relevant

comparison is between this tot^l expenditure of $75,000 and the

estimated total cost of a completely in-house operation.

Finally, a question should be addressed which may otherwise

trouble the reader. The lease-buy analysis presented above

assumes that the department is starting fresh, with no sunk

cost. But, in fact, most police departments now own their

fleets and maintain them in police shops, and have already

invested heavily in vehicles, equipment and facilities. The

kinds of decisions faced by most fleet managers are (1) whether

to provide new required services by making additions to

existing in-house facilities or by contracting out; (2) when to

change some portion of existing service arrangement in response

to a change in the fleet, (as an example, determining the point

at which a growing fleet warrants the addition of an in-house

radio repair specialty shop to replace the existing practice of

sending radios out for repair); and, in some cases, (3) whether

to continue to own and self -maintain vehicles or to change to

leasing vehicles and/or contracting out maintenance.

The first kind of decision is a counterpart to the leasebuy question just addressed, but on a smaller scale. The

procedure for analyzing it is identical to that used above.

The other two kinds of decisions are also quite similar

except they require a comparison of the cost of the existing

mode of operation with the cost of the new alternative, rather

than a comparison of two new alternatives. The important point

is that the cost of the existing operation should include the

opportunity cost of keeping existing capital assets. The

estimated value of existing assets should be treated as a cost

of continuing the existing mode of operation because , to the

extent that they have a market value, an opportunity cost is

associated with keeping them. If the market value of existing

garage and equipment is, say $U0,000, the estimated salvage

value in five years is $2U,000, and an additional investment of

$5,000 in equipment is needed in order to continue the in-house

operation, then the present value (PV) of the relevant building

and equipment costs, for five more years of operation, may be

calculated as follows

:

98
PVg = M + N - S

= $40 ,000 + $5,000 - $24,000 (SPW; 5 years; 10!^)

= $45,000 - $14,902

= $30,098,

where

PVg = Present value of the capital costs of continuing the

existing maintenance operation for 5 more years,

M = Current market value of the existing garage and equipment,

N = Current cost of additional equipment purchase,

S = Present value of the expected salvage value of the

garage and equipment in five years; i.e., the expected

resale value five years hence, discounted to the present

at a discount rate of 10%,

Thus , the lease-buy analysis presented in the text is

relevant to decision makers who are choosing between continuing

ownership and leasing, even though the department has existing

assets. The cost of continuing ownership simply reflects the

market value of existing assets , rather than original purchase

price

,

The main findings of the two parts of the lease-buy

analysis may be summarized and synthesized as follows: Apart

from special motives for the financing of vehicle acquisition

through leasing—such as to implement a more regular and

frequent replacement policy or to free funds for alternative

purposes having a higher expected rate of return—there appears

to be no general cost advantage to police departments from the

finance aspect of leasing vehicles for full-time use. However,

there is a potential for savings through short-term rental of

vehicles with low utilization. Contracting for maintenance and

other services does appear to offer cost savings to very small

departments and, dependent on relative wage rates, may offer

savings to fleets of as many as one-hundred vehicles. In face

of problems with existing operations , contract-maintenance may

be preferable to self-maintenance even for very large fleets.

Maintenance and management services can be acquired apart from

99
a vehicle lease, but a combined finance/maintenance lease

arrangement may provide a convenient package of finance and

service which enables reductions in in-house administrative and

record keeping cost. Hence, a maintenance lease may be an

efficient means of contracting out maintenance, even though the

finance aspect of the lease in itself may offer no particular

advantage over ownership.

3.3 Operating and Maintenance Costs

The main components of running costs are gasoline, oil,

tires, and maintenance and repair expenses. Most of these

expenses occur daily and vary with mileage, and so they often

receive predominant attention in fleet expense control

programs. This section discusses operating and maintenance

costs, presents some empirical data, and attempts to show ways

by which these costs may be reduced.

Reported operating and maintenance costs vary significantly

among departments, due not only to differences in accounting

practices, but also to differences in labor wage rates, driving

conditions, and relative efficiencies. Consequently,

comparison of costs among departments can be misleading; it is

difficult to determine when costs are indicative of an

efficient operation. Emphasis in the empirical analysis is

therefore placed on comparisons of cost items within individual

departments or groups of departments , rather than on

comparisons between departments . The data should be regarded

only as the reported experience of sample groups , not

necessarily representative of all departments, and not

necessarily optimal.

3.3.1 Operating and Maintenance Costs for Patrol Cars of

Different Sizes

Table 24 shows reported operating and maintenance costs for

patrol cars of different sizes averaged for twenty-nine cities.

Table 2 5 shows, for purpose of reference, operating and

maintenance costs for private automobiles and fleet cars of

different sizes. Both operating and maintenance costs of

private and fleet cars increase with car size. A small

subcompact-size car in private use is shown to cost about onehalf cent per mile less in maintenance cost and slightly over a half -cent per mile less in operating cost than a larger,

standard-size car.

100
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(0 Qj c; CO rH (CS 4-1 -H

(CJ CJ1 0)

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101
Table 25. Operating and Maintenance Costs of Private

and Fleet Cars, By Size of Car

Cost per mile (in cents)

A. Private Cars

Standard-Size . Compact-size

(approximately the same as "Intermediate" in table 24.)

Subcompact size

(No comparable police

class shown in table 24.)

B. Fleet Cars^

Full-size cars Station wagons

Intermediates

Maintenance

,

Accessories, Gas and oil,

parts and tires excluding taxes

2.6

2.2

2.1

2.1

1.8

1.4

Total

4.7

4.0

3.5

Cost per car per month (in dollars)

$218.83

237.73

199.86

Costs of private cars are from "Cost of Operating an Automobile,"

U.S. Department of Transportation, Washington, D.C., GPO,

April, 1972.

bThese data are taken from a cost study of a large commercial

fleet. No reference to mileage or time in service of the cars was given. (Letter Attachment to Rowley, Car Selection , from

Bill Wise, Vice President/Sales, McCullagh Leasing, Inc .

,

Roseville, Michigan).

NOTE: These data are not strictly comparable with the police car data shown in table 24; however they do indicate how the costs

of the different sizes of cars compare in police, private and

fleet use. 102
As shown in table 24, the sample cities reported a similar,

though slightly larger, excess in the operating cost of the

larger patrol cars over the smaller ones. However, the

reported relationship between car size and maintenance cost for

patrol cars appears to be just the reverse of that shown for

private and fleet cars: there is less maintenance and repair

cost per mile for the larger-size patrol car than for the

standard-size car, and less for the standard-size than the

intermediate . It may be that police work places demands on the

patrol vehicle which tend to increase maintenance and repair

cost of a smaller car relative to a large car. However, it is

impossible to know to what extent the differences reflect

reporting errors, biases in the distribution of cars by size

among the sample departments, and differences in usage, rather

than size alone.

Despite this discrepancy in maintenance costs

,

intermediate-size cars appear less expensive overall to run

than larger cars. The advantage, however, appears

substantially less than would be suggested by the experience of

private cars

.

3.3.2 Operating and Maintenance Costs by Type of Expenditure,

and as a Function of Driving Environment, Usage Rate, and

Mileage

Table 26 shows life-time operating and maintenance costs

for a sample of state highway patrol cars purchased in 19 70 and

disposed of in 1972. Average expenditure per car for each

category of expenses , as well as the cents per mile costs are

shown

.

Gasoline and oil accounted for just over $2,000, or 55

percent of total operating and maintenance costs. Maintenance

accounted for almost $1,650, the remaining 45 percent of total

costs. This contrasts with the ratio of operating-tomaintenance cost for the sample group of city departments

,

shown in Table 24 where operating cost accounted for 42 percent

of the total, and maintenance cost for 58 percent. Over the

life of the average state patrol car in the sample, major

engine overhaul or replacement was the highest maintenance

expense, initial installation and final removal of equipment

ranked next in size, followed by tire expense, and maintenance

and repair cost on the battery, cable, alternator, ignition and

starter systems. Over the life of these patrol cars, $3,660

103
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104
was spent on average for the operating costs and repair work

performed

.

Table 27 furnishes a breakdown of the type of maintenance

cost and the mileage interval of occurrence for a sample of

city patrol cars. Here we can see an increase in maintenance

cost per mile as a car accumulates mileage, rising from an

average of 2.56 [ per mile (1.5<:/km) for new cars, to 4.60<: per

mile (2.8<;/km) after 60,000 miles (97,000 km). Cents-per-mile

costs are also computed for a subtotal of mechanical

components, which appear more clearly variable in nature. This

relationship between maintenance cost and mileage is employed

in Section 3.5 to determine time of optimal replacement of

patrol cars. Additional quantitative information there further

shows the relationship between maintenance cost and mileage.

The data in table 27 are also useful in determining which

items account for the largest part of the maintenance cost and

at what mileage particular problems arise. For example, during

the first 10,000 miles (16,000 km) of operation, repairs to the

ignition and lighting systems are the largest single items of

costs with respect to mechanical components. During this

period, preventive maintenance accounts for by far the largest

kind of maintenance expenditure (tires excluded) . We can also

see that, by 20,000 miles (32,000 km), brakes begin to account

for an important share of cost; at 50,000 miles (80,000 km),

transmission work becomes significant; and at 60,000 miles

(97,000 km) the power system becomes expensive to maintain.

There is no particular trend in costs of preventive

maintenance, lubrication, or tires as mileage increases. Tire

costs average about one-half cent per mile over the life of the

vehicle

.

Table 28 indicates the effect of driving environments and

rate of vehicle usage on operating and maintenance costs of a

patrol car. It appears from these sample data that congested

traffic conditions lower gasoline mileage significantly, and

raise maintenance cost (by about 2.0<: per mile (1.2<:/km) for

the sample cars) . This supports the view that running cost per

mile for city police department fleets will generally exceed

the cost for state police departments

.

Additional related information in Section 3.4 deals with

the cost effects of alternative vehicle-driver assignment

105
Table 27. Maintenance Cost for a Sample of City Patrol Cars

by Type of Expenditure and Mileage Interval of Occurrence^

(in cents/mile)

Mileage interval

Type of service

0 to 10,000

10 ,000 to 20,000

20 ,000 to 30,000

30,000

to

40 ,000

40 ,000 to 50,000

50 ,000 to

60 , 000

60,000

and over

0.01

0.06 0.02

0.07

0.08 0.12

0.14

Instrument gauge 0.01 Axle, front, nondriven 0.01 Axle, rear, nondriven

Brakes - major repair 0.07 Brakes - minor repair 0.02 Frame 0.01 Steering 0.05 Suspension 0.07 Wheel rims, hubs, bearings 0.02 Axle drive, front Axle drive, rear Clutch - major repair

Clutch - minor repair

Drive shafts Power take off Transmission - major repair

Transmission - minor repair

Transmission - auxiliary

Charge system

Cranking and battery system

Ignition

Lighting

Air intake

Cooling 0.05 Exhaust 0.06 Fuel 0.03 Power - major repair 0.03 Power - minor repair 0.08 Sub-total^ 1.01 Lubrication 0.04 Preventive maintenance 0.41 Accessories and expendable items 0.21 Power tailgate

Radio equipment 0.04 Winch and vehicle coupling system

Air conditioning/heating/vent 0.05 Cab/sheet metal 0.05 Tires 0.41 Body and door 0.15 Clean and paint 0.07 Towing and other 0.10 Mounted systems 0.01

0.01

0.01

0.01

0.01

0.01 0.01 0.01

0.01

0.01

0.01

0.01

0.06

0.04 0.11

0.10 0.20

0.09

1.29 0.03

0.37

0.10

0.02

29

060107

13

03 0.02

0.01

0.10

0.03

1.99 0.03

0. 34 0.11

0.01

27

03

0109

1203 0.01

0.01

0.13

3.07

2.20

0.03

0.29

0.11

0.02

11

04

581601

09

01

0. 01

0.01

0.13

0 .06

0.10 0.27

0.16 2.41

0.04

0. 32 0.12

0.01

0.01

0.02

0. 31 0.05

0. 01 0.14

0. 10 0.10

0.25

0.22 2.71

0. 04

0. 32 0.13

0.03

15

05

55

1802

1101

o.o:

0. 02

0. 31

0. 04 0.04

0. 19 0.16

0.03

n. 05

0. 04

0. 34 0.08

0.21

0.21

3.07

0. 01 0.35

0.15

0.04 0.11

0.05

0. 50 0.16 0.03

0.12

0.02

Total*^ 2 .56 2.73 3.45 3.66 4.08 4 . 30 4.60

^Cost data are averages for more than 1,100 patrol cars operated in twenty-nine cities. The data collection

procedure which was used to generate the data from which these 4/M figures were computed may cause some distortions in the figures. The problem was that maintenance and mileage data were reported for the life of the vehicle in the system, not the current odometer reading. (That is, cars of a department just adopting

the cost management system would have their maintenance costs for the first period accumulated under the

0 to 10,000 mileage interval, regardless of their actual mileage. As a department once in the cost system

replaced its cars, however, costs would be recorded in the correct mileage interval. I-Jhile the magnitude

of this problem is probably not great, it may tend to raise the cost of maintenance over the lower mileage

intervals relative to the costs at the higher mileage intervals.)

bExpression of cost items in terms of C/M is not meant to imply that costs are in all cases a function of mileage/ rather it is used to translate costs expressed originally for different numbers of vehicles and mileages to a common denominator for comparison. An effort has been made to separate those cost elements

which are more fixed in nature from the variable cost elements, so as to avoid distortion of the </M

comparisons which would result from spreading fixed cost over different mileages. Therefore, a subtotal

is computed for a group of items for which costs are more clearly variable in nature. indicates negligible or no cost incurred.

Source: Computed from data supplied by Mainstem, Inc.

106
Table 28. The Effect of Different Driving

Environnents and Vehicle Usaqe Rates on Operating and Maintenance Costs of the Patrol Car

A. A Large City Police Department

Congested Traffic District^

Open Driving (Suburban)

District"

High Car Utilization District^

Miles Per Gallon

of Gasoline

7.65

8.78

8.70

Maintenance Cost

(Labor & Parts & Tires)

Cents Per Mile

4.7

2.6

3.7

B . A State Highway Patrol Department

Congested Traffic District*^ 10.2

Open Driving District® N.A,

Maintenance Cost

(Labor, Parts, Tires,

Gas & Oil

6 . 6

4 . 7

^Averages are for three samples of twenty-three vehicles each, driven in

three congested downtown city areas. Vehicles in these districts accumulate

mileage at a slower rate than the department averaae, but corresponding

engine hours are higher than average.

^Averages are for two samples of twenty-eight vehicles each, driven in two

suburban districts characterized by relatively low population density and

rural driving conditions. Vehicles in these districts accumulate mileage

at a higher rate than the department average, but associated engine hours

tend lower than average and stop and starts are fewer.

*^Averages are for a sample of twenty-five vehicles operated in a high crime

community. Driving conditions are not particularly severe, but the need

for constant patrol results in higher than average utilization of cars in

this district.

'^Averages are for a sample of six cars driven in a congested district where

driving is at slower speeds with many stops and starts.

^Averages are for a sample of six cars operated in a district characterized by

open driving conditions, where cars are driven at higher and more constant

speeds

.

Source: Internal data files of a large city police department and a state

highway patrol department.

Note: The samples were constructed to be as similar as possible with respect

to car model and year, among districts within each department.

Because of differences in sample composition and in accounting

practices between departments, it is not meaningful to make comparisons

across department lines.

107
plans . There , the impact on maintenance and repair cost of

personal car assignment is examined.

Regression analysis was performed to determine whether

gasoline mileage changes with car mileage. A significant

dependence of operating cost on vehicle mileage would bear on

the timing of vehicle replacement. For the sample data,

gasoline mileage appeared to improve slightly with increased

mileage, but the relationship was slight .{approximately onehalf mile per gallon increase for each additional 10,000 miles

(16,000 km) driven], and may reflect a bias in the data caused

by earlier replacement of inferior cars and later replacement

of those having better operating histories.

Although gasoline prices are largely beyond the control of

fleet management, there are ways to reduce gasoline cost. One

approach is to adopt vehicles which require low octane fuel, to

strive for compatibility in octane requirements among vehicles

of different types, and to buy gasoline as near as possible to

minimum octane requirements . Use of higher octane gasoline is

cost effective only if it reduces maintenance cost or increases

performance by an amount equivalent to its higher cost.

3.3.3 Selection of Maintenance Facility: Centralized or

Decentralized Organization and Location—Police Shop, Municipal

Garage , or Private Vendor

The selection of a maintenance facility has already been

treated, in part, in connection with leasing, when the cost of

contracting out maintenance was compared to the cost of

maintaining vehicles in a police shop. However, in

establishing a maintenance operation, it is necessary to decide

not only between private vendors and an in-house shop, but also

to determine the best physical location for service facilities

and, given an in-house operation, the optimal degree of

administrative and managerial centralization. Thus,

centralization may be considered in terms of physical location

of shops and administration; (i.e., regional shops versus a

central shop, and police, fire,, sanitation, etc. garages versus

a single municipal garage)

.

The two main cost considerations in these decisions are (1)

what are the travel costs and downtime costs connected with

transporting vehicles to and from a central point for repairs

,

as compared with a number of decentralized points?^^ 2) To what

Simulation models have been developed in other studies to

help local authorities plan optimal location of shops

.

108
extent will possible economies of scale be lost by dividing

facilities into separate units? Intuitively, a municipal

garage seems suited to small fleets, with some form of

geographically decentralized shops for widely dispersed fleets.

For dispersed fleets, the smaller the fleet, the greater the

advantage of decentralized municipal shops, or contract

arrangements with scattered private vendors

.

A primary consideration aside from cost is the expected

effectiveness of the different modes of service. Certain

problems were mentioned frequently in association with both

municipal garages and private shops . This study found the

following objections to the municipal garage most often cited:

(1) police vehicles may not receive adequate priority, leading

to excessive downtime; and (2) due to the diversity of vehicles

and the size of the facility, quality control may not be as

stringent as would be attainable in a police shop. Similarly,

police fleet administrators often object to contracting

maintenance on grounds that control over the quality of work is

lost. Examples were also found, however, of departments with

successful municipal or private garage maintenance

arrangements

.

Costs for alternative facilities can, of course, be

estimated and compared on a case-by-case basis, but empirical

determination of the average efficiency of each type of

maintenance facility is difficult or impossible. This is in

part due to the paucity of data available for analysis, but

mainly because such data as are available reflect many factors

other than the type of shop. Despite these drawbacks, average

maintenance costs per mile are shown in table 29 for samples of

departments using different types of facilities. When the cost

data are adjusted for differences in labor rates, table 29

shows maintenance costs in municipal garages to be lowest, on

the average

.

109
Table 29. Comparative Maintenance Cost per Mile for Vehicles Maintained

in a Sample of Police Shops, Municipal Garages, and a Commercial Garage

(Cost stated in * per mile)

Type of Maintenance

Facility^

Standard 4-Dr. Police Car Administrative

Sedans and Wagons

Administrative

Compacts Scooters

Adjusted'' Ad j usted^" Adjusted Adjusted''

Reported for Labor Reported for Labor Reported for Labor Reported for Labor rate rate rate rate

Police Shop 3.2 5.8 3 ..8 7.0 1.7 3.2 5..8 10.1 Municipal Garage 4.0 4.7 3.,3 4.0 1.7 2.2 6.. 3 8.9 Commercial Garage 4.0 6.3 5.,4 7.5 N.A. N.A. N..A. N.A.

^The cost data are computed for the following samples: (1) Five cities operating 135 or more police cars each, maintained in a police garage, (2) twenty-four cities, 8 operating 45 or more police cars each and 16 operating less than 45 police cars each, maintained in a municipal

garage, and (3) one city contracting maintenance to a commercial garage.

''Labor rates were found to differ among the sample groups. Since the variation in rates appeared

more likely attributable to geographical differences than to differences in type of garage, the data are shown adjusted to a common wage rate.

Source: Computer printouts of data were provided by Mainstem, Inc.

110
3.4 Cost Effects of Alternative Vehicle-Driver Assignment

Plans: The Personal Car Program

To achieve fleet economy, emphasis traditionally has been

placed on minimizing the total number of cars in the fleet.

This has been accomplished primarily by multi-purpose use of

vehicles, multi-shift use of cars, and reduction in vehicle

requirements of the maximum-use shift.^-^

Until recently, individual officer-car assignment and

single shift use of cars were limited chiefly to fleets

dispersed over large areas , for which pooling at a central

point would be impractical and inefficient. But this practice

now appears to be expanding in conjunction with the "personal"

or "take home" car program. While primary justification of the

personal car program is usually crime prevention and

apprehension—rather than fleet economy—there are claims that

important cost reductions from the program make it about as

cheap as (or even cheaper than) the pool/multi-shift

arrangement. 54

Fleet size is geared to requirements of the highest-use

shift, which may be reduced by (1) shifting duties to other

shifts, where possible, so that there is a more even balance

among shifts, thereby reducing the number of vehicles which

would be used for only one shift; (2) scheduling maintenance

and repair work during slack periods, so that all or most of

the fleet is operational during the high-use shift; (surplus

vehicles from the maximum-use shift can be used as backup

vehicles for other shifts); (3) minimizing shift overlap, or

planning officer schedules to avoid double demands for vehicles

during overlap periods.

54For example. Officers Earl Flowers and James Griswold, m a

paper on the Arlington County, Virginia, Police Department's

Take Home Program, state, "In Arlington County, Virginia,

projected figures show that the present take home program will

save the county in excess of $100,000 in a one year period.

Although more vehicles and larger initial investments are

necessary, lower maintenance and operating costs offset the

initial cash outlay. This program is expected to pay for

itself in a three year period." (Officers Earl Flowers and

James Grisw61d, Take Home Car Program, Paper presented to the

Northern Virginia Police Academy, April 10, 1972, p. 5.)

Ill
This section of the study examines the personal car program

in terms of cost. The nature of the program is briefly

described and the possible benefits listed. For a simplified

case, it examines capitalization and running expenses for a single-shift progrcim as compared to a multi-shift program. It

presents some empirical information regarding costs of existing

personal car programs , and uses a breakeven model to determine

the reduction in running costs necessary to offset the higher

capital costs of the program. An overall, in-depth analysis of

the program is not provided here; only vehicle costs are

considered

.

3.4.1 Description of the Personal Car Program^^

In brief, personal car programs assign patrol cars to

individual officers on a one-to-one basis, allowing use of the

cars for personal activities during off-duty hours. For his

part, the officer is required to operate the vehicle in the

department's jurisdiction, maintain radio contact, have his

gun, and respond to emergencies whenever the car is in use.

The officer is allowed to have his family or other

passengers in the car with him during off-duty hours, but must

drop civilian passengers before responding to an emergency

call. When using the patrol car off-duty, the officer is

required to dress conservatively and to avoid conduct or places

which might create a bad image for the police department. The

participating officer must insure that the car is cleaned,

gassed, and serviced as scheduled and as needed, during offduty hours, if possible. However, he is reimbursed for these

costs . The department bears the expense of purchasing and

operating the cars for off-duty and on-duty use.

For more detailed descriptions and evaluations of personal

car programs in operation, see the following reports: Donald

M. Fisk, The Indianapolis Police Fleet Plan , Washington, D.C.

:

The Urban Institute, October 1970; Officers Flowers and

Griswold, Take Home Program; Don H. Wilson, The Take-Home Car

Program of Arlington County Virginia Police Department ; Government Research Institute, The Car Saturation Program of

the Cahokia , Illinois Police Department , an evaluation report

prepared for the Illinois Law Enforcement Commission, St.

Louis, Mo., May 1972; Cpl. Giacamo (Jack) San Felice, The

Personal Patrol Car Program ; An Evaluation Report , Prince

George's County, Maryland, PoTTce Department , February 1973.

112
The plan, in effect, gives participating patrolmen a

sizable, tax-free benefit in return for intermittent services

rendered. Department members other than patrolmen do not

receive this benefit. (Take-home provision for non-patrol cars

is not considered a part of the personal car concept and is not

dealt with here.)

The primary benefits claimed for the program—both from

greater patrol car visibility and from quicker officer

response —are reductions in crime and in accidents, increased

criminal apprehension, and greater citizen security. These

benefits are attributed not only to use of cars during off-duty

hours, but also to increased time available for on-duty patrol.

Due to the larger fleet and individually assigned cars, beat

time previously lost to downtime —due to maintenance, gassing,

and car exchange between shifts —can be reduced, thereby

increasing effective patrol time. In addition, there are other

advantages attributed to the program, which pertain to internal

department operations, rather than direct provision of services

to the public. These advantages include higher officer morale,

improved vehicle safety, better appearance, and improved public

image of the police. The program is offered in some

jurisdictions as a low-cost solution to a need for increased

police presence, because the costs of the program are thought

to be less than the cost of buying equivalent patrol service in

other ways

.

3.4.2 Vehicle Costs Under the Personal Car Program: Empirical

Evidence

There are basically two kinds of costs associated with the

personal car program: (1) vehicle capital cost and (2) vehicle

running cost.^"^ To compare cost of the personal car program with

cost of a multi-shift operation, account must be taken of the

cost of additional cars to implement the program, and the net

Since all department members do not benefit equally from the

program, problems of equity may arise. Not only staff who are

not patrolmen, but also patrolmen vdio live out of the

jurisdiction, are generally denied full participation.

(Partial participation may be allowed, whereby officers living

out of the jurisdiction are assigned personal cars which must

be left at the station whenever the officer leaves the

jurisdiction.) Services, however, are exchanged in return for

benefits received and car use is supposedly not bestowed outof -hand

.

57

In some cases, officers receive overtime pay for extended

calls during off-duty hours, but salary cost of the program

appears generally small. Also, the increased fleet size may

give rise to the need for expanded garage facilities . This

analysis assumes for simplicity that existing facilities can

accommodate the increased fleet.

113
change in total operating and maintenance cost for the fleet,

including cost of existing cars and new cars, both during and

after regular duty hours.

First, let us examine the cost experience of departments

which have adopted personal car programs. Table 3 0 presents,

in four parts, reported costs for a large city police fleet

operating first under a multi-shift plan and then under a

personal car program. The following points are noteworthy:

(1) Fleet size was nearly tripled to implement the programi; (2)

the plan was put into effect by purchasing more new vehicles

than usual and, at the same time, retaining part of the

existing fleet normally scheduled for replacement; (3)

additional equipment purchase was necessary; (4) total fleet

mileage increased by slightly more than half; off-duty mileage

appeared to average between 50 and 60 percent of on-duty

mileage; (5) individual car mileage averaged much lower with

the personal car progrcim; (6) due to lower car mileage, the

department expected to extend the replacement period from about

two years to somewhere between two-and-one-half and three

years, while maintaining the former 50,000 mile (80,000 km)

replacement target; (7) direct operating costs for gas, oil,

and maintenance was reported to have declined on a per mile

basis from about 5.6<: (3.4<:/km) under the old plan to about

4.0<: (2.4<:/km) under the personal car program, a decline of

almost 30 percent; (8) due to higher total mileage under the

personal car program, total annual gas, oil, and maintenance

costs increased by about 10 percent (or about $2 8,000) , despite

the lower cost per mile; (9) uniform annualized cost of the

personal car program appears in this case to be close to 40

percent (or nearly $200,000) more than the old, multi-shift

plan.

In general, of course, the capital cost of implementing a

personal car program will depend on departmental car

utilization practices and existing fleet size. A fleet

starting with a three-shift-per-car-per-day plan will generally

require about a threefold increase in vehicles and related

equipment. However, the required increase in cars may vary

considere±»ly depending on the distribution of the work load

among the three daily shifts; on the number of officers

patrolling in each car, i.e., single or multiple-officer

staffing, and on the size of the existing backup fleet. If the

work load varies substantially among shifts, the minimum number

of cars for the multi-shift car plan will be larger than would

114
be required if the work load were evenly distributed. The

effect will be to reduce the number of additional cars needed

to implement a personal car program. If, on the other hand,

there were multi-officer staffing of cars rather than single

officer patrols, the difference in the number of cars required

for a full personal car program as compared with a minimum

multi-shift car plan would be widened. The larger the size of

the existing backup fleet, the less the difference in the

number of cars required for the two plans. In any case, from

car and equipment price data, it is fairly easy to estimate the

capital cost of implementing a personal car program, given the

nature of the existing operation.

The annualized capital cost of keeping the personal car

program in operation can likewise be estimated, based on the

new replacement schedule. Since conversion from a multi-shift

plan to a personal car plan generally reduces average mileage

per car per period —and since average running costs per mile

are probably no more (and are perhaps less) for the personal

car program—the probable effect on time of replacement is a

lengthening of the cycle.

Comparative running expenses are more difficult to estimate

since the effect of the personal car program on this cost has

not been clearly established. Part of the problem stems from

limited experience with the program; part from lack of data for

those programs in operation; and part from the interpretation

of existing data. Claims of substantial reductions in car

running costs (ranging higher thcin a 50 percent reduction) have

been attributed to the program. However, an analysis of data

samples by this study suggests that there may be little

difference in per mile running costs between the two car plans.

Having already examined in table 30 the reported operating

cost for a large city department (where per mile cost of gas

,

oil, and maintenance was estimated to drop almost 30 percent

upon conversion to the personal car program) , let us review

quantitative information from other sources. According to an

evaluation report of the personal car program in operation at

one police department, annual maintenance cost per car under

the old pool plan averaged about $1500. Under the personal car

plan, average annual maintenance cost per car is reported as

$350, a drop of 77 percent per car—a large drop, the decline

in average car mileage per month notwithstanding . It is further

58

Firm-handed management of fleet maintenance under the

leadership of new maintenance personnel which occurred about

the same time may account for part of the decline in average

maintenance cost on vehicles.

115
Table 30. Experience of a Large City Department

with a Personal Car Program

I . Background Information

Fleet Size

Old Plan: 170 patrol cars New Plan: 455 patrol cars (2.7 x old fleet size)

Mileage (approximate figures) Old Plan: Total annual fleet mileage = $5,000,000

Average miles per car month = 2,400

Average miles per car per year = 29,000 New Plan: Total annual fleet mileage = approximately

7,700,000 (1.54 X old mileage)

Average miles per car per month = 1,400

Average miles per car per year = 17,000

Reported Running Costs

Gas Oil Labor Parts Total {$)

C/mile Fleet Insurance

Old Plan: 3.344C 0.090* 0.750<t 1.4166 5.6006 $17,000 New Plan: 2.4306 0.0896 0.5306 0.9066 3.9556 $45,500

Replacement Policy

Old Plan: 2 years New Plan: 2-1/2 to 3 years

II . Cash Outlay Necessary to Implement the Personal Car Program

No. new cars purchased in excess of annual purchases required under old plan = 235 Purchase price of new cars = $1,860

Expenditure for additional new cars = $437,100 Cost of Retaining 50 old cars in the fleet which would usually be sold for $400 but which will now be sold for $200 each in a year.l = $10,909

Expenditure for additional equipment to outfit 285 cars at a cost of $740 per car, excluding radio. (Assume equipment for existing 170 cars is reused, leaving 285 without equipment) = $210,900

Total cash outlay to implement progrcun = $658,909

III . Uniform Annualized Cost of the Personal Car Program

Vehicles ; Yearly replacement of 1/3 of the fleet or 152 cars @ $2,000 each = $304,000

Yearly resale receipt on 152 cars sold after three years (? $760 each = $115,520

Annualized cost of vehicles = $188,480

Equipment : Sirens, lights, partitions, etc. for 455 cars, assuming an average life of 10 years, no salvage value, and a purchase price of $740 per car = $54,815

(i.e., $336,700 x Uniform Capital Recovery Factor, 10 yrs., 10%) Radio lease cost @ $144 per car per year = $65,520

Annualized Cost of Equipment = $120,335

116
Table 30 (continued)

Annual Operating Expenses

Gas, oil, maintenance (parts and labor) for annual fleet mileage of 7,700,000

a 4.0* per mile = $308,000

Liability insurance @ $100 per car per year = $45,500 *Annual operating cost = $353,500 *Total annualized cost, after implementation of program = $662,315

IV . Uniform Annualized Cost of the Old, Multi-Shift Plan Vehicles : Yearly replacement of 1/2 of the fleet or 85 cars g $2,000 each = $170,000

Yearly resale receipt on 85 cars sold after 2 years @ $400 each = $34,000

Annualized cost of vehicles = $136,000

Equipment

:

Sirens, lights, partition, etc. for 170 cars (assuming an average life

of 10 years, no salvage value, and a purchase price of $740 to outfit

each car) = $24,480, i.e., $125,800 x Uniform Capital Recovery Factor,

10 yr ., 10% •Annualized cost of equipment = $44,960

Annual Operating Expenses : Gas, oil, maintenance (parts and labor) for annual fleet mileage of 5,000,000 @ 5.6« per mile = $280,000

Liability insurance 9 $100 per car per year = $17,000

Annual operating cost = $297,000

Total annualized cost under multi-shift program = $477,960

In order to implement the program, only 35 existing cars were traded instead

of the usual 85. The 50 cars retained were not to be replaced until the following year. Since release values were not readily available and were not taken into account in the evaluation study (Fisk, Indianapolis Plan ) , they are estimated here, based on the purchase price of $1,860 and about an 80 percent

depreciation over two years. Normally, an estimated $20,000 would be received

from sale of used cars. However, in order to implement the personal car plan, the $20,000 is forgone and, instead, $10,000 will be received a year later.

2 In absence of actual resale values , and in view of the fact that personal patrol

cars are usually in much better condition than the average patrol car, a depreciation typical of a private car is used to estimate resale values. (See Table 5) . Had the same resale value been used as was used in computing annual cost of the old program, total annual cost would have been equal to $717,000 rather

than $662,315. Note: Information was not availaible on all cost elements and some items may be omitted

from the comparision.

Source: Fisk, Indianapolis Plan , pp. 43-50. The basic data were taken from the Fisk

Report"^ but the subsequent computations and the method of presentation differ

from that in the report.

'Denotes subtotals and totals.

117
noted in the report that the number of vehicles was doubled,

but total maintenance cost increased by only 14.8 percent.

However, when reported operation cost is looked at on a per

mile basis, rather than a per vehicle basis, the results appear

different. Reported total fleet mileage increased from 7.5

million miles (12.1 million km) the year prior to

implementation of the progrcim, to 8.1 million (13 million km)

in the first year the program was in operation. On a per mile

basis, the reported costs for maintenance and repair, cleaning,

battery replacement, tire and tube replacement, and gas and oil

appear to have increased slightly in each case, from one year

to the next

.

Similarly, two studies of another police department's

personal car program reported drastically lower maintenance and

operating cost for cars operated under the personal car

program. Running costs were reported to have declined from

$255 per car per month to $115 per car per month for cars in

the program as compared with pool cars. However, a comparison

of running costs for a small sample of multi-shift cars and

personal cars of the same model and year, taken by this study

from the department's records, failed to show a statistically

significant difference in the two.

Another sample of data for a take-home car program showed

the following costs for new pool and personal cars operated for

a short time:^

Total Maintenanca and

Repair (Includes tires,

preventive maintenance,

body work , towing , as

Mechanical Components: well as items in the

Parts and Labor first column)

C/mile <^/km <:/mile <^/km

Take-home Cars 1.5 0.9 3.0 1.8

Multiple-shift

Cars 3.7 2.2 6.8 4.1

As may be seen, pool cars are reported to cost more than twice

as much as personal cars for maintenance and repair.

^

The data were provided by Mainstem, Inc., Princeton, N.J.,

for an unidentified police department.

118
In order to examine the cost effect of the individual

assignment of cars alone, as opposed to both individual

assignment and personal use of cars, two samples of cars were

drawn from the records of a state highway patrol department.

One sample group consisted of patrol cars originally assigned

to individual officers but later converted to pool use. The

other sample was a control group of cars similar with respect

to model, age, and mileage, but which remained individually

assigned. The sample costs rose almost 10 percent following

conversion to pool use, while average cost per mile of cars in

the control group appeared essentially unchanged. However, a

statistical test of significance indicated that the difference

might be merely attributed to chance.

It has also been reported that the rate of vehicle

accidents and accident-related costs are reduced by personal

car programs . The accident rate for pool patrol cars operated

in one police department was said to be almost three times as

great as the rate for personal patrol cars and in another

police department, nearly half again as much for pool cars as

for personal cars.

The assignment of a car to a single driver might reduce

costs in two ways: (1) Individual car assignment provides

accountability in case of driver abuse, whereas it is difficult

to assign responsibility for the car's condition if several

officers drive the same car. (2) Direct car assignment may

generate pride in the vehicle, resulting in better care. In

addition, when cars are used for patrol only eight hours per

day, there is more time to schedule and perform maintenance

during off-duty hours. Otherwise the work may be frequently

postponed, perhaps leading to more serious problems or downtime during duty hours . Quality of repair work is probably

improved if an interested driver describes the nature of the

problem to the mechanic and checks more closely on the repair

job

.

In conclusion, there is evidence--but not conclusive

proof—that running costs for individually assigned, singleshift CcLTS used by officers for personal use are substantially

less than for multi-shift pool cars. There is some evidence

that personal patrol cars may cost only about half as much per

mile to operate as pool cars. However, there is also some

evidence that the difference may be slight. (The rise in

gasoline prices relative to other prices has increased the

1

119
difficulty of achieving a reduction in per mile running costs

by converting to a personal car program, because the use of

personal cars does not appear to impact as much on fuel costs

as on maintenance and repair costs.) Further research is needed

to establish the impact of personal car programs on running

costs. A thorough evaluation is needed to examine the expected

benefits from the program, as well as the expected costs.

3.4.3 A Cost Comparison of a Personal Car Program With a

Minimum Fleet/Multi-Shift Car Plan: A Hypothetical Excimple

The purpose here is to compare capitalization and running

expenses of a personal car program (PCP) with costs of a

minimum fleet/multi-shift program (MSP) . First the cash flow

associated with each plcin is identified, and then, lacking more

definitive measures of the effect of the personal car program

on fleet running cost, a breakeven model is used to determine

the reduction in running cost which would be necessary to make

a personal car program as cheap to operate as a multi-shift

plan.

For simplicity, the cost of alternative car plans are

developed and examined for a hypothetical police department

just setting up its fleet. It is assumed there are 200

officers who require patrol cars and that the department

operates 20 shifts per week—5 shifts per officer of 8.4 hours

each—and assigns 50 officers to each shift, each of whom

requires a patrol car. (As indicated above, in actual practice

work loads will vary among shifts and 2-officer patrols are

common. Variation in work load would tend to reduce the

difference in the costs of the two plans; 2-officer patrols

would increase the difference in the costs of the two plans if

every officer received a car under the personal car plan.)

In order to implement an msp of 3 shifts per car per day, 5

backup cars are added (in the ratio of 1 backup to every 10

regular cars, in accordance with a popular "rule-of-thumb" ) to

the basic fleet of 50 cars to allow for downtime. For the PCP,

it is assumed 200 cars are required and a backup fleet

unnecessary. A backup fleet is no longer necessary because

scheduled maintenance during regular duty hours is reduced by

shifting it to off-duty hours, and unexpected downtime due to

car breakdown is accommodated by borrowing off-duty cars from

personal use.

120
The pool cars average 60,000 miles (97,000 km) per year

each, for a total of 3.3 million miles (5.3 million km) per

year. (This mileage is high compared with the experience of

many departments , but it is reasonable for a minimal multishift fleet as is depicted here.) The 200 personal cars

accumulate the same total fleet mileage of 3.3 million (5.3

million km) during on-duty use, or 16,500 miles (26,600 km) per

personal car per year. But personal cars are also used during

off-duty hours. Assuming that annual off-duty mileage amounts

to 4,000 miles (6,400 km) per car, i.e., approximately 24% of

on-duty use, each car is used about 20,500 miles (33,000 km)

per year. This amounts to 4.1 million total fleet miles (6.6

million km) annually. The personal car, therefore would take

almost 3 years to accumulate 60,000 miles (97,000 km).

Replacement of cars under both plans is set at 60,000 miles

(97,000 km). Additional assumptions employed in the analysis

are explained in footnotes to tsible 31.

Table 31 shows the amount and timing of expenditures and

receipts associated with both programs. Notice that a value

has not been assigned to running cost per mile for the PCP . We

can use a breakeven model (used in cost analysis to determine

the value of a preselected unknown variable which will make

alternative programs or decisions equal in costs) to get an

idea of the magnitude of the difference in running expenses

necessary to equate the costs of the two plans , given the

stated assumptions.

To construct a breakeven equation, we first develop a cost

equation for each plan, and then set the two equations equal to

each other . We then solve for that value of the unknown

variable —running cost per mile—which will equate the costs of

the two alternatives. Uniform annual costs of each vehicle

plan can be calculated from the information in table 31 as

follows

:

A^ = (Ci-Si) r (1+r)

Ni

(1+r) -1

+ Si(r) + r (1+r)

(1+r) -1

+ + (R

121
Table 31. Expenditures and Receipts for a Personal Car Program (PCP) and a Multi-Shift Plan (MSP)^

TYPE OF CASH FLOW PCP MSP

No. of Cars Purchased'-' 200 every 3 yrs. 55 each yr.

Purchase Outlay for $600,000 every $165,000 each year

New Cars*^ 3 years

Receipts from Sale $280,000 every $82,500 each yr.

of Used Cars^ 3 yrs.

Purchase Outlay for $240,000 every $66,000 every

Car Equipment® 10 yrs. 10 yrs.

Insurance Premiums^ $20,000 each yr. $5,500 each yr.

Running Cost*^ 4 ,100,000 (R) 3 ,300,000 ($.08) = $264,000 each yr.

aThe cost data are realistic values in 1973 prices.

b

Lower average annual mileage results in a longer replacement

cycle for personal cars. purchase price of $3,000 is assumed.

*^Resale value on the MSP car, which is replaced annually, is

assumed to be $1,500. This is based on typical patrol car depreciation for a standard-size car operated by a medium-size

city department, as developed in Table 9. For the personal

car, resale value is assiamed to be $1,400, after being used for

three years. Depreciation for the PCP cars is based on rates

typical of a private car, and reflects the fact that they are normally in good condition.

This assumes an expenditure of $1,200 to equip each car and

an equipment life of 10 years with no salvage value remaining.

^This is based on insurance premiums of $100 per car for both

car programs. According to an insurance company representative,

there would generally be little or no differential in insurance

rates for patrol cars based on mileage incurred or on whether

they are pool or take-home cars.

gRunning cost per mile (R) is the unknown variable in the

analysis. Both direct and indirect costs, including overhead

items such as costs of inventory and service garage facilities

are assumed to be included in the per mile cost.

122
where

,

= Uniform annual cost of the vehicle plan, where the

subscript i indicates the type of vehicle plan.

(Below, subscript 1 designates the PCP and 2, the

MSP.

)

C. = Total purchase price of vehicles in car plan i in

^ present dollars.

= Total resale value of vehicles in car plan i,

resold after NC years of use in present dollars.

Nj^ = Number of years after purchase at which time cars

in car plan i are resold, i.e., N = 60,000/Mj^.

r = A real rate of discount, i.e., excluding inflation.

Ej^ = Total purchase price of equipment required for car

plan i in present dollars.

= Number of years of life of equipment under car plan i.

1^ = Annual insurance cost for car plan i.

yi^ = Total annual fleet mileage incurred under car plan i.

Ri = Cost per mile of running expenses under car plan i

,

in present.

In the equation, the resale value, S±, is subtracted from

the purchase price, Cj^, and the result is multiplied by the

capital recovery discount formula in order to convert the

capital cost of cars into an equivalent stream of uniform

annual values. The next term in the equation, S (r) is included

to take into accoxint the fact that the resale value is not

immediately forthcoming as is implied in the previous term, but

is received at a later time. The annual cost of deferring the

receipt of the resale value until later is the annual

opportunity cost forgone; hence, cost of the vehicle plan is

raised by an amount equal to the resale value multiplied by the

discount made. (Alternatively, in the first term to the right

of the equation, Sj^ could have been converted to present value

by applying the single present worth formula, prior to

subtracting it from purchase price. The remainder would then

have been multiplied by the capital recovery formula, and then

there would have been no need for the term Si(r) .)

The third term on the right side of the equation takes into

account equipment cost. The total purchase price of equipment

is multiplied by the capital recovery formula to convert the

present value cost to a uniform annual cost basis . Since

123
salvage value is assumed equal to zero in the case example, no

term for resale value of equipment is included. Insurance, li,

and running costs Mj (Rj^) are already stated on an annual basis,

and hence may be entered directly into the equation without

discounting

.

Setting the annual cost equations for the two plans equal

to each other we have

Ai = A2

($600,000-$280,000) .10(1+. 10)3

(I+.IO) 3-1

+ $240,000

+ $280,000 ( .10)

.10 (l-f.lO)^Q

(1+. 10)^^-1

+ $20,000 + (4,100,000) (Ri)

= ($165,000-$82,500) .10 (I+.IO )

(i+.io)-'-°-i

+ $82,500(.10)

+ $66,000 .10 (1+.10)1Q 1 4- $5,500 + (3,300,000) (.08)

_(1+. 10)10-1 .

Solving for Rj^ , we find that Ri = $.04.

This shows that given the stated assumptions for capital

cost and mileage, running costs per mile under the PCP must be

reduced by approximately half what it would be under the multishift plan, (i.e., from 8<: to 4<: [4.8<: to 2.4<:/km]), in order

for the two programs to be cost equivalent. Hence, the PCP

must impact quite heavily on running costs in order to reduce

total fleet costs to the level attainable under an MSP.

Table 32 shows total life-cycle costs of the two plans for

various per mile running costs, off-duty mileages, and

depreciation rates. This table provides an indication of the

sensitivity of cost calculations to the assumptions employed in

the analysis. It allows us, for example, to compare the costs

124
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125
of an MSP having a running cost of 8<: per mile (col. 2, row 1)

with the costs of a PCP not used at all off-duty and having a running costing cost of 6<: per mile (col. 3, row 2). The costs

of these programs can be compared in turn with a PCP for which

the cars are used nearly as much for off-duty driving as for

on-duty driving, and for which running cost per mile is, say^

4<: (col. 6, row 3). The comparative costs are $379 ,000,

$414,000, and $597,000, respectively.

From the table (col. 2, row 1 and col. 4, row 3) , we can

also confirm the results of the breakeven analysis; that is,

costs of the two plans are about equal ($379,000 versus

$380,000) if PCP cars are used off-duty sparingly, are replaced

every three years rather than annually, depreciate much more

slowly than MSP cars, and incur running costs less than half as

great as for the MSP.

By comparing Col. 2 with Cols. 5 and 6, we can see that a

PCP would cost much more than a MSP —about double in this

case —if PCP cars are used extensively off-duty, are

consequently replaced every two years instead of three, and

incur about the same operating cost per mile as MSP cars. The

reduction in operating cost necessary to offset higher

capitalization and insurance cost would be drastic.

Futhermore , if a much slower rate of depreciation were not

achieved by the PCP, the PCP would, in this example, cost

substantially more than the MSP even if operating costs were

greatly reduced by the progrcumi.

Of course, if PCP cars are not used off-duty (Col. 3) —as

might be the case where the program is adopted for reasons

other than crime reduction —the cost differential between the

MSP and the PCP is reduced. (By like token, progrcim benefits

from off-duty use of the vehicles are not forthcoming to offset

the cost of the PCP .

)

In examining table 32, note that the proportional

relationships between costs of the PCP and the MSP have broader

applicability than the single hypothetical case upon which the

cost figures are based. To the extent that costs of the two

fleet plans are linear functions of fleet size, the cost

proportions derivable from table 32 will hold over all fleet

sizes, all other things being equal. This means that in

absence of any significant net economies or diseconomies of

scale associated with larger or smaller fleets, under the

126
stated conditions , the cost of a full PCP as compared with a minimal MSP would be in the same proportions as are derivable

from table 32, regardless of fleet size. Thus, a PCP with the

attributes described by col. 6, row 1, would cost about twice

as much as the MSP described by col. 2, row 1 (i.e.,

$834 ,000/$379 ,000 = 2.2), whether the police department were to

have 50, 100, 200, 300, or some other number of officers. The

table therefore offers to police departments of various sizes

some indication of the relative costs of the two programs under

the conditions stated.

There are some limitations to the applicability of these

specific cost figures. For example, these calculations are

based on representative prices given in 1973 dollars.

Furthermore, a given police department may discover items of

costs associated with the two programs which have not been

taken into account here. For example, it may find differences

in the parking facilities required for the two plans, which may

alter their comparative costs. However, given the fact that a

PCP involves more cars but generally does not require parking

for off-duty vehicles, the direction of impact in this case is

not immediately clear. As noted above, to the extent that

there are economies or diseconomies of scale associated with

larger or smaller fleets, costs of the two fleet plans would

not be linear function of fleet size, and the cost

relationships between the two fleet plans might vary depending

upon the specific sizes of the PCP and MSP fleets.

Other limitations of the cost figures pertain to the way in

which the PCP and MSP are here defined. There are two points

to note. One is that the size of the MSP which is minimal

depends upon staffing, utilization and maintenance practices.

Multi-officer staffing of cars, for example, would reduce the

size of the minimal MSP below that assumed here; the particular

practice of preventive maintenance might increase or decrease

the need for backup cars above or below the 1:10 ratio assumed

here for the MSP. The comparisons in table 32 are made for a "bare-bones," minimal-size MSP and a full PCP. It should be

noted that most departments probably operate an MSP with some

degree of slack, and that those departments having a PCP

usually do not provide a personal car for every officer.

Hence, conversion to a PCP might not require in practice as

large an addition to the fleet as is assumed in table 32.^*^

60

Empirical cost studies of fleet plans probably tend to

understate the real difference in relative cost of a full

personal car program as compared with a minimum fleet/multishift plan, because the personal car program is typically

compared with an existing plan which itself falls short of full

car utilization; hence the small reported differences in

program costs

.

127
(However, a lower cost of converting from an MSP to a PCP than

that shown in table 32 does not necessarily imply economic

efficiency of a PCP; rather it may simply signal inefficiency

in the current car plan.)

Table 32, therefore, provides some measure of the

comparative costs of the two car plans under qualifying

conditions. For those departments whose costs are not

adequately described by the table, the annual cost formula

developed above and used to generate Table 32 can be applied

with specific department data.

3.5 Patrol Car Replacement Decisions

Another important management decision is when to replace

vehicles. Although the "physical life" of a vehicle can

usually be greatly extended by increasing maintenance and

repair, there is a point beyond which it becomes uneconomical

to do so. The optimal time for replacement, which corresponds

to the end of the "economic life" of the vehicle, is that point

at which the combined present value or annual cost of ownership

and operation of the vehicle are a minimum.

The idea of an economic life, or optimum replacement point,

is grounded in the fact that per unit running costs do at some

point begin to increase with higher mileage and/or age. If

unit costs of operating a vehicle declined or were constant

with respect to time and use—and barring obsolescence —it

would never be economical to replace. The combined costs per

unit of time of the vehicle would decline continuously, since

the largely fixed capital cost would be spread over increasing

mileage and time. But if annual running costs do, at some

point, start to rise with increased age and use, then it is

possible to make tradeoffs between increasing annual running

cost and decreasing annual depreciation cost, and to determine

that point at which annual (or present value) total costs are a minimum.

The two critical factors in determining replacement are

,

then, (1) the trend in resale values over the physical life of

the vehicle and (2) the change in running expenses as

mileage/age of the vehicle increases. Exhibit 8 shows

schematically the typical relationships between these cost

elements and vehicle mileage/age.

Both depreciation and running costs will, of course, differ

among vehicles, among departments, and over time, hence it is

128
Exhibit 8. The Optimal Replacement Point

Note: Optimal replacement point does not necessarily

coincide with the intersection of depreciation and running

expenses. Costs are assumed discounted to an annual basis.

129
not advisable to think in terms of a "standard" economic

replacement time for all patrol cars. A more efficient

approach is for individual departments to determine optimal

replacement policies in light of their applicable cost

experience

.

The purpose of this part of the study, therefore, is not to

define the economic life of patrol vehicles —since there is no

single answer —but rather (1) to explain the approach to

determining optimal replacement, (2) to illustrate the approach

with police department data, and (3) to indicate the effect on

economic life of different fleet characteristics. In the

examples, the cost effects of alternative replacement decisions

are assessed.

3.5.1 Replacement Methodology

Replacement problems occur frequently and "replacement

theory" has been developed as a technique of operations

research analysis to handle these problems. Techniques range

from crude models, which merely calculate the minimum mean cost

per year, to more sophisticated models which take into account

the time value of money and find the replacement point which

minimizes either the uniform annual cost or the present value

of long-run fleet costs.

Related to the optimal timing of replacement is the problem

of optimal choice of vehicles when alternatives exist. That

is, if the available replacement vehicle is not identical to

the existing vehicle, it is necessary to compare the costs of

alternative vehicles when the cost of the new has been

evaluated at its optimal life. Techniques exist for dealing

with replacement by unlike vehicles.

Simple —but crude —approaches to determining replacement

assume replacement with identical vehicles and a zero interest

rate. One such approach is to replace the vehicle whenever its

expected depreciation and operating cost over the coming period

exceeds that of the previous period. Another approach is to

replace the vehicle when average cost reaches its lowest value.

Cumulative running cost and depreciation are summed, and the

total is divided by the number of periods, yielding average

cost per period. This model may be expressed as follows:

130
Find that n for which (AC (n) is a minimum, where

n

AC(n) = I R(j)+D(j)

j=l n

and AC (n) Average (mean) cost per unit of time

of a vehicle replaced after n periods.

R(j) Maintenance and operating costs incurred in

the jth period.

D(j) = Depreciation in the jth period.

n = Replacement period.

This method of calculating replacement is illustrated in

table 33. As may be seen in Column 7, for this example,

average cost per period is lowest if vehicles are replaced in

the second year.

A more accurate approach to determining a vehicle's optimal

life takes into account the time preference of money, using

either an annualized cost model or a present value model to

place costs on an equivalent basis. In either case, the

objective is to find that replacement period (n) for which

discounted costs are minimum.

The uniform annualized cost model to determine replacement

may be expressed as follows:

Find the value of n for which A' (n) is a minimum, where

n

A' (n) = C - S(n) + Z R(j)

j=l

(i+i):i

i (1+i)^

(l+i)^-l_

and

A' (n) = Annualized costs associated with replacing

vehicles at the end of the nth period.

C = Purchase price of a new vehicle.

131
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132
S (n) = Resale value of the vehicle at time n.

R(j) = Maintenance and operating costs in jth period.

n = Replacement period.

i = Discount rate.

S (n) = Resale value discounted to present value,

n

(1+i)

R ( j

)

= Maintenance and operating costs in period j

j discounted to present value.

(1+i)

i (1+i) = Uniform capital recovery interest formula for

n converting a present amount to a series of uniform

(1+i) -1 annual payments.

Employing discount factors , the above question may be

stated equivalently in the following terms

:

n

A(n) = [C-S (n) (SPW,i ,n) + Z R(j) (SPW,i, j) ] (UCR,i ,n)

j=l

where

SPW = Single Present Worth Factor

UCR = Uniform Capital Recovery Factor

Table 34 shows the annualized costs associated with various

replacement periods , computed for the same basic data as used

in table 33, but here taking into account the time value of

money. It may be seen that the optimal replacement time is

changed from two years to three

.

The use of a present value model to determine optimal

replacement is similar to the above method, and may be

described as follows:

Find the value of n for which PV(n) is a minimum, where

PV(n) = C+R' (n) -S ' (n) , l-(l+i)""

133
Table 34. Illustration of the Use of an Annual Cost Model to Determine

Optimal Replacement Point

Year Yearly Repair Cost Estimated Resale Value Annual Cost'

1 $150 $1,600 $750

2 250 - 1,350 707

* 3 350 1,150 700

4 450- 1,000 704

n 3A'(n) = (C - S(n) (SPW, n, i) + E R(j) (SPW, j, i)](UCR, n, i)

j = l

A(n) = Annua] cost of replacing vehicle, at the end of the nth period,

C = Purchase price of a new vehicle,

S(n) = Resale value of a vehicle at time n,

R(j) = Sum of relevant maintenance and operating costs in jth period, SPW = Single Present Worth Factor, and UCR = Uniform Capital Recovery Factor.

Ai = [2,000 - (1,600) (.9091) + (150) (.9091)] (1.1) = $750

A2 = [2,000 - (1,350) (.8264) + (150) (.9091) + 250 (.8264)] (.5762) = $707

A3 = [2 ,000 - (1 ,150) (.7513) + (150) (.9091) + 250 (.8264) + 350 (. 7513) ](. 4021 ) = $700

A4 = [2,000 - (1,000) (.6830) + (150) (.9091) + 250 (.8264) + 350 (.7513) + 450(.6830)]

(.3155) = $704

Denotes minimum annual cost.

NOTE: The cost data used to compute annualized cost in this table are the same as those used in tables 32 and 33.

134
and

PV(n) = Present value of the relevant costs associated

with purchasing a new vehicle and an infinite chain

of identical replacements, each with a life of n years

.

C = Purchase price of a new vehicle,

n

R' (n) = Z R(j) (l+i)~^ the present value of operating

j=l

and maintenance costs from j = 1 to j = n

.

S'(n) = S (n) (1 + i)~^, the present value of the resale

value in period n.

i = Discount rate.

n = The length of the replacement cycle

.

The model assumes that a series of periodic payments of

[C+R' (n) - S'(n)] will be made every n years in perpetuity.

Table 35 shows the present value of vehicle costs for

different replacement cycles, again using the same basic data

as in tables 33 and 34. As would be expected, the results of

this calculation are in agreement with the findings of the

annualized cost model. Both are considered more reliable than

the simple average approach.

If the replacement vehicle differs from the existing

vehicle, the replacement calculation is slightly more complex.

Here the problem is to find how long it pays to continue

operating the existing vehicle before replacing it with the

alternative vehicle

.

One approach begins by determining the optimal life of the

replacement vehicle so that the cost of keeping the existing

vehicle may be compared with the cost of the new vehicle at its

optimal life. The optimal life of the new vehicle may be

determined from the above equation for present value, PV(n)

.

This information can then be used in the following equation to

find the optimal remaining life of the existing vehicle:

135
Table 35. Illustration of the Use of a Present Value Model to Determine Optimal Replacement Point

Year Yearly Repair Cost Estimated Resale Value Present Value^

1 $150 $1,600 $7,491

2 250 1,350 7,068

* 3 350 1,150 7,004

4 450 1,000 7,035

^PV(n) = [C + R' (n) - S' (n) - . 1 - a+i)-n

PV(n)]^ = [2000 + 150 (SPW, j = l, 10%) - 1600 (SPW, n=l, 10%)]

1 - {l+i)-n

= 200 + 150 (.9091) - 1600(.9091)

1 - (1.10)"^

= 681 .0909

= $7,491

PV(n)2 = 2000 + 150(.9091) + 250(.8264) - 1350(.8264)

1 - (1.10)"^

= 1227

= $7,068

PV(n)3 = 2000 + 150(.9091) + 250(.8264) + 350(.7513)- 1150(.7513)

1 - (1.10)"-'

= 1742

= $7,004

PV(n) 4 = 2000 + 150 (.9091) -I- 250 (.8264) + 350 (.7513) -t- 450 (. 6830) -1000 (. 68 30)

1 - (1.10)"'

= 2230 75T=r

= $7,035

NOTE: The same basic cost data which were used in tables 33 and 34 are used here.

Denotes minimum present value cost.

136
Find the value of k which minimizes the present value of

vehicle cost, where

PV (k) = PV(n) + M' (k) - E' (k)

k

(1+i)

k

C+R' (n) -S ' (n) + Z D(k) _ E(k)

and

k ^=1 k ^ [l-(l+i)"^] (l+i)"^ (l+i)^ (1+i)

PV' (k) = Present value of all relevant costs associated

with replacing an existing vehicle at the end

of period k with a new vehicle which has an

economic life of n periods.

R

M' (k) = Z M ( j

)

, the present value of the operating

j=l 5" (1+i)

and maintenance costs of the existing vehicle

in period k, where M(j) is defined as the operating

and maintenance cost of the existing vehicle in the

jth period.

E'(k) = E <k) , the present value of the resale or salvage

(1+i)^

value of the existing vehicle in period k, where

E (k) is defined as the resale value of the existing

vehicle in period k.

k = The length of the replacement cycle for the existing

vehicle

.

137
C , R

' (n) , S

' (n) = As defined previously.

For example, assume that the new vehicle is described by

the data in table 35, and therefore has an economic life of

three years. Assume also that the vehicle can be expected to

give two more years of satisfactory service, at an operating

cost of $400 in the first year and $475 in the second year.

Further assume that the salvage value is expected to be $500 at

the end of the first year and $300 at the end of the second

year. The calculations to determine whether the vehicle should

be replaced at the end of the first or second year, are shown

in exhibit 9

.

Since the present value of the new vehicle is $7,004, at its

optimal replacement cycle, immediate replacement of the old

with the new means a cost of $7004. Keeping the existing

vehicle for either one or two more years prior to replacement,

at a cost of either $6226 or $6299 respectively, is therefore

cheaper than immediate replacement. It appears slightly more

economical, however, to replace the present vehicle with the

new vehicle after only one more year of use, rather than two

years. (Other factors not included in this model, such as

model changeover costs, may make replacement more or less

costly than this model shows.)

Regardless of the method used to calculate replacement

time, an effort should be made to utilize realistic and

comprehensive cost data. Conceptually, operating or running

costs should include costs associated with declines in vehicle

performance, and reliability, and increases in downtime, all of

which may come about with increased mileage or age. In

practice, however, it is usually difficult to get operating

cost data for expenses other than parts and labor. Dollar

estimates of the costs of reduced performance and downtime are

difficult to estimate and subject to question. A simpler, and

less controversial approach is to indicate separately, as far

as possible and in whatever measures are convenient, any costs

(or reduced benefits) in addition to parts and labor costs,

which accrue as the fleet ages. Then the estimated ownership

and maintenance costs associated with shortening or lengthening

the replacement period can be compared with these other types

of costs. As a consequence, the trade-offs are more clearly

specified, and decision making should be improved.

138
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139
Some types of operating expenses may be omitted from the

replacement analysis without significantly affecting the

results. Costs which accrue at a relatively constant rate over

the life of the vehicle, such as cost of gas, oil, tires, and

insurance, usually have no effect on the optimum replacement

time and, therefore, need not be considered. Whether to

include or omit certain items may therefore depend on

convenience, given the format of data records.

For practicality and efficiency, a dual approach to

replacement determination is generally needed. (1) For the

purpose of budgeting and for control of a large fleet, the

economic lives of particular types of vehicles have to be

predicted. This may be done by use of statistical methods to

develop profiles of running expenses and depreciation costs as

a function of mileage/time for different vehicle types, based

on past costs and resale values. Prediction of the average

economic age for each type of vehicle will indicate the

approximate number of replacements which probably will be

required over the coming period. Where review on an individual

vehicle basis is infeasible, the manager of the large fleet

will be able to set an informed, rather than completely

arbitrary, replacement rule. (2) For maximum efficiency, a

decision mechanism is needed for replacing individual vehicles

within a particular group. Individual vehicles may differ

greatly in their costs —especially maintenance and repair cost.

Samples of cost data gathered from several police departments

showed variation among like vehicles throughout their

lifetimes, and particularly at higher mileages. The more

efficient replacement plan will identify and make provision for

individual vehicles whose costs are higher or lower than

average

.

A number of replacement programs are currently available

for purchase . One of these , developed by the Local Government

Operations Unit, Reading, England, consists of a set of charts

which may be used to simplify replacement determination.^^

61

Local Government Operational Research Unit, Royal Institute

of Public Administration, Vehicle Replacement Charts ; Operating

Manual, Report No. C.81, Reading , England , January , 1971

.

140
The charts are geometric representations of equations, and are

provided for different rates of discount and depreciation. To

use the charts, it is necessary to have a record of total

maintenance and repair cost over the life of the vehicle to

date, and further, an estimate of the cost expected to be

incurred over the coming period. The charts define the maximum

amount which can be spent on a vehicle in the coming period

without increasing annualized cost. If the estimate exceeds

this limit, replacement is indicated. While the charts might

aid computations, they do not overcome the more difficult part

of replacement analysis —the development of good historical

cost data and the ability to forecast future costs on an

individual basis.

Computer programs are available to assist in determination

of vehicle replacement, as well as time for repair of vehicles.

Again, implementation of these programs requires vehicle

operating and maintenance cost data and resale values. The

expense history file is used in programs which determine cost

parameters by vehicle type.

Regardless of whether the department aims at developing an

in-house replacement policy or purchases outside assistance, it

is clear that up-to-date cost information will be needed. In

developing necessary cost records, there are also extant

guides, programs, and cost control systems which may aid the

manager ."^

It should also be noted that the methodology for

determining car replacement described in this section for

patrol cars is applicable to a wide range of vehicles and to

other kinds of assets.

Aids to vehicle management are offered by both commercial and

public organizations. For example, Mainstem, Inc. offers a cost accounting and expense control system; Public Technology,

Inc. offers a municipal vehicle replacement package; American

Association of Public Works has developed an equipment

management program and offers a group of vehicle-related

management services; the Municipal Finance Officers Association

of the U.S. and Canada provides a guide to accounting practices

for government owned and operated vehicles; IBM's Field

Development Program has developed a vehicle maintenance and

cost analysis system which provides programs to assist in

controlling vehicle maintenance cost. (No attempt has been

made by this study to assess the utility of individual programs

and services , and no endorsement of the above programs and

services is intended.)
3.5.2 Replacement of Police Cars: Illustrative Cases

This section uses a present value replacement model and

maintenance cost data drawn from police departments to examine

replacement of police patrol cars. The purpose is to determine

the kinds of replacement schedules which are generated when

actual police maintenance cost data are used to exercise the

replacement model, and to test the sensitivity of the results

to variations in the cost data.

No attempt has been made to explore fully the intricacies

of the data bases used as sources for this analysis, or to

refine the analysis so as to derive precise replacement

schedules for those departments from which data were gathered.

Furthermore, not all of the data were empirically determined;

depreciation data are largely estimated. The reader is

reminded and cautioned that findings in this selection are

based on specific assumptions and costs , and may not be

generally applicable . As was seen already, the critical elements in replacement

determination are how running expenses and depreciation behave

with vehicle age and use. With respect to depreciation, we saw

earlier that the resale value of patrol cars appears typically

to drop faster than for private cars , but the general pattern

of decline appears about the same. Hence, even though there is

substantial variation in depreciation rates among departments

,

the range of depreciation which would be experienced by most

departments can likely be covered by exercising the replacement

model with depreciation rates ranging from a rate comparable to

that on private cars to a very high rate of, say, 50 percent of

remaining car value per year. For this reason, it appeared

unnecessary to trace in detail police car resale or trade-in

values specifically matched with empirical maintenance and

repair cost data. These may be easily approximated.

Establishment of the "typical" relationship between running

cost and police vehicle mileage/age proves to be more

difficult. Both intuitively and on the basis of the

literature, the expected relationship is a rise in maintenance

and repair cost with a vehicle's age and use. The rate of

change is, however, by no means clear. From an empirical

standpoint, data samples are generally distorted by existing

replacement policies. For instance, replacement at 50,000

miles (80,000 km) precludes obtaining cost data for vehicles

142
with higher mileages. And, to the extent such data exist, they

will likely be biased, representing vehicles with lower than

average costs which have been retained in the fleet longer than

usual

.

Despite these problems, an attempt was made to establish

the approximate relationship between maintenance and repair

cost and mileage for a sample of police departments.

Cumulative maintenance cost data for different mileages were

collected for sample vehicles from several fleets.

Statistical techniques were used to fit a curve of "best

fit" to each set of data and to predict maintenance costs based

on mileage at 1,000 mile (1,600 km) intervals. The samples

were designed to include vehicles of similar functional type.

Because of the relatively high usage rates for patrol cars,

there was little difference in the model years of cars

contributing high and low mileage data within a sample. The

rate of accrual of mileage was ignored, the only mileage

distinction being accumulated mileage. Thus, the cost

predicted for any given mileage reflects the average cost

experience of all cars in the sample then at that mileage.

Table 36 shows the computed costs per mile of maintenance

and repair at the sample police departments for successive

intervals of 5,000 miles (8,000 km) each. Exhibits 10, 11, and

12 are plots of actual cumulative maintenance and repair data,

along with a "best fit" curve for each of three groups of

sample data.

Only the sample group of twenty-nine medium-size city

departments shows continuously rising maintenance and repair

cost per period or per mile as vehicle age and usage increases.

Each of the three samples drawn from individual departments

showed increasing maintenance cost per mile up to at least

35,000 miles (56,000 km). One of the three samples

subsequently showed a falling cost per mile for all mileage

over 35,000 miles (56,000 km). Another showed declining

maintenance cost per mile from 35,000 (56,000 km) to 65,000

miles (105,000 km), but rising thereafter, while the third

showed increasing cost per mile up to 60,000 miles (97,000 km),

but decline thereafter.

What accounts for the behavior of these cost data? It was

beyond the scope of this study to make the in-depth inquiry

143
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146
necessary to fully understand the behavior of the data, but

there are several simple reasons which might account for an

apparent declining running cost as mileage increases . For one

thing, costs are accrued at different rates of price inflation.

Then, too, "lemons" are culled from a fleet over time, hence

mechanical failure rates decline. In addition, it is possible

that departments tend to reduce the level of preventive

maintenance as vehicles approach the usual replacement age or

mileage. If the vehicles are replaced shortly thereafter, the

reduced preventive maintenance might not yet be reflected in

higher breakdown and repair, and the net impact may therefore

be a reduction in maintenance and repair cost. Additional

research and more extensive data collection would be required

to provide more accurate measure of parts and labor

requirements for patrol cars as they age.

Despite possible distortions in the data, they are

nevertheless useful for testing the replacement model and also

for illustrating the large variation in costs among individual

cars. In particular, it should be noted that the graphs

display a large dispersion of data about the fitted curves,

especially at higher mileage. This variation underscores the

need to review vehicles on an individual basis when evaluating

the best time for replacement.

Substantial variation in maintenance for different cars by

make and model is indicated by Exhibit 13, which shows average

cumulative repair costs based on mileage for five different car

makes and models , all operated in the same state highway patrol

department. The average economic lives of the different makes

and models also differ.

Optimal replacement time will now be determined for a

patrol car, based on the maintenance cost data shown in table

36, for alternative levels of car utilization and rates of

depreciation. These calculations are presented in a series of

tables from 37 through 44.

First, consider the effect which changes in the rate of

depreciation have on the optimal replacement schedule. Tables

37, 38, and 39 are all based on an average annual car mileage

of 40,000 miles (64,000 km) and maintenance data for the sample

group of twenty-nine cities (partially estimated) . As shown in

table 37, with a very low and gradually declining rate of

depreciation and relatively high and increasing maintenance

147
Exhibit 13. Average Cumulative Maintenance Cost as a Function of Mile

for Patrol Cars of Different Make and Model Used in a State Iliqhway

Patrol Fleet^

5,000 15,000 25,000 35,000

MILEAGE

Cost c'.oes not include gasoline; does include tires.

NOTE: A,B,C are 1972 models; D,E are 1971 models.

148
95,001 Co

100,000 .023

63«

90,001 to 95,000

inn .026

.0

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CO oO 1 « 1 r»

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80,001 to 85,000

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.049 .040

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.051 .041 .035

03 043

50,001 to 55,000

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.064 .041 .057

.03 .041

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30,001 to35,000

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25,001 to

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.03

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20,001 to25,000 .0690 .035 .064

15,001 to

20,000

.032 .057

.027

10,001 to 15,000

.025 .029 .047

.02

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.026 .034

026 o o o o u o

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city

department*

Large

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epar

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State

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County

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Uroup

average

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149
Table 37. Optimal Patrol Car Replacement, Based on Maintenance

and Repair Cost for a Sample of 29 Cities, Assuming Average

Annual Mileage of 40,000 Miles (64,000 km) and a 6 Percent

Quarterly Depreciation Rate

Quarterly

Maintenance Estimated^

Period Cumulative & Resale Present^

(Quarters) Mileage Repair Value Value

1 10,000 $256 $2,533 $6,876

* 2 20,000 273 2,381 6,832 *

3 30,000 345 2,238 6,964

4 40,000 366 2,104 7,022

5 50,000 408 1,978 7,090

^Depreciation is computed on a middle-of-the line, intermediate-size

car, costing $2,695 in 1973. Six percent of the declining balance

is taken each time for that quarter's depreciation. This amounts

to a decline of 22 percent of the purchase price over the first year

and 17 percent of the purchase price over the second year, lower

rates than those usually experienced by patrol cars. ^PV(n) = [ C+R' (n)-S' (n) ] (terms are defined on page 89.)

1 - (1+i)'"

Denotes optimal point of replacement.

150
cost, very early replacement (after only one-half year) is

economical. However, the information gathered by this study

indicates that the rate of depreciation assumed in this table

is probably unrealistic for patrol cars.

In table 38 the rate of depreciation is assumed to be 10

percent per quarter over the life of the vehicle: this amounts

to 34 percent decline in the new car price over the first year

and 2 3 percent of the original price over the second year.

This is probably less than typical patrol car depreciation, but

is probably attainable by departments which follow good resale

practices. Under the stated conditions, optimal replacement is

at one and one-half years and 60,000 miles (97,000 km).

Very rapid depreciation is examined in table 39. It is

usually uneconomical to replace a patrol car early if it

quickly loses most of its resale value. In this circumstance,

the car should be retained in service, as long as performance

and safety criteria will permit, in order to minimize long-run

cost.

Car utilization rates also affect optimal replacement

schedules. Table 40 shows very early replacement for a car

which accumulates mileage rapidly, even though depreciation is

also assumed to be rapid. In contrast, table 41 shows that it

can be uneconomical to replace a car early if it averages low

annual mileage, even if depreciation is also low.

The Scimple data from three departments (see tables 42, 43,

and 44) indicate that their maintenance and depreciation

experience makes it uneconomical to replace cars until required

for safety, performance, or other similar criteria.

A recent study by the General Accounting Office of the

General Services Administration's (GSA) interagency motor pool

recommended a one-year replacement policy for sedans instead of

the existing six year/60,000 mile (97,000 km) policy. °^ (Five

other GAO studies over the previous sixteen years also

concluded that substantial cost reductions could be achived by

shortening the replacement period.) A comparison of the

present value cost of alternative replacement cycles showed

minimum cost for a one-year cycle and increasing cost for

cycles from two to four years in length. However, this result

appeared mainly attributable to the fact that there was

essentially no depreciation on the cars over the first year.

General Accounting Office,

Government-Owned Sedans Each

the Comptroller General, No.

9, 1971.

Potential Savings by Replacing

Year , Report to the Congress by

B-158712 , Washington, D.C., June

151
Table 38. Optimal Patrol Car Replacement, Based on Maintenance

and Repair Cost for a Sample of 29 Cities, Assuming

Annual Mileage of 40,000 (64,000 km) and a Depreciation Rate of 10 Percent Per Quarter

Quarterly

Maintenance Estimated^

sriod

I CL ^ ^ SD f Cumulative

Mil rr^ &

x\C ^CI X X Resale Present

va j-ue

1 10 000 , y A «J V 9 ^ , H ^ ^ 9 ' , 3 O J

2 20,000 273 2,182 7,780

3 30,000 345 1,964 7,789

4 40 ,000 366 1,768 7,744

5 50,000 408 1,591 7,724

* 6 60,000 430 1,432 7,695 *

7 70 ,000 473 1,289 8.182

^Depreciation is computed on a middle-of -the-line , intermediate-size

car, costing $2,695 in 1973. Ten percent of the declining balance

is taken each time for that quarter's depreciation. This amounts

to a decline in value of 34 percent of the purchase price over

the first year, and 23 percent of the purchase price over the

second year —rates which appear lower than typical police car depreciation, but obtainable by some departments.

*Optimal point of replacement.

152
Table 39. Optimal Patrol Car Replacement, Based on Maintenance

and Repair Cost for a Sample of 2 9 Cities, Assuming Average

Annual Mileage of 40,000 (64,000 km) and a Depreciation Rate of 2 0 Percent Per Quarter

Quarterly

Maintenance Estimated^

riod

.arters)

Cumulative

Mileage Repair

Resale

Value

Present

Value

1 10 ,000 $256 $2 ,156 $10,649

2 20 ,000 273 1,725 9 ,954

3 30 ,000 345 1,380 9 ,566

4 40 ,000 366 1,104 9 ,177

5 50 ,000 408 883 8,884

6 60,000 430 706 8,634

7 70,000 473 565 8,447

8 80 ,000 520 452 8,311

9 90 ,000 572 362 7,798

10

* 100,000 629 290 7 ,375

*

^Depreciation is computed on a middle-of-the-line , intermediate-size

car, costing $2,695. Twenty percent of the remaining value is taken

each time for that quarter's depreciation. This amounts to a decline of 59 percent in the original car price over the first year,

and 2 4 percent of the new car price over the second year--high

depreciation rates, but not unlike those which appear to be

experienced by many city and county police departments.

* Optimal economic point of replacement; in this case not occurring

within the time frame examined

.

153
Table 40. Optimal Patrol Car Replacement, Based on Maintenance

and Repair Cost for a Sample of 29 Cities, Assximing

Average Mileage of 80,000 (128,000 km) and a Depreciation Rate of 20 Percent Per Quarter

Period

(Quarters)

Cumulative

Quarterly

Maintenance

& Repair

Estimated

Resale

Vaj.ue

Present

Value

* 1 20,000 $529 $2,156 $13,377

2 40,000 711 1,725 13,468

3 60,000 83fl 1,380 13,510

4 80,000 993 1,104 13,622

^Depreciation rate of 20 percent of the remaining balance. See

footnote a to table 39 for a fuller explanation.

*Optimal point of replacement.

154
Table 41. Optimal Patrol Car Replacement, Based on Maintenance and Repair

Cost for a Sample of 29 Cities, Assuming Annual Mileage of 20,000

(32,000 km) and a Depreciation Rate of Six Percent Per Quarter

Period

(Quarters)

Cumulative

Mileage

Quarter Iv^

Maintenance

Repair

Estimated

Resale

Value

Present

Value

1 5,000 $128 $2,533 $5,638

2 10,000 128 2,381 5,467

3 15,000 137 2,238 5,384

4 20 ,000 137 2 ,104

5 25 ,000 173 1 ,978

6 30 ,000 173 1 , 859 5 ,212

7 35 ,000 183 1 ,747

8 40,000 183 1,642

9 45 ,000 204 2,543

10 50,000 204 1,450 5,053

11 55,000 215 1,363

12 60,000 215 1,281 4,991

1

1

\j J f\j \j \j A. f ^\JH

14 70,000 237 1,132

15 75,000 260 1,064

16

* 80,000 260 1,000 4,904

*

^The breakdown of maintenance cost was for 10,000 mile (16,000 km)

intervals; no attempt was made to estimate maintenance cost by 5,000

mile (8,000 km) intervals.

See footnote a, table 37.

Optimal point of replacement, in this case not occurring within

the time frame examined

.

155
Table 42. Optimal

Based on Sample Data for

from a Medium-Sized

Assuming Annual Mileage of

Patrol Car Replacement

Maintenance and Repair Cost

City Police Department,

30,000 and Rapid Depreciation

Year

Cumulative

Mileage

Yearly

Maintenance

Cost^

Estimated

Resale

Value"

Present

Value

1 30,000 $1,650 $1,720 $37,800

2 60,000 1,980 560 35,559

3 90,000 2,490 140 33,784

* *

Derived from table 36. Average cost per mile over the assumed

annual mileage range was multiplied by the number of miles to

obtain yearly maintenance cost (e.g., the average cost per mile

over the range 30,000 to 60,000 is $.066; 30,000 x $.066 - $1,980).

^Based on resale values for a middle-of-the-line , standard-size

car purchased for $3,500, as estimated in table 11.

* Optimal economic point of replacement, in this case not

occurring within the time frame examined.

156
Table 43. Optimal

Based on Sample Data for

from a Medium-Sized

Assuming Annual Mileage of

Patrol Car Replacement,

Maintenance and Repair Cost

City Police Department,

30,000 and Rapid Depreciation

Year

Cumulative

Mileage

Yearly

Maintenance

Cost^

Estimated

Resale

Value^

Present

Value

1 30,000 $ 885 $1,500 $28,889

2 60,000 1,200 410 26,745

3 90,000 1,080 30 23,205

* *

^Derived from table 36. For explanations, see footnote a,

table 42.

^Based on resale values for a bottom-of-the-line , standard-size

car purchased for $3,185. The estimates of resale value were

derived by the procedure described in footnote a of table 39.

*Optimal economic point of replacement, in this case not

occurring within the time frame examined.

157
Table 44. Optimal Patrol Car Replacement,

Based on Sample Maintenance and Repair Cost

from a Medium-Sized City Police Department,

Assuming Annual Mileage of 30,000 and Rapid Depreciation

Year

PiiTnnl J* ^~ 1 \Tf^ \ Ulll U X u l»X V c Mileage

Yearly

Ma intenance

Cost^

Estimated

Resale

Value^

Present

Value

1 30,000 $1,470 2,310 30,099

2 60,000 1,710 J 1,610 28,329

3 90,000 1,988 ' 1,190 27,539

* *

^Derived from table 36

.

^Based on resale values for a middle-of-the-line , standard-size

car purchased for $3,500, and depreciation 34 percent in the

first year, 20 percent of original value in the second year, and

12 percent in the third year. The relatively low rate of

depreciation reflects actual experience of the department from

which the maintenance cost data were taken

.

^Estimated. The department from which the sample data were drawn

replaces cars at approximately 60,000 miles. Hence, no costs

were available for cars operating at higher mileage. Here it is

assumed that the rate of increase in costs from the first year

to the second would continue over the third year. (The estimate

was not based on an extrapolation of the fitted curve shown

in exhibit 12, because the data were fitted by a high-order

polynomial function which allows good fit of existing data,

but is poor for the purpose of making projections.)

* Optimal economic point of replacement, not occurring within

the time frame examined.

158
GSA purchases cars at a sufficient discount to offset most

of the normal first year decline in value, and cars can be sold

after a year for close to the original price. Maintenance and

repair cost per period and per mile, on the other hand, were

found to increase progressively with time. The study finding

of a one-year optimal replacement period is, therefore,

completely consistent with the conclusions of this report. (In

table 37 it was shown that early replacement is efficient when

maintenance and repair costs per mile are rising relatively

fast and the rate of depreciation is low.) However,

depreciation of the typical patrol car does not appear to be

the same as that for GSA motor pool cars, and, therefore, the

recommended GSA policy may not be appropriate for police cars.

To summarize the foregoing, there are no hard and fast - rules for vehicle replacement. On the contrary, emphasis

should be on the sensitivity of replacement policy to specific

departmental characteristics. In particular, optimal

replacement policy will depend on the rate of depreciation, the

rate of car utilization, and the change in maintenance cost

with increased vehicle mileage and age. These factors differ

with individual cars, makes and models of cars, functional

types of vehicles, and among departments. Nevertheless, the

following generalizations can be made:

(1) The greater the depreciation at the outset, the

greater the advantage of retaining vehicles longer.

(2) The lower the rate of utilization, the greater the

advantage of retaining vehicles longer,

(3) Maintenance and repair costs must increase fairly

sharply with age and mileage for declining depreciation per

unit time to be offset.

(4) Declining performance and reduced reliability are

vital factors in determining replacement if cars depreciate

rapidly, are used at low rates, or have costs which do not

escalate significantly with increased use.

3.6 Life Cycle Costs of a Typical Patrol Car

Exhibit 14 shows the cash flow (direct expenses only) of a

"typical" patrol car purchased and operated in the 1972-73

period. The initial cash outlay is close to $5,000 including

159
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160
purchase of new equipment (which is assumed to have a 10-year

life) . In each of the two years the car is in operation, close

to $2,000 is expended for gas and oil, tires, maintenance and

repair, cleaning, towing and insurance. At the end of two

years, $60 is spent for reconditioning and $560 is returned

from resale of the car; the equipment has maintained about

$1P00 of its original value.

Table 45 restates each direct cost item in terms of uniform

annualized cost. Thus the initial expenditure for the car

($3500) and the receipts at resale ($560) two years later are

equivalent to a uniform stream of constant dollar payments of

$1750 annually. The total direct costs (including maintenance,

gas, oil, tires, insurance, etc.) amount to $3918 annually.

Adding an overhead cost equal to approximately 10% of direct

costs, results in a total annualized cost (in constant dollars)

of $4318.

The pie chart in Exhibit 15 depicts the components of

direct costs of a representative patrol car. Depreciation

normally accounts for the largest single part of total direct

cost, with maintenance, repair, tires, gas and oil combining to

account for a comparable part.

While these costs may be regarded as "typical" for the

situation described (see footnote to Exhibit 15) the study has

found that life cycle costs of patrol cars can be raised or

lowered considerably by fleet managerial decisions.

4 . SUMMARY^ 4

This report has addressed some of the issues important to

the acquisition, operation, and disposition of police patrol

cars. In Section 1, the major decisions in police fleet

management were outlined, the specific questions to be

addressed by the study were set forth, and areas for further

research were identified. Section 2 of the report explained

the life cycle costing methods which are used subsequently in

the report to compare the costs of alternatives in fleet

provision. Section 3, the main body of the report, identified

the critical elements of costs in providing a patrol car fleet,

and analyzed a number of key decision problems in police fleet

management

.

Principal findings of the study are summarized in the

Executive Summary will not be repeated here

.

161
Table 45. Annual Life Cycle Cost of a Typical

Patrol Car Operated in 1972-1973*

Type of Expense

Direct Cost:

Car Depreciation

Equipment

Depreciation

Equipment

Installation

Insurance

Gas and oil

Tires

Maintenance

and repair

10%) ] (UCR, 2 yr. , 10%) =

Cash Flow and

Conversion to

Equivalency

[$3,500 - ($560) (SPW, 2 yr

,

= $1,200 (UCR, 10 yr., 10%)

= $45 (UCR, 2 yrs. , 10%)

= $100

= $750

= $150

$[750 + (1,020) (SPW, 2 yr., 10%)] (UCR, 2 yrs.,

10%)

Reconditioning = $60 (SPW, 2 yrs., 10%) (UCR, 2 yrs., 10%)

Total Direct Cost

Estimated Indirect Cost (overhead)

Total Direct & Indirect Cost

$1,750

195

26

100

750

150

918

2£

$3,918

$ 400

$4,318

^Based on cost data from exhibit 13.

'^Overhead varies greatly among departments, both in actual terms and in terms of

reporting methods. Some departments include items in vehicle overhead which are omitted by other departments. Furthermore, since overhead costs are to some extent

fixed, it is difficult to allocate on an individual car basis. The rough assumption

here is that overhead is equal to between 10 and 20 percent of indirect cost.

(Based on estimated costs of equipment, building and administrative personnel

developed in section 3.2, overhead cost per car for a fleet of 100 cars would be

about $300.)

162
Exhibit 15. Composition of Patrol Car Costs , Direct Cost Only

Based on cost data from exhibit 14 and table 45. With the

recent large increase in fuel prices relative to other

prices, gas and oil costs would now be expected to constitute

a larger percentage of total costs.

163
Practices regarding car model selection; length of

ownership; selection of car accessories, color, and equipment;

reconditioning; timing of resale; and method of car disposal

were examined for ways to reduce vehicle depreciation costs.

Another issue examined in Section 3 was the relative

desirability of ownership as compared with leasing vehicles.

The different types of lease arrangements were described, and

both cost and non-cost advantages and disadvantages of leasing

were identified. In connection with leasing and ownership, the

study compared contract maintenance of cars in private garages

with in-house maintenance in police garages . Based on

assumptions regarding wage rates, staffing requirements, and

other factors, a breakeven fleet size was determined, at which

point the cost of contracting maintenance to private garages or

performing it in-house would be equal

.

Section 3 of the report also looked at operating and

maintenance costs for patrol cars. Empirical data for cars of

different sizes and cars used at different levels and in

different environments were presented and analyzed for

possibilities of cost reduction.

Another major question addressed in Section 3 was the

comparative economic efficiency of alternative vehicle driver

assignment plans. The types of potential costs and benefits

associated with a personal patrol car program were identified.

A general method for evaluating and comparing the costs of a

personal car program and a multi-shift, pool car program was

described. The cash flows associated with each of the two

vehicle programs are illustrated with realistic data, and the

life-cycle costs of a personal car program and a multi-shift

plsm were compared under alternative assumptions.

The fifth part of Section 3 investigated replacement of

patrol cars. Methods of determining the point of optimal car

replacement were explained and illustrated with data drawn from

police departments. Selected vehicle characteristics were

examined for their direction of impact on the economic life of

a patrol car , , The final section of Section 3 provided a brief overview of

the life-cycle costs of a typical patrol car. Each of the main

components of direct car costs were shown as a share of total

direct costs.

This study has demonstrated that there are considerable

opportunities in police fleet management to alter costs of

fleet services. It is hoped that the discussions herein will

contribute to greater economic efficiency in the acquisition,

operation, and disposition of patrol cars.

164
APPENDIX A—POLICE FLEET PRACTICES

165

APPENDIX A—POLICE FLEET PRACTICES

Through a series of tables, this appendix provides an

overview of various aspects of the management of patrol car

fleets. The tables are grouped according to subject:

1. Police Function, Fleet Size, and Fleet Composition

Table A-1 shows that nearly half of all patrol cars are in

county police departments, and nearly one-fifth are in state

police and highway patrol departments. There is considerable

variation in the average number of patrol cars by type of

department

.

Table A-2 illustrates the variability among departments

with respect to vehicular functions to be satisfied. It shows

a relatively large demand by state highway patrolmen and county

sheriffs for a long distance, high performance car, and

priority by city police to an urban, general purpose car and

one suitable for patrolling narrow and congested city streets.

Table A-3 depicts fleet composition for a small sample of

departments. The patrol car is the overwhelmingly dominant

type of vehicle. The special emphasis of this report on the

patrol car seems well placed.

2. Patrol Car Selection, Accessorization , and Price

Tables A-4 and A-5 show the principal choice of patrol car,

by type, to be the standard size, 4-door car (wheel-base 119-

123")

.

Tables A-6 and A-7 indicate the frequency with which the

different types of departments select available options, and

table A-8 shows the frequency of various modifications.

Table A-9 indicates the types of tires used on a sample of

patrol vehicles in 1970. At that time, most departments in the

survey equipped their vehicles with bias-belted or 4 -ply bias

ply tires. Radial ply tires, while not in great use, were the

next most popular type

.

Tables A-10 through A-12 provide price infonnation

.

According to table A-10 , most departments surveyed paid between

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Table A-10. Distribution of Purchase Prices for New

Patrol Cars in 1973, by Department Type

Percentage of departments purchasing in each price range

Department type $4,000 or more $3,000-3,999 Under $3,000 No Answer

Township 24 62 13 0

County 23 55 13 8 City (1-9 officers) 19 69 12 0

City (10-49 officers) 16 73 10 2 State 9 91 0 0

City (50 or more

officers) 5 83 12 2

50 largest cities 4 74 22 0

All dept. types 14 72 12 2

Source: Bunten/Klaus survey, p. 47.

177
$3,000 and $4,000 for patrol cars in 1973; the remaining

departments were about evenly divided in paying higher and

lower prices.

Table A-11 shows more detailed price information for most

State police and highway patrol departments and for a few.

counties and cities. The apparently substantial variation in

bid price on like make and model cars may reflect differences

in accessories, dealer services, time and location of purchase,

as well as dealer profit.

Table A-12 lists price estimates for differently equipped

police cars based on 1971 averages. The low end of the price

range applies to police cars with commonly specified features,

such as heavy duty components, automatic transmission, and air

conditioning. The high end of the range represents the same

car with added special equipment, such as armor protection,

other non-standard devices , and special equipment usually

installed after receipt by the department.

3. Vehicle Utilization

Table A-13 shows the average number of different drivers

per patrol car in the different types of departments. On the

average, 66 percent of state police departments have only one

driver per patrol car per day. This is in sharp contrast to

the practice of more than 90 percent of medium and large cities

of having 3 or more different drivers per car each day. Across

all department types, the prevailing practice is to have an

average of at least 3 different drivers daily for each patrol

car

.

Table A-14 indicates the amount of daily usage of patrol

cars by department type. Consistent with their smaller

car/officer ratio and multiple drivers per car, cities —and,

again, particularly large cities —report high average daily use

of patrol cars. In contrast, more than one-fourth of state and

county departments use their cars only one shift per day; most

of the remaining state and county departments use their cars no

more than two shifts per day.

Table A-15 shows typical average annual miles driven by a Scimple of patrol cars, as well as the range of miles driven by

sample departments of each type. Average mileage of sample

county patrol cars is substantially higher than average mileage

178
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179
Table A-12. Estimates of Car Prices by

Police Departments, 1971

With With

standard optional

features^ features^

Highway patrol and $3,500 $5,000

sheriff car

Suburban police car 3,200 4,500

Inner city and urban

freeway car 3,000 3,500

Urban general purpose

car 3,000 4,000

"Standard Features" include the heavy duty components

of the police package, automatic transmission, air

conditioning and other features usually included on

police cars; "optional features" refers to such add-ons

as armor protection, vandalism and external fire

protection devices, special pusher bumper, rear seat

isolation and restraining kits, built-in speed measurement

device, 4-wheel drive, front mounted winch, self-reeling

starter jumper, lights, flashers, sirens, bullhorns, etc.

Source: Ford Motor Co., Police Car Survey, pp. 16-19.

180
Table A-13. Number of Drivers Per Patrol Car

in State, County, and City Departments

Percentage of departments having an average of

1, 2, 3 or more different drivers each day

Department Type One Two Three More than

State 66 28 4 2 County 51 25 18 7 City (1-9 officers) 12 20 45 23

Township 10 17 55 14

50 largest cities 4 2 52 41

City (50 or more

officers) 1 10 64 27

City (10-49 officers) 0 4 61 34

All department types 19 14 45 22

Source: Bunten/Klaus Survey, p. B-7.

181
Table A-14. Average Daily Patrol Car Use By

Department Type

' Average daily hours of patrol car use Department Type (by percentage of departments)

17-24 hours 9-16 hours 4-8 hours Under 4

50 largest cities 80 20 -ii^ 0 0 City (50 or more

officers) 80 19 0 0 City (10-49 officers) 79 18 3 0

City (1-9 officers) 62 30 2 5 Township 52 34 14 0 County 17 47 20 7

State 6 68 26 0

All department types 57 32 9 2

Source: Bunten/Klaus Survey, p. B-7.

182
Table A-15. Patrol Car Mileage, by Department Type

Department Type

Cities^

Counties^

States*^

Annual miles per patrol vehicle

Mean Range

34,000 17,000 - 48,000

53,000 40,000 - 70,000

35,000 10,000 - 55,000

Based on interview and published data from 10 cities

2 small, 3 medium, and 5 large in size. Means for each size

group were 36,000, 32,000, and 35,000, respectively,

b

Based on interview data from three counties in northeastern

states

.

cBased on interviews and published data from lACP

,

Comparative Data Report, p. 49.

183
of sample city or state patrol cars, which are about equal to

one another

.

Table A-16 shows average driving speeds by department type

and provides further information on driving conditions for

patrol cars. Between 80 and 90 percent of driving by officers

in city departments is at slow speeds, with many stops. In

contrast, 86 percent of driving by state patrolmen involves

little stopping, and 64 percent is at speeds of 50 mph or

greater.

4 . Maintenance and Repair

Table A-17 indicates maintenance work reported by a sample

of police departments. As may be seen, the percentage of

departments performing maintenance work decreases for the more

specialized or equipment-intensive kinds of jobs. Almost all

sample departments lubricate, change oil, add anti-freeze, and

tune engines; many repair tires, replace fan belts and hoses,

shocks and mufflers, clean parts, maintain the electrical

system and repair the fuel pump and carburetor; but relatively

few do body repair or paint jobs. Nearly 20 percent of the

sample group do not dispense fuel and oil.

5. Patrol Car Replacement Practices

Table A-18 indicates that almost all state police and

highway patrol departments use mileage as the main criterion

for replacement. It shows that most state patrol departments

do not replace their cars until they have accumulated at least

50,000 miles. The highest reported mileage limit was 100,000

miles. Of the 13 cities shown, most replace between 60,000 and

65,000 miles and/or 2 or 3 years.

184
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Table A-17. Performance of Police Departments

Performing Maintenance Function,

By Specific Type of Maintenance Performed

Percent of police

departments performing

maintenance functions

Maintenance (35 departments

function , reporting)

Lubrication 91

Engine tune-up 89

Electric maintenance 83

Brake relining 69

Tire repair 80

Engine major overhaul 66

Fuel pump and carburetor 80

Wheel balancing 51

Fuel and oil dispensing 83

Body repair 31

car wasnxng J / Car painting 34

Fan belts and hose 86

Shock replacement 83

Muffler replacement 83

Parts cleaning 86

Oil filter change 89

Radiator winterizing 91

Source: "AF's Car Fleet Market Study," Automotive Fleet,

June 1970, pp. 24,25.

187
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189

APPENDIX B—SAMPLE LEASING AND MAINTENANCE AGREEMENTS

I

I

I 191

APPENDIX B —SAMPLE LEASING AND

MAINTENANCE AGREEMENTS

B-1

Sample Maintenance-Lease Contract

(For Vehicle Lease With Service Provided)

THIS AGREEMENT, made this day of

by and between , referred to

as "The Leasing Co." and the CITY OF

referred to as "the City";

In consideration of the mutual covenants herein stated,

the parties agree as follows:

1. Term. The term of this agreement shall be one (1)

year from and after the date hereof, and shall renew itself

for additional annual terms of one (1) year each unless either

party cancels in writing at least thirty (30) days prior to

the end of the original term or renewal thereof

.

2 . Motor Vehicles Covered . During the term of this

agreement, the Leasing Company will perform the maintenance

hereinafter set forth, and will perform all of the other

covenants herein, on the terms and conditions specified, with

respect to motor vehicles owned by the City, and purchased from

The Leasing Company which has the specifications set

forth in Schedule "A", attached hereto and made a part hereof.

Any such vehicles to be covered by the terms of this agreement

shall be set forth in a memorandum, dated and signed by the

parties, which thereafter shall be an addendum to this agreement.

3. Applicability of Agreement to Other Vehicles . The Leasing

will provide the maintenance hereinafter set forth and perform

all of the other covenants herein, with respect to other motor

vehicles owned by the City, on the same terms and conditions,

except that the per mile maintenance charge and the minimum

65

These documents are included merely to illustrate the kinds of

leasing and maintenance agreements which police departments

might enter into, and are in no way recommended for adoption

by police departments in general.

193
mileage shall be as mutually agreed upon by the parties for

any such vehicles. Any such vehicles to be covered by the

terms of this agreement shall be set forth in a memorandum,

dated and signed by the parties, which shall specify the term,

per mile maintenance charge and minimum mileage, and which

thereafter shall be an addendum to this agreement.

4 . Maintenance Charges . For each motor vehicle covered

by this agreement, the City will pay to the Leasing Company, a

maintenance charge of per mile for each mile said motor

vehicle is driven, or such other per mile maintenance charge as

may be specified in any addendum to this agreement; provided,

however, that in any event, the > 6.ty will pay to the

Leasing Co., maintenance charges at the specified rate for a minimum

of miles per year, for the entire fleet of motor vehicles

covered hereunder. The maintenance charges aforesaid shall be

payable by the City in monthly installments, based upon the

specified rate per mile, for each mile said motor vehicle is

driven during the month. The City shall report in writing

to the Leasing Company the number of miles driven by each

vehicle each month, on or before the 10th day of the succeeding

month, and shall at the same time make payment to the

Leasing Company at the rate specified.

a. The City agrees to return said motor vehicles to the

Leasing Co. or to such place as the Leasing Co. shall designate after

each 4,000 miles said motor vehicle has been driven, but in

any event at least once in every sixty (60) days, and to leave

said motor vehicle at such times for such reasonable periods

which may be required to permit the Leasing Co. or its agents

or subcontractors to properly service and maintain said motor

vehicle in good working condition.

b. During the term of this agreement, the Leasing Company

will furnish to the City, from 8:00 a.m. to 5:30 p.m., Monday

through Friday, at its place of business or at a service headquarters located convenient to the storage place of said

vehicles in the City, all the necessary oils, lubricants, tires,

parts , and labor necessary to maintain said units in good operating condition and repair for the term of this agreement and

to wash the exterior and clean the interior of each unit once

each week. The Leasing Co. further agrees to call or cause

to be called for any said unit which may be disabled and to

furnish of cause to be furnished wrecker service if necessary

in connection therewith. Such maintenance services shall be

194
furnished or caused to be furnished at the following times:

General Maintenance. . . .Every 6,000 miles or sixty (60 days)

Operating Repairs As required

Repair Parts As required

Tire Maintenance As required

Tire Repair As required

Lubrication Every 4 ,000 miles or sixty (60) days

Oil Change Every 2 ,000 miles or sixty (60) days

Anti-Freeze Permanent Type

Washing As needed

Oil Premium brand or per factory specifications; as required

Snow Tires for Winter, or Acceptable Alternate

c. The Leasing Co. further agrees that it will provide or

cause to be provided to the City priority in the maintenance

,

repair or replacement of parts and equipment.

d. The Leasing Co. further agrees to furnish or cause

to be furnished emergency maintenance for tire repair or replacement and breakdown repairs or parts on a twenty-four (2 4) hour

basis daily seven (7) days a week, whether furnished by the

Leasing Co. or by such persons or firms satisfactory to

the City who shall subcontract.

e. The Leasing Co. shall not be obligated to repair,

nor be liable for, any damage to said vehicles caused by

accident, or other casualty, including vandalism, riot, civil

disorder, insurrection, fire theft or windstorm, nor for any

repairs or service made necessary by failure of the City or the

City's drivers, agents or employees to use ordinary care and

diligence in the maintenance or operation of the motor vehicles

or to follow written instructions furnished by the vehicle

manufacturer

.

f. The City shall furnish all gasoline necessary for the

operation of each motor vehicle according to the manufacturer's

specifications and shall furnish any and all other maintenance

or service desired which is not specifically the obligation of

the Leasing Co. hereunder.

5. Performance Bond . The Leasing Co. shall furnish a

surety performance bond in the amount of TEN THOUSAND ($10,000.00)

DOLLARS, conditioned that the Leasing Co. or its subcontractors

shall perform the obligations assumed by the Leasing Co. under

this contract with regard to maintenance.

195
6 . Use of Vehicles . This agreement contemplates that

the motor vehicles hereunder are to be used for municipal

police department service only, and the City may not put the

unit to a different use substantially affecting the amount of

service required by the Leasing Co. in carrying out this

agreement, without first obtaining the written consent of

the Leasing Co. thereto, and renegotiating a mutually satisfactory maintenance rate per mile.

7. Purchase of Vehicles . The Leasing Co. agrees that

at the end of three HI years after the date of each memorandum

attached hereto with respect to a motor vehicle covered hereunder,

or after said vehicle has been driven 60,000 miles, whichever

occurs first, the Leasing Co. will, if so notified by the City,

purchase said vehicle from the City at the original dealer invoice

cost of said vehicle. In the event the City elects to have

the Leasing Co. purchase any of said vehicles hereunder, it

shall so notify the Leasing Co. in writing within thirty

(30) days after the expiration of said three (3) year term,

and the purchase shall be consummated as soon thereafter as is

practicable. In such event, the City shall deliver each of said

vehicles to the Leasing Co. free from all liens and encumbrances,

and in good condition and repair, reasonable wear and tear expected.

8 . Destruction or Loss of Vehicle . In the event any motor

vehicle hereunder is lost or stolen, or damaged beyond repair,

then all obligation of Leasing to repurchase said

vehicle under the provisions of paragraph 7 hereof, shall cease

and terminate; provided, however, that Leasing will,

in the case of damage beyond repair, repurchase said vehicle for

its salvage value.

9 . Emer<^ency Conditions . It is agreed that delay or

failure by either of the parties hereto in the performance

of any of their respective obligations in accordance with the

terms of this agreement because of circumstances beyond the

control of such parties shall not be construed as a breach of

this agreement. Included in such circiimstances , but not by

way of limitation, are : war, riot, fire, acts of God, and

inability to procure materials from any source. However, in

the event of a strike or lockout involving the Leasing Co.,

it shall be obligated to make other arrangements at its expense

so as to uninterruptedly continue the service required of it

under this agreement.

196
IN WITNESS WHEREOF , the parties have hereunto caused their

names to be signed and their seals to be affixed, the day and

year first written above.

IN THE PRESENCE OF: LEASING COMPANY

BY

Its

197

B-2

Sample Maintenance Arrangement with Private Vendors

,

for Provision of Services Only

Attention is called to the following features of the terms

of bid aimed specifically at cost control: (1) Labor charges

are not to exceed the schedule suggested in the Flat Rate and

Parts Manual or the manufacturer's recommended flat rate

schedule. (2) Maximum permissible charges are stated for

specific jobs, and no bids in excess of these maximum rates are

to be accepted by the department. (3) The department reserves

the right to cancel any contract, and to allocate work among

vendors as it desires. The price and time limitations are

aimed at avoiding possible price collusion among private

vendors; and retention of the freedom to allocate work among

vendors provides the flexibility needed to promote competition

and to obtain economical maintenance service on a continuing

basis. Other provisions regarding the priority of service,

etc., are included to make the contract service effective.

SAMPLE

You are invited to submit, hereon, your quotation for

providing vehicle service and/or repair as required by the

County Government. Vehicles serviced or repaired under the

terms of this bid shall include, but not necessarily be limited

to, administrative sedans, police automobiles, and light

trucks.

PRICES AND PROPOSALS : Prices quoted shall apply to any and all

vehicles to be serviced under the terms of this bid. Note:

Prices and rates are to be entered in two (2) places on

attached forms . The Quotation Sheet and Summary Sheet

provided

.

The time (labor) charged for any and all service or repair

rendered under the terms of this bid shall in no way exceed the

suggested schedule as outlined in the current edition of

"Motors" Flat Rate and Parts Manual, or the manufacturer's flat

rate schedule. Note: Bid Award will be made to the lowest

responsive bidder. However, bids in excess of the maximum

pemissable rates noted herein, will not be considered.

199
AWARD OF BID : This bid will be awarded to the vendor or

vendors quoting the lowest prices and meeting the needs and

requirements of the County, by District. The County reserves

the right to reject any or all bids, or any portion thereof, if

such action is deemed to be in the best interest of the County.

Further, the County reserves the right to extend or alter

District lines as may be required to obtain the most complete

and economical coverage.

PRIORITY SERVICE . County vehicles shall receive priority

repairs and service with Police and Fire vehicles (marked and

un-marked) being given first priority. Failure to comply with

the above stated condition shall constitute grounds for the

rejection of your bid or immediate termination of subsequent

contracts

.

TERM OF CONTRACT: Prices, discounts and labor rates quoted

herein shall remain firm for a period of fifteen (15) months.

Subsequent contracts may be cancelled, by the Vendor, by

giving a thirty (30) day written notice of their intention to

do so. The County reserves the right to cancel the contract at

any time and without notice if such action will best serve the

interest of the County.

ORDERS ; Blanket Purchase Orders will be issued to suppliers,

and service will be drawn on a priority basis, i.e., the prices

and rates quoted and location of the vendor's facility, in

relationship to the vehicle requiring maintenance or service,

will be the prime criteria for the selection of the vendor.

The County reserves the right to purchase any, all, or none

of its maintenance requirements from vendors awarded contracts

as a result of the bid.

The County further reserves the right to segregate, bid and

purchase separately, any item or service, when the interest of

the County may best be served by such action.

The County further reserves the right to add additional

vendors if because of distance, price or availability the

County finds it more expedient or economical to do so.

200
GUARANTEE : The bidder, if executing a contract embodying the

terms and conditions of this bid request, warrants that the

products supplied to the County shall remain fully in accord

with the original equipment manufacturers specifications and to

be of the highest quality. In the event the products and

service furnished to the County are found to be defective or do

not conform to the specifications, the County reserves the

right to make the necessary change, correction or repair and to

return the defective part(s) to the supplier at the supplier's

expense. The cost of such change, correction or repair shall

be considered liquidated damage and shall be charged to the

vendor found to be at fault.

201

Sample Questionnaire for Screening Applicant Vendors

1. Normal Operating Hours - Weekdays

2 . Normal Operating Hours - Saturdays

3. Normal Operating Hours - Sundays

4. Normal Operating Hours - Holidays

5 . Can you provide emergency road

service?

6. Can you provide 2

4 -hour emergency

road service?

7 . Number of employees on your regular

payroll

.

8. Number of qualified mechanics on

your regular payroll

9. Are you an Authorized State

Inspection Station?

10. Do you specialize in any one area,

i.e., electrical, front end,

transmission, etc.?

11. If the answer to Item #10 is Yes - please list the specialty

areas below:

Note: On the enclosed road district map, please mark your

approximate location and return with your bid.
List below diagnostic and/or special equipment in your

facility

:

List below major fleet-type accounts you are currently

serving

:

204
Firm Name

Address

Person to Contact Phone No

.

Payment Terms (Net-30 unless otherwise stated) ******

1. TUNE UP - $

2. CARBURETOR OVERHAUL - A. $ E. $

B. $ F. $"

C. $ G. $"

D. $ H.

3. BRAKE ADJ. MINOR $

4. BRAKE ADJ. MAJOR $

5. COMBINATION BRAKE ADJUSTMENT, MAJOR $

6. AIR CONDITION SERVICE $

6a. FREON $ /Ih.

7. RESEAL TRANSMISSION - A. $ B. $_

8. ADJUST TRANSMISSION - A. $ B. $_

C. $ - D. $_

E. $ F. $_

G. $ H. $

9. TRANSMISSION OVERHAUL. Discount on Major Components:

%. 100% Guarantee for a period of months

A. $ Al. $

B. $ Bl. $

C. $ CI. $

D. $ Dl. $

E. $ El. $

F. $ Fl. $

G. $ Gl. $

H. $ HI. $

205
10. FRONT END ALIGN $

11. SPIN BALANCE $ per wheel

12. MOUNT TUBELESS TIRE $

13. MOUNT TUBED TIRE $

14. VALVE STEM $

15. REPAIR TUBELESS TIRE $

16. REPAIR TUBED TIRE $

17. INSTALL SKID CHAINS $

18. R & R WHEEL $

19. ENGINE OIL $ qt. - -~

20. TRANSMISSION OIL $ ^qt.

'

21. CHANGE OIL (LABOR) $

21A. CHANGE COUNTY-FURNISHED OIL $

22. LUBRICATE $

23. INSTALL & CHARGE NEW BATTERY $

24. CHARGE BATTERY $

25. SERVICE & INSPECTION $

26. ELECTRICAL - A. $ D. $ G. $

B. $ E. $ H. $

C. $ F. $ I. $

27. LABOR RATE $

28. OPTIONAL LABOR RATE $ per hour

29. PARTS DISCOUNT %

^

29A. WHAT PRICE LIST?

30. TOW TO YOUR FACILITY $

31. TOW TO OTHER FACILITY - 5 miles $

32. TOW TO OTHER FACILITY - 10 miles $

33. TOW TO OTHER FACILITY - 15 miles $

206
All discounts other than prompt payment shall be included

in bid price. Prompt payment discounts of less than

twenty (20) days will not be considered in determining

low bid.

Unless otherwise stated above, payment terms shall be

Net/30 days.

Invoices clearly indicating the work performed, parts

used, vehicle number, license number, mileage, and name

of the individual (and badge number when applicable) shall

be prepared for each job. A monthly statement, with a copy

of all invoices, shall be submitted to the using department

or agency

.

NOTE: Illegible invoices will be returned and no payment

be made until such time that a readable copy is submitted.

Firm Name & Address:

Handwritten signature by authorized officer of firm or

agent

:

PRINTED OR TYPEWRITTEN NAME:

Phone No. : NOTE - COMPLETE QUOTATION SUMMARY SHEET
. -I

.
APPENDIX C —REFERENCES

209

APPENDIX C —REFERENCES

I. REFERENCES CITED IN THE REPORT

1 . Books

Botzow, Herman S., Auto Fleet Management ^ New York; John Wiley

& Son, 1968.

Committee on Standardization of Engineering Economy Notation.

Manual of Standard Notation for Engineering Economy

Parameters and Interest Factors . Engineering Economy

Division, American Society for Engineering Education.

Dodge Building Cost Calculator and Valuation Guide . 10th Ed.

New York City: McGraw Hill, April-June, 1973, 2-41 and 2-

42.

National Automobile Dealers Used Car Guide Co. NADA Official

Used Car Guide. Eastern Editions, 1970-1973.

National Used Car Market Report, Inc. Blue Book.

Phelps, Clyde W. The Role of Fleet Leasing in Motor Vehicle

Fleet Plans of Business Firms. Studies in Commercial

Financing, No. T", Baltimore , Maryland: Commercial Credit

Co. , 1969 , 1-20.

Wynne, Ray. Police Transportation Management . Studio City,

California: Coda Publications

.

2 . Reports and Papers

Automotive Market Report

Britten, A. A. Decision Making in Vehicle Management . Report

No. S. 15, Local Government Operational Research Unit

(LGORU) , Royal Institute of Police Administration.

Reading, England, 1971, 10.

Bunten, Elaine and Klaus, P. A. LEAA Police Equipment Survey

of 1972 , Volume VII ; Patrolcars . National Bureau of

Standards Interagency Report 73-216, July 1973.

211
Chaiken , Jan M. and Larson, Richard C. Methods for Allocating

Urban Emergency Units . NTIS Report No. PB-20854T; New

York City: The Rand Institute, May, 1971.

Fisk, Donald M. The Indianapolis Police Fleet Plan . Washington, D.C.: The Urban Institute , October 1970, 43-

50.

Flowers, Officer Earl and Griswald, Officer James. Take Home

Car Program. A Paper Presented to the Northern Virginia

Police Academy, April 10, 1972, 5.

Ford Motor Company. Police Car Survey Summary , (undated)

.

General Accounting Office. Potential Savings by Replacing

Government-Owned Sedans Each Year. Report to the Congress

by the Comptroller General of the U.S., No. B-158712.

Washington, D. C, June 9, 1971.

Government Research Institute. The Car Saturation Program of

the Cahokia , Illinois Police Department . An Evaluation

Report Prepared for the Illinois Law Enforcement

Commission. St. Louis, Missouri, May, 1972.

International Association of Chiefs of Police, Comparative Data

Report . 1972, 49-51.

Local Government Operational Research Unit, Royal Institute of

Public Administration, Vehicle Replacement Charts ; Operating Manual . Report No. C . 81 . Reading England,

January, 1971

.

Ludwig, Herbert G. Study of the Police Patrol Vehicle . Report

to LEAA. Detroit: Wayne State University, 1971, 161-168.

Massey, Robert. Terms and Definitions for Police Patrol Cars . LESP-RPT-0401 .00, May 1974.

NAFA Law Enforcement Group. Police and Highway Patrol Vehicle

Specifications Survey . National Association of Fleet

Administrators , Inc. New York.

Rowley, John A. "Fleet Car Selection." Paper Presented at the

National Association of Fleet Administrators Conference.

March 25, 1973, 15, 11, 24, 28, 19.

212
Ruegg, Rosalie T. Life Cycle Costing of Police Patrol Cars ; Summary Report . National Bureau oF~Standards Interagency

Report No. 74-471. NTIS No. COM-74-10981 . Washington,

D.C. , March, 1974

.

San Felice, Cpl. Giacemo. The Personal Patrol Car Program ; An

Evaluation Report. Prince George ' s County Maryland Police

Department, February, 1973, 39-42.

U.S. Department of Transportation. "Cost of Operating an

Automobile." Washington, D.C.: Government Printing

Office, April, 1972.

Wilson, Don H. The Take -Home Car Program of the Arlington

County Virginia Police Department . A Research Paper

Presented for a University Course, 4-6.

3 . Journal Articles

"AF's Car Fleet Market Study." Automotive Fleet, June, 19 70.

Armstrong, Wayne K. Chief of Police, Rapid City, South Dakota.

"Should Your Department Lease It's Police Cars?" FBI Law

Enforcement Bulletin , November, 1974, 11-12.

Belmonte, Robert M. "Another Look at Large-Scale

Intergovernmental Cooperative Purchasing." Journal of

Purchasing , (February, 1972) , 34-49.

"Dealing with the Dealer. " Consumer Reports , " April, 19 73,

232.

"Growing Lure of Fleet Leasing." Business Management , (December, 1969), 40-44.

Trager , Al. "Going, Going, Gone!" Commercial Car Journal , June, 1972, pp. 114-116.

"U.S. Cars in Fleets by Type of Business," Automotive Fleet . March, 1973, 30.

213
4 . Interviews, Correspondence, and Conferences

Albert, Hugh J. Leasing Manager, Hill and Sanders Ford

Dealership, Wheaton, Maryland. Interview, March, 1973.

Carter, David J. Chief, Equipment Division, Department of

Property Management. Arlington County, Virginia.

Interview, June, 1973.

Cook, Bill. Interstate Equipment Company. Interview, June,

1973.

Copser , Dave. Midwest Auto Sales, Inc. Dayton, Ohio.

Interview, March 20, 1973.

Corporal Italiano. Vehicle Maintenance Division, Prince

George's County Maryland Police Department, Upper Marlboro,

Maryland. Interview, April, 1973.

Cox, C. J. Chief, Motor Pool Division, Jacksonville Florida

Police Department. Jacksonville, Florida. Correspondence,

May 18, 1973.

Edmonds, R. W. General Sales Manager, Indiana Auto Auction,

Inc., Fort Wayne, Indiana. Correspondence, April 16, 1973.

Grant, Jim. Arizona Department of Public Safety, Phoenix,

Arizona. Interview, May, 1973.

Hempel, Lt. Bay City Police Department. Bay City, Michigan.

Interview, March, 1973.

Jones, James C. Equipment Analyst, Transportation Division,

City of Pasadena, California. Correspondence, April 19,

1973.

Kogachi , Capt. Finance Department, Honolulu, Hawaii Police

Department. Honolulu, Hawaii. Telephone Interview, June

1973.

Nathenson. Manager, Lease Plans Development Corporation,

Washington, D.C. Interview, March 197 3.

National Association of Fleet Administrators, Inc. Annual

Conference. Detroit, Michigan, March 25-28, 1973. (Many

NAFA members, including police and other fleet

administrators in addition to those listed separately, were

interviewed during the course of the Conference.)

214
Pepper, Capt. Vaughn G. Chief, Motor Vehicle Section, Maryland

State Police. Interview, April, 1973.

Reaser, Bill. Arizona Department of Public Safety, Phoenix,

Arizona. Interview, May, 1973.

Rowland, Max. Procurement Officer, City of Philadelphia.

Interview, 1973.

Rutherford, Bob. Manager, Fleet Information System.

California State Highway Patrol, 2812 Meadowview Road,

Sacramento, California 95832. Interview, June 1973.

Spector , Andy. Leasing Manager, Chevrolet Dealer Leasing,

Arlington, Virginia. Interview, March, 1973.

Wynne, Ray. Police Fleet Administrator, City of Los Angeles

Police Department. Los Angeles, California. Interview,

May, 1973.

II. RELATED REFERENCES, LISTED BY TOPIC

1. General —Fleet Management ; Vehicles ; Police Operations ; Other

American Public Works Association. Motor Vehicle Fleet

Management ; Guidelines for Improvement of Equipment

Acquisition , Maintenance , and Utilization Programs.

Special Report No. 37, Chicago, Illinois, 1970.

Automobile Facts and Figures . Detroit, Michigan: Automobile

Manufacturers Association

.

Automotive World. Annual Buyer's Guide Issue.

Dartnell Company. Current Business Car Allowances , Controls , and Fleet Management Practices . Chicago : Dartnell

Business Publications , 1971.

"Fleet Management Policies and Procedures . " Automotive Fleet , August, 1967, pp. 22-25.

215
Larson, Richard C. Urban Police Patrol Analysis » Cambridge,

Massachusetts: The MIT Press, 1972.

Matthews, L. M. "Fleet Management: How to be a Pro at it."

Industrial Distribution , 62 (February, 1972)

.

Olson, Bruce. Police Expenditures . Consultant Paper for the

President's Commission on Law Enforcement and

Administration of Justice. Washington, D.C.:

Superintendent of Documents, 1967.

Saunders, Charles B. J., Upgrading the American Police . Washington, D.C.: The Brookings Institution") 1970 .

2 . Vehicle Acquisition: Purchasing; Lease-Buy

American Management Association. Guides to More Effective

Purchasing . Report No. 68.

American Management Association. Taking Stock of Leasing: A

Practical Appraisal . "

Automobile Invoice Service Co. AIS New Car Cost Guide . Chicago, Illinois.

Flaps, Carl J. "Evaluation of Automobile Leasing." Financia l

Executive , (September, 1963).

Furr, Richard P.; Dwyer , William O.; and Fletcher, John L.

"Patrol Car Selection: A System-Analysis Approach."

Police, (June, 1972), 55-67.

"Growing Automotive Leasing Business." Business Management , (December 1970), 36-9.

Lee, Samuel, J. Fleet and Lease Manager '

s

Handbook.

Oceanside, California : Coda Publications , 19 68.

Lee, Samuel, J. Introduction to Leasing.

McCarthy, D. V. "Financing Equipment Acquisitions."

Automation

,

17 (September, 1970), 60-63.

216
Metz, Donald H. Leasing Standards and Procedures . Kaukauna,

Wisconsin: Thomas Publications , Ltd . , 1968

.

Thurlin, W. B. "Own or Lease? Underlying Financial Theory."

Financial Executive , (April, 1964)

.

Vieth, M. C. Advantages and Disadvantages of Auto Fleet

Leasing . Chicago, Illinois. Foundation for Management

Research , Inc., 1964.

3 . Maintenance

Anderson, Henry R. and Schwartz, Reckard. "The Capital

Facility Decision." Management Accounting , (February,

1971) , 28-32

.

Allocation of Spares and Repair Resources to a Multi -Component

System . NTIS No. AD 717 710, 71-06, ISE.

"A Shop Built for Maintenance Efficiency." Fleet Owner , (January, 1969), 68-72.

Booz-Allen Applied Research, Inc. Maintainability and

Repairability of Vehicles - in -Use . Volume I and II.

Bethesda, m. fT^TT,

Cozzolino, J. M. "Maintenance Cost Controls." Management

Accounting, 52 (February, 1971), 40-43.

Dowst, S. "Short Cuts to Maintenance Buying." Purchasing , 6 8

(April, 1970) , 67-72.

"Emergency Services for Fleets," Fleet Owner , 65 (September,

1970) , 152-153.

"How to Know More About Your Fleet Maintenance Cost." National

Petroleum News , 62 (August, 1970), 84-85.

"How to Save Money on Car Cost." Supervisory Management , 15

(September 1970), 20-22.

Trent, B. M. , ed. Motor Maintenance Data Book and Flat-Rate

Manual; An Encyclopedia for the~Automotive Industry of

Maintenance Procedure , Mechanical SpecifTc"ations , Parts

Data , Shop EquipmentT Flat Rates , and Other Maintenance

Information . Cnicag'o : I rving-Cloud Publishing Co.

217
Investigating Repair and Maintenance with Respect to Cost

Effectiveness and Quality . NTIS No. N71-14677 , 71-08, 14A.

Is Preventive Maintenance Worthwhile ? NTIS No. PB-198 360, 71-

11, 5a.

McCall, John J. "Maintenance Policies for Stochastically

Failing Equipment: A Survey." Management Science , 11

(March, 1965) , 493-524

.

McFarland, R. P., "Cost Accounting and Budgeting for

Maintenance." Foundry , 98 (November 1970), 92.

Maintenance (Vehicle Test Methods). NTIS No. AD-732 337, 71-

24, i5F.

"Saving Money on Maintenance." Supervisory Management , 14

(September, 1969), 10-12.

Simultaneous Optimization of Preventive Maintenance and

Replace"ment Policy for Machines . A Modern Control Theory

Approach"^ ^NTIS No. AD-723 099 , 71-12 , 15E.

Sullivan, Ray A. , ed. Service Department Management . National

Automobile Dealers Association , 1966

.

The Effect of Maintenance and Reliability on the Operational

Effectiveness of an Interceptor Squadron . NTIS No. AD 726

039, 71-16, IC.

4 . Vehicle Replacement Policy

An Economic Replacement Policy . NTIS AD-723, 187, 71-13, 15 E.

Brennen , J. F. "Optimum Life of Fleet Automobiles." The

Journal of Industrial Engineering , XV (November-December

1964) , 25T-2WT

Economic Analysis in Equipment Replacement Problems . NTIS AD7227 849, 71-12, 15 E.

218
"Formula for Lift Truck Replacement." Fleet Owner, 67 (July

1972) , 101-104 . Hackamack, Lawrence C, Making Equipment-Replacement Decisions . American Management Association , 1969

.

Hastings, N. A. J. "Repair Limit Replacement Method."

Operations Research Quarterly , 20 (September 1969) 337-349.

Jorgeson, Dale Weldeau, McCall, J. J. and Radner , R. Optimal

Replacement Policy . Chicago: Rand McNally, 1967.

Kalman, P. J., "Stochastic Constrained Optimal Replacement

Model: The Case of Ship Replacement." Operations

Research, 20 (March 1972), 327-334.

Kamien, M. I. and Schwartz. "Optimal Maintenance and Sale Age

for a Machine Subject to Failure." Management Science, 17

(April 1971), B495-B504.

Ku, Richard and Saunders, Patsy B. Sequencing the Purchase and

Retirement of Fire Engines. NBS Report 10498. December

imr,

Logan, G. H., "Quantitative Guides to Retain-or-Replace

Decisions. Public Works , 102 (March, 1971).

Local Government Operational Research Unit, Royal Institute of

Public Administration. Principles of Vehicle Replacement . Report No. T. 26, Reading, England, March 19 71.

Research Analysis Corporation. Aging and Lifetime of M151 1/4 - Ton Truck. Technical Memorandum RAC-T -4 7 9 , McLean,

Virginia : Research Analysis Corporation, July, 1966 . Schrader , C. R. "Optimal Replacement Life of Large Scrapers."

"Proceedings of the American Society of Civil Engineers, 97

(March 1971) ,"I7^.

Shore, Barry. The Equipment Replacement Aspects of Capital

Budgeting ; A Bibliography" Madison , Wisconsin : University

of Wisconsin, Bureau of Business Research and Service,

Wisconsin Project Reports, Vol. Ill, No. 5, 1970.

219
5 . Vehicle Disposition

"Good Maintenance Helps Resale Value." Fleet Owner , (January,

1969) , 74-75.

"Getting Rid of Old Fleet Cars." Fleet Owner, (January 1971),

79-81.

Lyndall, J. "Getting Rid of Old Fleet Cars." Fleet Owner, 66

(January 1971) , 79-81.

Smith, Jerry. "Dallas Upgrades Police Fleet." Fleet Owner , (April 1969) , 86-87

.

6 . Cost Analysis

Ackoff , Russell L. and Sasieni, Maurice W. Fundamentals of

Operations Research . New York, N.Y.: John Wiley & Sons,

Inc ., 1968 . (Particularly Chapter 8, "Replacement,

Maintenance, and Reliability Problems.")

Butler, Don W. Life-Cycle Facility Planning: A Program

Methodology Washington, D.C.: Office of the Chief of

Engineers, Military Construction Directorate, Engineering

Division, January 1970.

Collins Radio Company. Life Cycle Costing Procurement Guide.

June 1970.

Goldman, Thomas, Ed. Cost-Effectiveness Analysis , New

Approaches in Decision-Making . 1967 (Particularly chapters

1 , 3 , 4 and 5 ) . Grant, Eugene L. and Ireson, W. Grant. Principles of

Engineering Economy . New York, N.Y.: Ronald Press Co.,

5th Ed.

Headquarters, Air Force Logistics Command. Life Cycle Costing : A Better Way to Buy. WPAFB, Ohio, January 197tn

"Life Cycle Costing: Decision Making Tool for Capital

Equipment Acquisitions." Journal of Purchasing , 5 (August

1969) , 16-31.

220
Keely, B. J. and Griffith, J. W. Resource Optimization Using

Cost-Benefit Analysis . K-G Associates Training Manual.

Dallas, Texas: K-G Associates (undated).

Logistics Management Institute. Life Cycle Costing in System

Acquisition . Task 69-10. Washington , D.C., Nov^nber 1969.

Merrett, A. J. and Sykes, A].len. The Finance and Analysis of

Capital Projects . London : Longman^ 1971

.

McCullough, James Dougherty. Cost-Effectiveness : Estimating

Systems Costs . Bethesda, Md.: Rand Corp. 19 65.

The Ralph M. Parsons Company. A Life Cycle Concept for

Buildings and Facilities . Washington , D.C., Aprnr"1970.

Reisman, Arnold. Managerial and Engineering Economics . Boston: Allyn and Bacon, Inc .

, 1971

.

USCOMM-NBS-DC 221
NBS-1 14A (REV, 7-73)

U.S. DEPT. OF COMM. 1, |

' I ! 1 i 1 . K A Tl ON OK KII'OK 1 NO. 2. Cuw't Acccs.sion BIBLIOGRAPHIC DATA No SHEET LESP-RPT-0402 .00

3. Rec ipu nl '.s Acc c.s.sion No.

4. TI TLF AND .SUlVnTl.i: The Police Patrol Car: Economic Efficiency

in Acquisition, Operation, and Disposition

5. Publ ic ai ion Dare June 1976

6. f-'crforming Organization (ode

7. AU rHOR(S)

Rosalie T. Ruegg

8. Performing Organ. Report No.

9. PERFORMING ORGANIZATION NAME AND ADDRESS

NATIONAL BUREAU OF STANDARDS

WASHINGTON, D.C. 20234

10. Project/Task/Work Unit No. 4409380

11. Contract /Grant No. N.A.

12. Sponsoring Organization Name and Complete Address (Street, City, Stale, ZIP)

National Institute of Law Enforcement and

Criminal Justice

LEAA, Department of Justice

Washington, D. C. 20530

13. Type of Report & Period Covered

14. Sponsoring Agency Code

15. SUPPLEMENTARY NOTES

16. ABSTRACT (A 200-word or less (actual summary of most si^ificant information. If document includes a significant

bibliography or literature survey, mention it here.) This study uses the techniques of life cycle costing to analyze some

of the decision problems of police fleet management. It addresses the

followinCf ^ '-^ ^3 Crilf*'?'f" >-^<-ico i_xvjiia 1 on •

. flV J- \/ W}i:^'t- wiidx. ^ya ctxt= -t-Vio unt3 r>/-\c+- coou qerxecus -P -F/^^ 4- e? <->-P ox t-vii purcnasing -> r.. •! ^ ^ different sizes of patrol cars and different optional equipment?, (2) What are the advantages and disadvantages of direct ownership of

vehicles as compared with leasing vehicles?, (3) How do the costs of

contracting out maintenance compare with costs of an in-house shop?

(4) What are the effects of alternative utilization practices on fleet

costs?, (5) How often should vehicles be replaced?, (6) What method of vehicle disposition is most efficient? The techniques used to compare

costs of alternative systems are described in a chapter on life cycle costing methodology. Cost estimates and empirical data are presented m the many tables, exhibits, and charts which support the study. Existing fleet practices are described. Findings of the study are expressed as general guidelines for fleet management. The focus of the study IS on police patrol cars, but the methods are applicable to other kinds of vehicles.

17. KEY WORDS (six to twelve entries; alphabetical order; capitalize only the first letter of the first key word unless a proper name; separated by semicolons

)

. Fleet management; life cycle costing; patrol cars; police fleets; vehicle leasing; vehicle management

18. AVAILABILITY Unlimited

1

' For Official Distribution. Do Not Release to NTIS

1

^ Order From Sup. of Doc, U.S. Government Printing Office Washington, D.C. 20402. SD Cat. No. Cn

Order From National Technical Information Service (NTIS)

Springfield, Virginia 22151

19. SECURITY CLASS

(THIS REPORT)

UNCL ASSIFIED

21. NO. OF PAGES

231

20. SECURITY CLASS

(THIS PAGE)

UNCLASSIFIED

22. Price

$8.00

USCOMM-DC 29042-P74




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