Service Delivery and Performance Commission Page 9 2 Industry Overview 2.1 Introduction This chapter provides an overview of the Australian Automotive Industry, including market characteristics and an explanation of market segments. Later chapters focus on clarifying the provision of services by QFleet. 2.2 Industry overview The Australian Automotive Industry is made up of the following sectors: Motor Vehicle Manufacturing Industry; Automotive Parts (Components) Manufacturing Industry; Motor Vehicle Wholesaling; and Motor Vehicle Retail, Service and Repair Industry [1]. The Motor Vehicle Manufacturing Industry comprises four vehicle manufacturers that have a manufacturing presence in Australia and more than 200 component, tooling, design and engineering firms. The four car manufacturers are subsidiaries of overseas companies. Nationally, the Australian Automotive Industry involves over 100,000 retail motor trade businesses with a combined annual turnover of over $120 billion employing over 316,000 people [2]. The value of Australian automotive exports in 2006 was $4.85 billion. Of this, $3.07 billion was for motor vehicles and $1.78 billion for automotive components. It is one of the country s largest export industries, ahead of traditional commodities such as wheat, wool and beef [3]. According to the Australian Bureau of Statistics, in 2004-05 the industry spent $720 million on research and development activity in Australia [4]. 2.3 Market characteristics There is no market failure within the Australian Automotive Industry as each sector is a free market with few barriers to entry. The performance of the Australian automotive market is subject to economic and related factors. These factors are: economic growth is a prerequisite for strong vehicle sales; continuing Gross Domestic Product growth at moderate levels will assist in keeping the market at high levels; the value of the Australian dollar affects the prices of vehicles and vehicle components; and high petrol prices affect demand for large vehicles. In 2006, a total of 962,666 motor vehicles were sold on the Australian market. This was a slight reduction on the 2005 record of 988,269 motor vehicles. New sales figures have nearly doubled between 1992 and 2005. Domestic sales trend information is provided in Figure 1. Report on Review of QFleet in the Department of Public Works August 2007
Page 10 Service Delivery and Performance Commission Figure 1: Australian Passenger Vehicle Sales Segment (2000-2006) 250,000 225,000 200,000 175,000 Units Sold 150,000 125,000 100,000 75,000 50,000 25,000 0 2000 2001 2002 2003 2004 2005 2006 Calendar Year Light Small Medium Large Upper Large People Movers Sports Source: VFacts - New Vehicle Sales The market has undergone significant change over a number of years including: the introduction of the Australian Car Industry Plan (progressive removal of motor vehicle tariffs); Goods and Services Tax (GST); and the decline in the used car market. These issues are discussed further in chapters 5 and 6. 2.3.1 Segment characteristics Within each sector there are specialised segments. The Motor Vehicle Retail, Service and Repair sector, for example, is a combination of the following segments: dealers/mechanical repairers; used vehicle dealers; service stations; leasing companies; smash repairers; and tyre and battery repairers. Most businesses within the Australian Automotive Industry operate within one sector and specialise within a segment. QFleet is one of the few organisations operating vertically integrated services across multiple segments and within the Motor Vehicle Retail, Service and Repair Industry. Descriptions of the segments QFleet operates within are provided below. August 2007 Report on Review of QFleet in the Department of Public Works
Service Delivery and Performance Commission Page 11 Motor Vehicle Auctions Motor vehicle auction companies within the Motor Vehicle Wholesaling sector undertake a range of activities related to the remarketing of vehicles including: motor vehicle auctions (government, repossessed, prestige and private); damaged vehicle auctions; written-off vehicle auctions; and pre-auction repair evaluations. Within Queensland there are a number of companies providing this service for local government jurisdictions and private firms. Smash Repairers Smash repairers restore and repair damaged vehicles. These services include online damage assessment, panel beating and spray painting. Some smash repairers also provide towing and hire-car services. Motor Vehicle Leasing Motor vehicle leasing companies offer a wide range of services related to vehicle finance products and fleet management services. Some leasing companies offer their customers a range of leasing products including finance, operating and novated leases. Lease components may include maintenance, insurance, statutory renewals, fuel and Fringe Benefits Tax (FBT) management. The type of lease is based on the extent to which risks and rewards incidental to ownership of a leased asset lie with the lessor or the lessee. Risks include the possibility of losses from not obtaining the residual value as a result of a drop in the used car market or specification obsolescence. Rewards may be represented by the expectation of profitable operation over the asset s economic life and of gain from appreciation in value or realisation of a residual value. The difference between a finance lease and an operating lease is: 1. finance lease transfers all the risks and rewards incidental to ownership from the lessor to the lessee [5]. 2. operating lease risk is retained by the lessor. Many leasing companies have sophisticated fleet management information systems enabling the provision of fleet management reports to clients. Report on Review of QFleet in the Department of Public Works August 2007
Page 12 Service Delivery and Performance Commission 3 Fleet Management in the Queensland Government and Interstate Comparisons 3.1 Introduction Chapter 2 introduced the Australian Automotive Industry and the associated sectors and segments. The purpose of this chapter is to explain the current fleet management model in the Queensland Government. It focuses on QFleet s role and responsibilities in the management of the Queensland Government fleet, and analyses the differences between other government jurisdictions fleet management models. 3.2 Overview of fleet management in the Queensland Government The Queensland Government fleet comprises approximately 19,000 transport registrable vehicles. QFleet owns and manages approximately 14,000 of this fleet with the remainder of the fleet owned by agencies with some requirements for highly specialised, built-for-purpose vehicles or due to other requirements such as funding arrangements from the Australian Government. Established as a CBU in the early 1990s, QFleet is the Queensland Government's central provider of fleet management, including vehicle leasing and second hand vehicle sales. QFleet s key services are: contract negotiation and management with manufacturers and suppliers; vehicle procurement; management of risks associated with vehicle ownership and operation; fleet leasing; fleet management and advisory services; accident management; vehicle rentals; vehicle servicing, maintenance and repairs; and second-hand vehicle sales. QFleet s service is available to all government agencies and other organisations who receive government funding including Government Owned Corporations (GOC). These organisations are not tied to QFleet and represent approximately 10% of the 14,000 fleet. QFleet receives no direct government funding. It operates as a CBU within the Department of Public Works (DPW), and finances its business operations through the Queensland Treasury Corporation. The three locations QFleet operates from are Brisbane Central Business District (CBD), South Brisbane and Zillmere. The operations of QFleet are examined in chapter 5. August 2007 Report on Review of QFleet in the Department of Public Works
Service Delivery and Performance Commission Page 13 Regionally, QFleet manages a network of more than 600 suppliers for the provision of vehicle servicing and repair, and provides vehicle rental services in Cairns, Toowoomba, Townsville, Bundaberg and Maryborough. In 2005/06, QFleet expended $5.7 million on vehicle repairs and maintenance in regional areas. The estimated 5,000 transport registrable vehicles not owned and managed by QFleet are owned by the following agencies: Department of Corrective Services; Department of Education, Training and the Arts; Department of Infrastructure; Department of Main Roads; Department of Primary Industries; Environmental Protection Agency; Queensland Ambulance Services; Queensland Fire and Rescue Service; Queensland Health; and Queensland Police Service (QPS). With the exception of the QPS, all of the above agencies also lease vehicles through QFleet. Some of these fleets are highly specialised, built-for purpose vehicles with some agencies establishing their own contracts with vehicle manufacturers. All agencies identified arrange the vehicle sale process independent of QFleet. 3.2.1 Centralised fleet management As the Queensland Government s provider of fleet management, QFleet provides a central pool of expertise in vehicle procurement, fleet management, repair and second hand car sales. QFleet s role and value to government is based on its capacity to aggregate the Queensland Government fleet and provide a centralised management role. Specifically, QFleet procures vehicles under contract arrangements with vehicle manufacturers, distributors and suppliers. Whole-of-government purchasing enables the government to achieve fleet discounts on the recommended retail price and provide a central point of contact for industry [6]. Recognising the future value of the fleet at sale is the most significant risk QFleet centrally manages on behalf of government. QFleet determines the anticipated whole-of-life cost, predicts the residual value, and recovers the depreciation from the lease rate charged to agencies. Therefore, government s fleet risk is consolidated with QFleet. Through QFleet s direct role in managing the bulk of the government fleet, QFleet can justify investment in software and systems which can be leveraged across agencies. QFleet is upgrading its systems to provide whole-of-government fleet management services and reporting. The cost of replicating this capability in each agency is not financially feasible. Similarly, aggregation of the fleet insurance policy ensures attractive commercial rates are able to be negotiated. Report on Review of QFleet in the Department of Public Works August 2007
Page 14 Service Delivery and Performance Commission 3.2.2 Shared Service Provider role in fleet management SSPs undertake fleet administration functions on behalf of several client agencies. These functions are, in the main, restricted to fleet administration such as vehicle requisitioning and fuel card ordering. The service provided to agencies by SSPs is inconsistent between clusters because of differing Operating Level Agreement s with the client. 3.3 Inter-jurisdictional comparison All Australian State Government jurisdictions and territories have some form of centralised fleet management arrangements. In March 2004, BDO Kendalls was engaged by the Department of the Premier and Cabinet to review the operations of QFleet and identify opportunities for whole-ofgovernment savings. In this review BDO Kendalls compared QFleet with the operations of other jurisdictions. Centralised fleet management and leasing were identified as common, but with differing models for service delivery (Appendix 3) [6]. 3.3.1 New South Wales StateFleet manage the New South Wales (NSW) Government's operating lease facilities for the provision of passenger and commercial motor vehicles. Formed in 1990 by the NSW Government to offer fleet leasing and fleet management to the public sector, StateFleet manages a vehicle fleet of more than 25,000 vehicles under a number of management arrangements. All (leased) NSW Government vehicles (exclusive of State Owned Corporations) must be leased through the NSW Government Leasing Facility with funding provided by the Treasury Corporation (NSW). StateFleet manages the risk for the NSW Government by purchasing from manufacturers through the dealer network, and managing the sale of vehicles through third party contractual arrangements with a range of auctioneers. StateFleet leases the vehicles to NSW Government agencies on a standard operating lease (taking all the risks of ownership in return for a monthly payment from the user). Fleet management services are offered as: all inclusive - all fleet management costs including registration, Compulsory Third Party insurance, fuel, service and repairs are covered under the one monthly fee; and fleet managed - all the fleet management functions are performed by StateFleet but the costs are recharged to the agency. StateFleet provide policy and advice to government on motor vehicle and fleet related issues such as safety, environment, fuel and financial risk. 3.3.2 Victoria Until recently, the financing of Victoria's fleet was outsourced to the private sector under an operating leasing agreement. From February 2004 onwards, vehicles have been leased to agencies under a finance lease basis (funded through the Department of Treasury and Finance), with the financial rewards and losses being borne by the agencies. VicFleet is the Victorian Government's fleet manager. August 2007 Report on Review of QFleet in the Department of Public Works
Service Delivery and Performance Commission Page 15 VicFleet s role is to facilitate the financial and organisational development of the Victorian Government motor vehicle fleet by providing: vehicle acquisition, maintenance and disposal services; whole-of-government vehicle related contracts; a vehicle lease facility for government departments and agencies; management of the whole-of-government motor vehicle policy environment and advice to government on motor vehicle issues; a vehicle hire service to government organisations via the State Government Vehicle Pool; and a range of fleet management services for client departments and agencies (VicFleet Management and Leasing). The role of the government agencies is to undertake operational fleet management. Currently, agencies manage all aspects of fleet operations. There is no centralised reporting of whole-of-government fleet. As part of a government efficiency strategy, VicFleet has been incorporated into a consolidated services group called Government Services Group (GSG). The GSG is tasked to examine a number of its support services to government to recommend maximum operating efficiencies. In due course this should improve the way fleet management is conducted in Victoria. 3.3.3 South Australia Fleet SA is a business unit within the South Australian Government's Department of Treasury and Finance and provides a centralised fleet management service to the South Australian Government. Fleet SA manages the Government s fleet of passenger and light commercial motor vehicles as well as providing policy advice, vehicle leasing services, short-term hire, vehicle maintenance, accident and fuel management, vehicle fit-out and preparation of vehicles for on selling at government auctions. Fleet SA also manages the Ministerial and VIP chauffeur vehicle service and the provision of Parliamentary vehicles. Vehicle leases include scheduled servicing, insurance and registration. It does not include fuel costs and unscheduled maintenance. Fleet SA is a non-profit Government Business Unit. Therefore, Fleet SA manages overhead costs including staff salaries, on-costs and accommodation. As it borrows money to finance the fleet vehicles it must also service these loans. Lease charges are based on recovering all abovementioned costs including vehicle depreciation. The two main types of services provided are long-term leasing, where a particular vehicle is provided on a continuing basis with scheduled servicing, insurance and registration included. The other service is short-term leasing which is hired out on an hourly basis (or part thereof) up to a period of three months. 3.3.4 Western Australia WA State Fleet operates on a commercial basis. WA State Fleet is managed by the Department of Treasury and Finance and enters into contracts to purchase and sell vehicles. WA State Fleet also manages contracts with two private companies to provide fleet management services to government agencies, and other contracts for Report on Review of QFleet in the Department of Public Works August 2007
Page 16 Service Delivery and Performance Commission vehicle inspection and disposal. Government agencies lease more than 10,300 passenger and light commercial vehicles valued at approximately $249 million from WA State Fleet. Strategic monitoring and management of the government fleet rests with the Fleet Steering Committee, though Chief Executives of individual agencies have autonomy to manage their own fleet within government policy constraints. 3.3.5 Tasmania The Tasmanian Government with approximately 2,900 vehicles has outsourced the daily fleet management function to Fleet Australia (from purchase to disposal), with the Department of Treasury and Finance managing this contract. This service has been outsourced since 1998 and the contract has recently been extended for an additional three-year period. The Tasmanian Government has retained ownership of the vehicle fleet and in addition the Government s Tasmanian Risk Management Fund provides vehicle insurance. Fleet Australia purchases new vehicles from a Treasury-arranged wholeof-government contract. 3.3.6 Northern Territory NT Fleet is a Government Business Division and operates on a commercial basis as part of the Northern Territory (NT) Government shared services provider, the Department of Corporate and Information Services. NT Fleet is comparable to QFleet, in that it centrally manages all of the NT Government fleet except Police, Fire and Emergency Services. It provides a full range of fleet management functions at an all-inclusive lease rate. This includes both light and heavy vehicles. NT Fleet has offices in Darwin, Katherine and Alice Springs. All surplus government vehicles are sold at public auction in Darwin and Alice Springs through a private auction house and are linked through live online auctions conducted from Darwin. NT Fleet also operates a workshop in Darwin for heavy trucks. 3.4 Findings QFleet does not share a common fleet management model with any other government jurisdiction in Australia. No two government jurisdictions share the same fleet management model. The differences and similarities can be attributed to vehicle markets, government priorities and objectives, and historical practices. There is not one model in its entirety in use by another government jurisdiction that is more suitable to the Queensland Government than QFleet s current model. There are aspects of other jurisdictions models that could successfully be applied to the Queensland Government. The common characteristic across all jurisdictions is they all operate a centralised fleet management model. Queensland and the Northern Territory are the only government jurisdictions maintaining workshops. All other jurisdictions outsource the end-of-lease repairs (the Northern Territory experiences market failure in some remote locations). August 2007 Report on Review of QFleet in the Department of Public Works