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Staff Report
City Council
Item No. 6.C
Meeting Date: March 22, 2023
From: George Crum, Police Chief
Title: Request 4-year Lease Agreement with Enterprise Fleet Management
City Council
RECOMMENDATION:
To authorize, effective with fiscal year (FY 2023/2024), a lease agreement with Enterprise Fleet Management for (8) eight Police Department vehicles at an annual cost of $93,572.50 with an optional maintenance program of $5,432.04 for a total cost of $99,004.40 annually. Additionally, to authorize the installation of emergency lighting and equipment for $45,687, including tax.
BACKGROUND:
Certain law enforcement operations conducted by different units within the Police Department require the use of various makes and models of unmarked vehicles. The City has historically purchased and owned all fleet vehicles and equipment. Over the years, the Department has purchased vehicles, generally in batches, with the same manufacturer, make, and model. With an aging fleet, routine maintenance and repairs have become more frequent to keep vehicles safe and operational.
The Police Department has identified nine vehicles currently in need of replacement, with five being over ten years old. The other four vehicles are nine years old. This aging fleet has brought on the challenge of maintenance with the rising costs of parts and labor. For example, the current price for an oil and filter service is $116. To maintain the fleet, staff has utilized three different vendors for services. Over the last three years, the vehicle repairs and routine service cost for these nine vehicles was $34,454. An internal usage review has determined one of the nine vehicles is no longer needed and it will not be replaced, thus generating a cost savings. However, the remaining eight vehicles will need to be replaced so the Department has studied the best way to do that and achieve the best overall value.
With the price of replacement vehicles increasing yearly, staff has been reviewing avenues of cost savings and an easier procurement process for vehicles of various makes and models. An annual master lease agreement with Enterprise Fleet Management can be an efficient and cost-effective way to accomplish this goal.
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Enterprise works with government organizations in developing a plan for fleet operations. They identify a plan with the lowest total ownership cost through open- ended master lease agreements averaging 3-5 years.
Enterprise Fleet Management works with nearly every vehicle manufacturer to receive the lowest cost, often significantly cheaper than that available to the general public. Enterprise Fleet Management continually monitors the used car market, maximizing the resale value at the end of the leasing term.
Enterprise Fleet Management offers a low-cost maintenance option, so the overall cost of ownership is less than purchasing a vehicle outright when measuring the savings from maintenance costs. Currently, Enterprise Fleet Management provides a monthly maintenance plan costing between $55-$59 per month (depending on the vehicle).
This plan would equal a total monthly cost of $453, for an annual fee of about $5,432, for the eight proposed vehicles; significantly less than current maintenance costs. Since staff has moved from using mileage alone as a basis for determining when a vehicle needs routine service to utilizing an hours-operated model accounting for the significant time police vehicles are routinely left to idle, we can expect these vehicles will come due for service even more frequently than in the past. This is significant with the cost of one oil change being more than two times the cost of the monthly maintenance plan for any one vehicle.
Enterprise Fleet Management's maintenance plan utilizes a variety of available vendors where cars can be serviced and repaired. Currently, every major auto dealership in Cathedral City is on the preferred-vendor list for maintenance. This would allow the vehicles to be serviced in the City, reducing downtime for staff transporting cars for service.
Enterprise Fleet Management offers three options through this program at the end of the 4-year lease:
(1) The leased vehicle can be sold with the proceeds applied toward the lease of a different vehicle; or the City can elect to receive the funds back from Enterprise via check; (2) The City can pay the remaining book value for the vehicle and own it outright; (3) The City can extend the lease and continue to make payments, eventually paying the vehicle off and taking ownership.
Notwithstanding option three, the master equity lease program is not meant to be used as a means of purchasing vehicles outright except for under unusual circumstances. The program focuses on the leasing of cars during the agreed-upon period, which are then resold and new vehicles acquired. This is why Enterprise continually monitors the used car market, as previously mentioned, which maximizes the resale amount during the lease agreement term. This process reduces the overall cost of ownership based on vehicle value, cost of maintenance, and increased fuel savings with more fuel-efficient vehicles, and eventually alternative fuel vehicles being added. However, after the end of the lease, if it is determined the vehicle should be purchased that can occur. Also, leased vehicles can be bought outright at any given time without penalty under this plan. The master equity lease program is an "open-ended" lease structure, allowing the City to replace more vehicles with less upfront capital. Below are highlights of the program:
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· No mileage restrictions, no abnormal wear and tear fees, and no early termination penalties.
· The City has all rights of ownership and can equip the vehicles with aftermarket parts as necessary (for example, emergency lighting equipment). · The scheduled rotation reduces overall vehicle-related costs with the ability to expeditiously phase in a more modern, fuel-efficient fleet while reducing maintenance costs.
· Leasing provides the opportunity to minimize the amount of significant capital outlays necessary for purchasing vehicles while still being able to capitalize the lease cost
· The City would establish a more proactive fleet replacement plan to acquire vehicles more consistently.
Vehicles take up significant staff time to order, register, upfit, and eventually sell/auction. There are cost savings and efficiencies attained from having Enterprise perform those services. With the buying and selling powers of a larger fleet-specific organization such as Enterprise, it is expected the equity returned to the City from the sale would be substantially more than received by the City in typical auction sales.
Staff has researched using an equity lease agreement to evaluate its usefulness as an economical acquisition method. Staff found several similar agencies have partnered with Enterprise Fleet Management to implement fleet replacement programs with positive feedback and results. Enterprise was awarded a fleet management contract with Sourcewell, which provides government, education and nonprofit organizations with a cooperative purchasing program by managing solicitation requirements through a competitive process and offering a network of awarded contracts. The City of Cathedral City is currently a member of Sourcewell and receives the benefits of being a member.
Currently, the following organizations utilize the Enterprise Fleet Management program:
· City of Santa Ana (70+ administration, detectives, and support vehicles) · City of Westminster (90+ vehicles for all city operations) · City of Azusa (15+ vehicles for Police Department)
· City of Rialto (20+ vehicles, both marked and unmarked) · City of Barstow (various city and police vehicles)
· City of Pasadena, City of Corona, City of La Quinta, City of Downey, City of Laguna Nigel, City of Redlands, and many others.
The Police Department seeks to build a long-term relationship with Enterprise Fleet Management. The services supplied by Enterprise Fleet Management meet the requirements of the Police Department and will substantially reduce staff time in procuring vehicles.
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DISCUSSION:
Staff is seeking authorization to enter into an agreement with Enterprise Fleet Management for a 4-year lease agreement.
Staff is requesting approval of the optional maintenance agreement in the amount of $5,432 annually (monthly estimated cost of $453), which will cover all routine maintenance except for brakes and tires.
To demonstrate just one routine maintenance cost, following is a breakdown of the cost of oil changes currently charged and the breakdown if paid outright:
· Four oil changes per year x $116 = $464 per car
· Eight cars x $464 per year = $3,712 per year
·$3,712 x Four years = $14,848
Staff is requesting funds for the installation of emergency lighting/radio equipment in the amount of $45,687, including sales tax, to be installed by Dana Safety Supply.
The following yearly costs are shown below:
The annual cost per year without the maintenance plan is as follows for FY 2023/2024 through FY 2026/2027:
· Year 1 - $139,259 W/O Maintenance plan and one-time upfitting cost. · Year 2 – $ 93,572 W/O Maintenance plan.
· Year 3 – $ 93,572 W/O Maintenance plan.
· Year 4 – $ 93,572 W/O Maintenance plan
· Total $419,975 4-year cost W/O maintenance and one-time upfitting costs.
The estimated profit from the sale of the vehicles at the end of the lease is about $84,126, reducing the overall cost to $335,849.
The annual cost per year with the maintenance plan is as follows for FY 2023/2024 through FY 2026/2027:
· Year 1 - $144,691 Including Maintenance plan and one-time upfitting cost. · Year 2 - $ 99,004 Including Maintenance plan.
· Year 3 - $ 99,004 Including Maintenance plan.
· Year 4 - $ 99,004 Including Maintenance plan.
· Total $441,705 4-year cost with maintenance and one-time upfitting costs.
The estimated profit if these eight vehicles were sold at the end of the lease is about $84,126, which would reduce the overall cost to $357,579.
As an alternative, Staff also considered purchasing the listed vehicles using funds from the Equipment Replacement Fund with an estimated cost of $356,000 (not including title and registration fees). The total cost to purchase would be estimated at $402,000, including upfitting costs but not accounting for expenses incurred for maintenance during the same four-year period.
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An agreement through Enterprise Fleet Management would reduce the upfront funding needed. It is estimated that with the inclusion of the maintenance plan, the cost savings realized could be up to $102,000 through the end of the lease.
Staff has selected a variety of vehicles from domestic automakers, to avoid the purchase of the same make and model vehicle. Vehicle manufacturers have moved away from producing sedan style vehicles meeting the needs of law enforcement. For example, Ford only makes the Ford Mustang sedan and this year is the last year Dodge will make the Charger. This is why staff has decided for (2) two Chargers, since this was a police fleet type vehicle and emergency equipment is readily available.
Two F150 XL’s will be assigned to our Community Service Officers and assist when loading or transporting bikes and other large items. While staff has identified (9) vehicles to be removed, one vehicle is over 20 years old (2003 CNG Ford F150) and will be sent to auction due to age of the vehicle and not handled through Enterprise. Based upon the needs of the department, staff has determined eight vehicles for lease to best serve the department’s need, which will reduce the fleet by one.
Enterprise Fleet Management works with nearly every vehicle manufacturer to receive the lowest cost, significantly cheaper than is available to the general public. The partnership with the various manufacturers allows the city to explore Electric Vehicle options in the future. Enterprise has recently supplied the City of South Pasadena with ten Telsa Electronic Vehicles (EV’s). In 2035 state legislation requires all new vehicles being sold to be electric. The exact impact to public safety is unknown, however, the quick acquisition and forecasting of vehicle needs can be handled with Enterprise Fleet Management.
The City’s goal is to institute a plan to acquire, maintain and efficiently replace vehicles on a regular schedule. This plan provides a finite working timeline for Department vehicles, allowing for quick sale, at the best time, and timely acquisition of new vehicles. It is believed the long-term savings will be more significant as the program continues in the future.
FISCAL IMPACT:
With this being a lease, funding for this program will come from the General Fund’s operating budget and added as a line item to the Police Department's operating budget.
Based upon the various fiscal models shown, the current recommendation is the 4-year lease term with the optional maintenance plan at a four-year cost of $441,705.
With each vehicle being its own contract, payment will not actually start for each vehicle until it is delivered. This eliminates any payment for a vehicle before the City has the ability to use it.
Since the cost would be fixed for four years, any future amount needed to continue the lease program beyond that will be brought forward during future budget considerations.
The lease term will allow staff to evaluate the program and, if proven successful, look to subsequent budget cycles for further replacement of vehicles.
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With the sale of the eight existing vehicles, Enterprise Fleet Management has estimated proceeds totaling $24,000 will be reimbursed to the City and these funds will be deposited into the Equipment Replacement Fund.
ATTACHMENTS:
Cathedral City 2023 Dodge Chargers (2) 477140
Cathedral City 2023 Dodge Durango 477212
Cathedral City 2023 Ford Explorer (2) 477123
Cathedral CIty 2023 Ford F-150 PD 477136
Cathedral City 2023 Ford F-150's 477118 (1)
Full Maintenance Agreement
Government Credit Application, Authorized Signer Form
Master Equity Lease Agreement - Government
Self-Insurance Addendum (Equity, Physical Damage
Enterprise Pricing Sheet City of Cathedral City 48 mo Term with Trade In Refund to City