Reduce Residual Exposure with GDP and Risk Diversification
Michael Black, Jay Harland Corp., U-Save licensee
With a diversified fleet, we are able to reduce our exposure to a constantly changing vehicle resale market. Fleet diversification is not only different makes, models and car classes. The goal of fleet diversification must be to control depreciation and ultimately fleet cost.
The proper fleet has a mix of GDP (guaranteed depreciation program) and risk units. The increased cost of GDP units will be offset by the lower holding cost of risk units.
Ideally, GDP units will be assigned to reservations traveling long distances. This counter procedure of assigning GDP units will help lower miles of the risk units, therefore allowing an operator to run risk units for 24-36 months. This is in turn will help resale values for risk units.
In order for this type of fleet diversification to succeed, GDP and risk units must be easy for managers and counter agents to identify. Fleet managers must be up to date on GDP program rules and regulations.
The next step is to determine each location's mix of GDP and risk. The ultimate goal is to have as many risk units as possible without jeopardizing fleet holding cost. Take advantage of market timing by selling risk units in strong spring and summer markets. Try to plan turnback on GDP units with seasonal influxes as peak demand changes.
Proper fleet diversification along with market timing will ultimately control fleet costs and build a profitable rental operation.