oversight

Local Vehicle Leasing Options Have Not Been Adequately Considered

Published by the Government Accountability Office on 1977-08-05.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                           DOCUMENT BESUIE

03245 - (A22133131   (m   r.   .

Local Vehicle Leasing Options Rave Not Been Adequately
Considered. GGD-77-71; p-114874, August 5, 1977. 13 pp. + 2
appendices (3 pp..).

report to Rep. Charles B. Wilson, Chairman, House Committee on
Post Office and Civil Service: Postal Personnel and
Modernization Subcommittee; by Elmer B. Staats, Comptroller
General.

Issue Area: Federal Procurement of Goods and Services (19001,
Contact: General Government Div.
Budget Function: Comhcrce .nd Transportation: Postal Service
     (402) .
Organization Concerned: Postal Service.
Congressional Relevance: House Comaittee on Post Office and
    Civil Service: Postal Personnel and M.dernization
    Subcommittee.

         Alt.lough Postal Service policy requires local vehicle
managers to consider leasing for meeting vehicle needs, many
managers are not doing so. Findings/Conclusions: The Postal
Service owns about 117,000 vehicles, which it supplements by
leasing over 32,000 vehicles. About 97% of these vehicles are
used for collecting, transporting, and delivering meil. Vehicles
range in size from 1/4-ton jeeps to tractor-trailers. To meet
its needs, the Service generally purchases postal vehicles
rather than leasing them. Future requests will be primarily for
replacement vehicles. Existing Postal Service policies require
fleet managers to consider leasing vehicles and to make an
economic analysis when replacement and/or new service vehicles
are needed. However, these policies are not consistently
followed. About 70% of the fleet managers contacted by GAO did
not consider leasing at all and only 25% of those managers who
said they considered leasing made economic analyses. Although
the Service's cost data on leased and owned vehicles are
adequate, there are differences in report formats which make
valid cost comparisons difficult. In some cases leasing appeaLs
to be more economical and in other cases purchase appears to be
cost beneficial. Both leasing and purchasing should be
considered locally if the Service is to insure that the most
economical choice is made.. (Author/SC)
                   *ESTMCTED    - Not to o reresed     tib e the lenerml
                   Aeenutlrnr Offiee except on the b o exlf c afval
                                                                BP
UN                 by te OlIle of Ceuweslo 96"l.ts,            X,'X)



     °   ','        REPORT OF THE
               .    COMPTROLLER GENIERAL
                    OF THE UNITED STATES



                   Local Vehicle Leasing
                   Options Have Not Been
                   Adequately Considered
                    United States Postal Service
                   Although Postal Service policy requires local
                   vehicle managers to consider leasing for meet-
                   ing vehicle needs, many managers are not
                   doing so. The Service issued instructions on
                   March 17, 1977, to make certain that leasing
                   was considered. The instructions require lease-
                   versus-purchase analyses to support budget re-
                   quests for new or replacement vehicles.
                   GAO found that adequate cost data for both
                   owned and leased vehicles was available; how-
                   ever, differences in the data format made
                   lease-versus-purchase comparisons difficult.
                   The Service is developing a new vehicle ac-
                   counting system for owned vehicles which
                   will accumulate costs by individual vehicle;
                   this system would enable local managers to
                   make more valid comparisons.




                   GGoD- 7-71                                        AUGUST 5, 1977
                   COMPTROLLE|   GENERAL OF THE UNITED STATES
     ~~A~~~-~~be     ~WASHINGtON.         D.C.   ad54




B-114874




The Honorable Charles H. Wilson
Chairman, Subcommittee on Postal
  Personnel and Modernization
Committee on Post Office and
  Civil Service
House of Representatives

Dear Mr. Chairman:

     This report is in response to your April 15, 1976.
request that we review the cost benefits of the Unite(' States
Postal Service program of purchasing postal vehicles versus
leasing them from private companies.

     As requested. written agency comments have not been
obtained. However, we discussed the results of our review
with Postal Service officials and considered their comments
in preparing this report.

                                        Sin             y yours




                                        Comptroller General
                                        of the United States
  REPORT OF THE                       LOCAL VEHICLE LEASING
  COMPTROLLER GENERAL                 OPTIONS HAVE NOT BEEN
  OF THE UNITED STATES                ADEQUATELY CONSIDERED
                                      United States Postal Service

              DIGEST

             The United States Postp; Service owns about
             117,000 vehicles, making it one of the
             largest fleets in the United States. In ad-
             dition, the SLrvice supplements its fleet by
             leasing over 32,000 vehicles from both em-
             ployees and commercial firms. About 97 per-
             cent of these vehicles are used for collecting,
             transporting, and delivering tne Nation's mail.
             Vehicles are used on various types of col-
             lection, delivery, and transportation routes
             and range in size from 1/4-ton jeeps to trac-
             tor trailers.

             At the request of the Chairman, Subcommittee
             on Postal Personnel and Mcdernization, House
             Committee on Post Office and Civil Service,
             GAO evaluated the Service's procedures and
             methods for determining whether to purchase
             or lease delivery vehicles.

             To meet its needs, the Service generally
             purchases postal vehicles rather than leases
             them. Service officials maintain that the
             size of the fleet is now stable and future
             requests will be primarily for replacement
             vehicles.
             The Service's existing policies require
             fleet managers to consider leasing vehicles
             and to make an economic analysis when replace-
             ment and/or new service vehicles are needed.
             However, GAO found that the Service's policies
             were not consistently followed. (See ch. 2.)
             GAO found that 68 percent of the vehicle
             fleet managers contacted did not consider
             leasing at all and only one-fourth of those
             managers who said they considered leasing
             made economic analyses.  (See ch. 2.)



Tr. Sh.h Upon remroval. the report                         GD-77-71
cover date should b noted hereon.                      GGD-77-71
GAO made 28 cost comparisons between similar
owned and leased Service vehicles used in the
same area. Although the Service's cost data
on leased and owned vehicles is adequate, there
are differences in report formats which make
valid cost comparisons diffi.cult. In some
cases leasing appears to be more economical
and in other cases purchase appears to be cost
beneficial.  (See ch. 3.)

CONCLUSIONS

Based on the comparisons made, GAO could not
conclusively determine whether leasing or
purchasing vehicles was generally more eco-
nomical. It is apparent, though, that both
leasing and purchasing should be considered
locally if the Service is to insure that the
most economical choice is being made.  Service
Headquarters officials agree.

AGENCY ACTIONS

During this review, the Service 'issued a more
comprehensive policy which reemphasizes the
Service policy that leasing be considered in
meeting all vehicle needs. This policy re-
quires that an analysis be made to determine
whether to lease or purchase vehicles; the
initial analysis will be done at the district
level. Additionally, a new vehicle account-
ing system is being implemented which will
accumulate data on owned vehicles by each
vehicle. This new system should provide the
Service with the necessary data to perform
valid lease-versus-purchase comparisons.

As requested by the Subcommittee, written
agency comments were not obtained.   However,
GAO discussed the results of this  review  with
Postal Service officials and considered   their
comments in this report.




                      ii
                     Co n t e n t s




DIGEST                                                   i
CHAPTER

   1       INTRODUCTION                                  1
               Background                                1
               Meeting vehicle needs                     2
               Vehicle maintenance                       3
               Scope of review                           3
   2       EFFORTS BEING MADE TO INSURE
             COMMERCIAL LEASING IS CONSIDERED            4
               Service's Drevious leasing
                 policy                                  4
               Policy was often not followed
                 at local levels                         5
               Service policy has been tightened         7
   3       COST DATA IS ADEQUATE BUT REPORT FORMAT
             MAKES VALID COST COMPARISONS ZIFFICULT      8
               Cost data is adequate                     8
               Data format makes comparisons
                 difficult                               9
               Cost comparisons between lease and
                 purchase                                9
                   Owned 1/4-ton vehicles and
                     their leased equivalents           10
                   Comparisons of larger capacity
                     vehicles                           11
               New vehicle accounting system            12
   4       CONCLUSIONS                                  13
APPENDIX

   I       Letter dated April 15, 1976, from the
             Chairman, Subcommittee on Postal
             Facilities, Mail and Labor Management,
             House Committee on Post Office and Civil
             Service                                    14
  II       Vehicles owned and leased by the Postal
             Service as of June 18, 1976                16
                          CHAPTER 1
                        INTRODUCTION
      The United States Postal Service operates one of the
largest owned vehicle fleets in the Uniced States; it the
end of fiscal year 1976, this fleet consisted of 117,170
vehicles.   During fiscal year 1976, the Service supplemented
its owned fleet by leasing 17,081 vehicles from employees
and 15,272 vehicles from coLmuercial firms. Thus, the Service
controls about 150,000 vehicles costing the Service about
$240 million to operate and maintain for the year.   Of these
vehicles, about 144,000, or 97 percent, are used for collect-
ing, transporting, and delivering the Nation's mail. The
remainder of the fleet is composed of administrative and
maintenance vehicles.   (See app. II.)
BACKGROUND

     During the 1950s the Service began a motorization pro-
gram; under this program, most carriers were assigned vehi-
cles to use for delivering mail on their routes.  Before
this, many carriers in metropolitan areas walked their
routes and used public transportation between the delivery
route and the post office.  Implementing the motorization
program increased the Service's need for vehicles. Today,
motorization is virtually completed and future procurements
primarily will replace existing vehicles.

     Both the leased and owned vehicles are used for various
types of mail delivery services:

   -- Regular - using a vehicle to deliver and collect all
      classes of mail (for example, curbside, dismount-
      door, or a combination of these).

   -- Park and loop - using a motor vehicle first for trans-
      porting mail to the route and then as a moveable con-
      tainer while the carrier walks segments of the route.

   -- Standby - making available a limited number if vehicles
      for each post office to assure continuity of service.

   -- Emergency - using a motor vehicle for transporting
      mail when the assigned vehicle is temporarily
      inoperable.
   -- Temporary - using a motor vehicle for transporting
      mail during peak periods or when the assigned vehicle
      is not available to transport mail.


                              1
MEETING VEHICLE NF.DS

     To meet its needs, the Service generally purchases
postal vehicles rather than leases them. Genera.'ly, each
vehicle type (such as 1/4-ton jeeps or tractors) is pur-
chased under a separate contract.  Once the contract is
awarded, the vehicles are delivered over several years.

     Each post office designates :ts vehicle needs either
replacement or new service. The replacement needs are
developed by the local fleet operations mnanagers based on
the disposal criteria for each vehicle type. Fo: example
the disposal criterion for a 1/4-ton vehicle is 42,000 miles
or 6 years. New service needs are developed by Service
delivery and collection personnel.
    Once vehicle needs have been determined, fleet managers
determine if the replacement of vehicles is economically
justifiable and indicate whether they should be leased or
purchased.    These requirements are then forwarded to the
district which reviews vehicle requirements from all loca-
tions; the district also does an economic analysis to deter-
mine the (1) operating cost of similar owned and leased
vehicles, (2) economic life of the vehicles, and (3) esti-
mated repair costs. After the district has determined its
vehicle needs, the requirements are forwarded to regional
headquarters.   The region reviews the district's recom-
mendations for additional vehicles and consolidates these
requirements before forwarding them to the Office of Fleet
Management at Service Headquarters.
    The Office of Fleet Manageient consolidates the vehicle
needs from all regions and establishes procurement priorities
by vehicle type. Once it is decided that additional vehicles
are justified, a lease-versus-purchase cost comparison is
done using existing leased and owned vehicle cost data.
The owned cost data is used to compare with bids received
from major auto manufacturers. If new vehicle costs .re too
high, the Service may defer a purchase. Bowever, this has
occurred only four times since 1966. After the comparison
is done, the Service requests the General Services Adminis-
tration to procure the vehicles.
     A Service official stated that although such a compari-
son is done, leasing at the national level is not a viable
alternative because of the numbers involved. Attempts to
solicit proposals from national leasing companies did not
provide positive results.




                               2
    According to Service officials, the vehicle procurement
system is self-perpetuating. This means that postal-owned
vehicles meeting the Service's disposal criteria normally
will be replaced with owned vehicles and that vehicles cur-
rently leased will generally be replaced with other leased
vehicles.

VEHICLE MAINTENANCE

    Once acquired, owned vehicles are maintained through
a network of vehicle maintenance facilities and auxiliary
maintenance facilities.  These vehicle maintenance facili-
ties are responsible for repairing and maintaining all
postal-owned vehicles and are staffed by postal personnel.
There are approximately 300 of these facilities located in
the larger metropolitan areas where the majority of postal
vehicles are assigned.

    Owned vehicles are also assigned to post offices in
outlying areas where no rostal-operated repair facilities
are provided.  These post offices are called nonpersornel
offices and are generally located in smaller cities and
towns where the size of the fleet 6oes not warrrant having
a maintenance facility. Most of the maintenance and repair
of vehicles assigned to nonpersonnel offices is contracted
out to local service stations.

    For leased vehicles, the lease agreements require that
the lessor provide all maintenance necessary to keep the
vehicle in safe operating condition.  Ger.erally, lessors
obtain maintenance agreements with commercial repair
facilities in the areas where the vehicles are assigned.

SCOPE OF REVIEW
    Our review was conducted at Service Beadouarters and
Eastern, Southern, and Western postal regions. We visited
or telephoned 10 distr-ct offices, 25 management sectional
centers, 62 vehicle maintenance facilities, and 22 post
offices.  We reviewed Service policies and practices, in-
cuired into verification techniques for determining the
accuracy of the various vehicle cost reports, and reviewed
current vehicle lease agreements.    We held discussions with
headquarters and  regional officials  to determine the rela-
tive merits of leased and owned vehicles. Our review of
leases was limited to long-term leases with commercial firms.




                               3
                           CHAPTEP 2

                 EFFORTS BEING   i'DE TO INSURE

               COMMERCIAL LEASING IS CONSIDERED


    Service policies regarding the use of leased vehicles
to deliver mail were not being followed consistently.  In
many instances, leasing was not considered by fleet managers.
Since leasing is not a viable alternative at the national
level, headauarters officials agree that leasing to meet
vehicle needs must be determined by local vehicle managers.
A revised policy was instituted on March 17, 1977, to insure
that leasing is evaluated by lower management levels.

SERVICE'S PREVIOUS'LEASING POLICY

     Two sections of the Service's Fleet Management Eandbook
contain Service policy pertaining to leasing as an alterna-
tive to purchase.  One section presents the policy for re-
placing postal-owned vehicles. It states that before re-
questing replacement vehicles, managers of

     "***fleet operations must make certain that
     performance of required vehicle service with
     units presently assigned is impossible, and
     that contract-vehicle-hire'has-been-glven
     adeouate consideration."

    Discussions with Service officials disclosed differences
in interpreting this section.   One regional official stated
that this section applies to any situation where a need
exists for replacement ehicles. Another regional official
maintained that the section applies only to replacing inoper-
able or uneconomically repairable vcnicles, that is, emercency
situations.   Feadquarters officials stated, however, that
leasing should be considered in meeting any vehicle replace-
ment neeas.

    The other section of the handbook concerns the initial
establishment of vehicle service.  It states that initial
vehicle service will generally be by vehicle hire (lease)
but further qualifies this by stating

     "***use vehicle hire when the contract cost is
     lov'er than the prevailing rate of postal-owned
     ve.,. les of similar type, make and model, and/or
     when ~,ostal-owned vehicles are not available."




                                 4
    In addition to the handbook guidelines, a regional
instruction requires periodic evaluation of existing vehicle
service. This instruction states that periodic studies are
to be done to determine the desirability of continuing an
existing type cf vehicle service. In doing the studies,
consideration is to be given to replacing postal-owned
vehicles with leased vehicles especially when an office has
only a few postal-owned vehicles assigned; consideration
should also be given to replacing contract vehicle service
with postal-owned vehicles.
POLICY WAS OFTEN NOT FOLLOWED AT LOCAL LEVELS

    Although Service policy requires that adequate consider-
ation be given to leasing and that periodic studies be made,
in Trany instances neither was being done. Discussions with
62 fleet operations managers in the three postal regions
revealed that 42, or approximately 68 percent, have not con-
sidered leasing in meeting vehicle needs. Several of these
officials did not want commercially leased vehicles except
as a last resort. Some reasons given by fleet managers for
not leasing were:
    -- Failure on the part of the lessor to provide proper
       vehicle maintenance.
    -- Inability to obtain functional vehicles (that is right-
       hand drive).
    -- High lease rates.

    -- Difficulty in locating a replacement vehicle when a
       leased vehicle becomes inoperable.
    -- Excessive administrative time required to administer
       the leases.
    Not all managers were against leasing; some managers
and other postal personnel who had leased vehicles assigned
to their locations were satisfied with the arrangement.
    -- Hollywood, Florida, officials informed us that leased
       vehicles cost less than owned vehicles and that the
       lessor had provided excellent service.
    -- Charlotte, North Carolina, officials stated that
       the leased vehicles had served their purpose
       adequately and had been maintained properly.
    -Pittsburgh, Pennsylvania, officials said that
      their area-wide, multi-year lease of 170 vehicles
      had been good cost wise; the' said this type of
      lease had permitted transfer of the vehicles within
      specific geographic boundaries to meet unexpected
      service needs.

    -- San Antonio, Texas, officials maintained that although
       their need for leased vehicles had decreased, they
       would lease again if the need arose.

    -- The Long Beach, California, fleet operations manager
       told us that where possible he would lease vehicles
       because his experience had shown that leasing was less
       expensive.

    -- Riverside, California, Service officials said the
       contractor had provided good maintenance; if a vehicle
       needed major repairs, the contractor supplied a sub-
       stitute vehicle.

     The differences in the extent of commercial leasing
among the five postal regions seem to indicate that some
regions are more willing to lease than others.  At the end
of postal fiscal year 1976, the number of commercially
leased vehicles by region was as follows.

                     Comparison of-Leased Vehicles
                           ·to Owned Vehicles


                                      Owned     Percent of leased
Region         Leased vehicles       vehicles       to-owned-

Northeast             307             19,394           1.6
Eastern               307             18,956           1.6
Southern            2,016             26,574           7.6
Central             6,324             27,811          22.7
Western             3,991             24,435          16.3
Headquarters        2;327                .

     Total         15,272            117,170          13.0



    Only 13 of the 62 fleet managers contacted, or 21 per-
cent, said they had made cost comparison. between leasing
and purchasing of vehicles.  Of these 13, one made a "rough"
study, one made comparisons only for individual routes, and
one made comparisons only when requested to do so.  However,



                                 6
only the manager who made comparisons for individual routes
could supply us with documentation on these comparisons.
This lack of analysis is contrary to Service policy which
requires that periodic studies be made to determine the
desirability of continuing an existing type of vehicle
service.
SERVICE POLICY HAS BEEN TIGHTENED
    In discussions with Service Headguarters officials, we
stated that a majority of fleet managers contacted were not
making cost comparisons between leasing and purchasing of
mail delivery vehicles to replace or meet new service needs.
At the time, these officials said that a more comprehensive
policy on meeting vehicle requirements was being drafted.
On March 17, 1977, the new policy was put into effect.
    This new policy emphasizes the district's and the
region's responsibilities for determining replacement and/or
new service needs. The policy requires that, in developing
budgetary requests for replacement vehicles, both the dis-
trict and the region must determine the potential advantages
or disadvantages of leasing versus purchase through an eco-
nomic analysis. For new service vehicJ .s, the policy re-
ouires that an analysis De mrade in all cases t. determine
whether owned or leased vehicles are the most economical.
All factors must be considered before reaching a conclusion.
These factors include, but are not limited to, cost, func-
tional need, and the availability of maintenance.




                                7
                            CHAPTER 3
              COST DATA IS ADEQUATE BUT-REPORT FORMAT

              MAKES VALID COST-COMPARISONS DIFFICULT


     Our review showed that Service cost reports accurately
represent those costs associated with leased and owned
vehicles.   However, inconsistent reporting formats make cost
comparisons difficult, and Service officials recognize this
problem. Leased vehicle data is accumulated by the type of
service for which the vehicle is used.  Owned vehicle data is
accumulated by the various vehicle categories.  Service
officials pointed out that a new accounting system for owned
vehicles is being developed which will enable vehicle use to
be determined and allow more valid comparisons to be made.

     Our comparisons of leased and owned vehicles using the
Service data did not produce an overall conclusion that one
alternative was superior to the other. Where valid compari-
sons could be made, lease was best in some cases and purchase
was bes:t in others.

COST DATA IS-ADEOUATE

     We were requested to determine whether the Service was
considering all costs associated with the maintenance and
operation of owned vehicles. We believe that the cost data
accumulated by the Service provides a reasonably accurate
representation of both owned and leased vehicle costs.

     The Service has two reports that provide cost informa-
tion for owned and leased vehic.es--the Make/Model Cost
Report and the Contract Vehicle Hire Cost Report.  In both
reports the data is presented on a cost-per-hour basis.
The Make/Model Cost Report, which is prepared quarterly,
provides cost data on postal-owned vehicles. The Contract
Vehicle Hire Cost Report, which is compiled each accounting
period, presents data for leased vehicles.

     Our review of the Service vehicle cost reporting system
shows that all direct costs related to the maintenance and
operation of postal-owned vehicles are included in the
system.  Direct costs are separately identified for each
vehicle type and include (1) parts and material. (2) labor,
and (3) contracted maintenance; the direct costs are required
for general maintenance and repairs, road calls, minor
repairs, accident repairs, minor component rebuilding,
shuttle time, gasoline, oil, and depreciation.
     Vehicle maintenance facility costs which cannot be
directly charged to postal vehicles are included in overhead;
these costs are distributed among the work orders as a
percentage of direct costs. Overhead costs include (1)
supervisory and administrative salaries, (2) undistributed
labor, (3) rent, (4) equipment and building depreciation,
(5) garage maintenance, (6) shop equipment repairs, (7)
employee training, (8) travel costs, and (9) utilities.

     The Contract Vehicle Eire Cost Report shows only those
costs paid co the lessor for vehicle use.  It does not
include postal costs associated with awarding and adminis-
terina the lease contracts. On the other hand, certain
management and procurement costs associated with Service
vehicles are also not included in the Make/Model Cost Report.
We believe costs not included cancel each other out.

DATA FORMAT MAKES COMPARISONS DIFFICULt

     Operating or vehicle use data for leased and owned
vehicles is accumulated differently.  Because of the
difference, valid comparisons between leased and owned
vehicles are difficult to make.
      The Service maintains records based on the type of
service for which leased vehicles are used; for example,
whet '.r they are used on park and loop routes or regular
routes (curbside).   Leased vehicles are also classified by
vehicle type.   The Service does not maintain type of service
data for its owned vehicles.   Instead, owned vehicle data is
maintained by the various vehicle types as shown in appendix
II.   At each location where vehicles are assigned, average
cost is shown for all the vehicles of a particular type.

     This presents a problem particularly when attempting
to compare postal 1/4-ton jeeps (the majority of owned
vehicles) to their leased equivalent (passenger cars).
The type of service a vehicle is used for can greatly
affect the cost of that vehicle. For example, vehicles
assigned to park and loop routes normally cost less
than vehicles on regular routes. This is caused by
differences in mileage which will affect fuel costs
and frequency of maintenance and repair.  This problem's
effect is demonstrated more clearly in the following
sections.

COST COMPARISONS BETWEEN LEASE AND PURCHASE

     During our review, we examined 28 leases in detail.
We were looking for leases which provided vehicles similar


                                9
to those owned by tie Service and used in the same area.
Most commercially leased vehicles are classified as
passenger cars/station wagons (about 10,300 out of 15,300)
and are used primarily on park and loop routes. Service
officials state that -.
                      hese vehicles are ,:e-d in place of
postal-owned 1/4-torp eeps.

     In making our cost comparisons, local cost data was
used for both owned and leased vehicles since vehicle opera-
ting costs vary significantly among geographical areas.   For
example, in the Service's Eastern Region, the average hourly
operating cost for a 1/4-ton jeep by vehicle maintenance
facility ranged from $.45 to $1.31; by district the average
ranged from $.63 to $.80.  The regional average of $.75 an
hour compares favorably with the national average but is
misleading when compared to the vehicle maintenance facility
hourly cost. The use of national vehicle operating costs
(as used in Service headquarters analyses) may make one
alternative appear more cost beneficial than anothe , yet
this alternative may not be less costly if the vehicle
operating cost for the region, district, or vehicle
maintenance facility were used.

Owned-1/4-ton- vehicles
and their leased-equivalents

     As stated before, the postal-owned vehicle accounting
system 3oes nct identify the type of route on which owned
vehicles are used while the leased vehicle accounting system
does. Several of the 18 comparisons we made of owned 1/4-
ton vehicles and thir leased equivalents are discussed
below.

     In Pittsburgh, Pennsylvania, the Service leased 170
passenger cars and jeeps which were generally used on Dark
and loop routes.  That lease represented over half of the
commercially leased vehicles in the Eastern Region.  The
average hourly operating cost is $.49 for leased vehicles and
$.82 for all postal-owned 1/4-ton jeeps used for all types
of services in the Pittsburgh area. Depending upon the loca-
tion of the owned vehicles, the average costs ranged from $.40
to $1.31.  Since we could not isolate hourly operating costs
for owned vehicles used on park and loop routes, we could not
say conclusively that the leased vehicles were less expensive.

     In the SouThern Region, we reviewed seven leases in-
volving passenger cars and jeeps.   All of these leases pro-
vided vehicles that were less expensive than the average cost
of operating postal-owned vehicles.   In North Carolina the
Service has two leases, totaling 76 vehicles, which appear



                               10
to be cost beneficial to the Service.  The operating cost
for postal-owned right-hand drive 1/4-ton jeeps in the area
where the leases are in effect is approximately $.92 an hour,
whereas the leased vehicles cost the Service about $.56 an
hour.

      A lease in Arkansas provides 15 vehicles for park and
loop routes at an hourly cost of $.66.   The average hourly
operating cost for a postal-owned vehicle in this area is
$.97.   However, we could not isolate postal-owned vehicle
costs for park ;a.a loop routes in these areas to determine
whether the leased vehicles were in fact cheaper.   This was
also true for the other four leases reviewed.

     Only in the Western Region were we able to identify any
1/4-ton postal-owned jeeps where cost data could be isolated
by type of route. Ten comparisons were made--s.'x comparing
postal-owned 1/4-ton jeeps with leased passenger cars used
on park and loop routes and four comparing right-hand drive
owned and leased 1/4-ton jeeps. On the leased vehicles,
factors were included to cover administrative costs associated
with recordkeeping and damage claims paid to lessors by the
Service. A factor for taxes foregone was added to the owned
vehicles.

     In the six comparisons involving owned and leased
vehicles used on park and 1pop routes, leased vehicles were
less expensive at two locations; the difference in cost
was $.17 a day in the first location and $.24 in the second.
The other four comparisons revealed owned vehicles to be
cheaper by $.18 to $.29 a day.  It should be noted that
according to a Western Regior study issued in August 1976,
about 60 percent of the overhead cost charged to owned vehi-
cles is fixed and would not be changed by switching from
owned to leased vehicles, at least in the short term. This
amounts to about $.43 a day for each 1/4-ton vehicle in the
Western Region.  In the four comparisons involving only
right-hand drive vehicles, the owned vehicles were less
expensive in all cases.  The difference in costs ranged
from $2.48 to $3.31 a day.

Comparisons of larger capacity vehicles

     We examined 10 leases involving 1/2-ton or larger capa-
city vehicles, one each in the Service's Southern and Eastern
Regions and eight in the Western Region.  The cost comparisons
involving these leases showed owned vehicles to be less ex-
pensive than leased vehicles in all but two instances.




                              11
     The two leases which provided vehicles at a rate less
than the cost of maintaining similar postal-owned vehicles
were in the Western Region. One lease provided eight 5-ton
trucks and the other provided seven tractors. The lease
rates were cheaper by $9.54 and $9.21 a day, respectively.
Examination of six other leases involving large-sized vehi-
cles in the Western Region revealed owned vehicles were less
expensive by $.60 to $16.33 a day.
     The large vehicle lease examined in the Eastern Region
involved 24 trailers. Although the lease rate was more
expensive than the cost of maintaining owned trailers, an
official stated that they leased the trailers because there
were not enough owned trailers available when the Pittsburgh
Bulk Mail Center opened.
NEW VEHICLE ACCOUNTING SYSTEM
     In chapter 2 we pointed out that cost comparisons were
seldom made to determine whether leased or owned vehicles
were more economical. The Service has revised its policy to
reemphasize the need for cost comparisons at the lower levels.
Additionally, the Service is developing a new vehicle ac-
counting system which will permit cost data to be accumulated
for each postal-owned vehicle.
     Service officials recognize that because of the present
makeup of owned vehicle cost data, it is difficult to make
valid cost comparisons betweer owned 1/4-ton jeeps and their
leased eguivalents--generally passenger cars. However,
according to headquarters officials, this new system should
enable lower management levels to identify owned vehicles by
type of service and make cost comparisons between owned and
leased vehicles more meaningful.




                                12
                             CHAPTER 4

                            CONCLUSIONS

      The Service has not given adequate
 leasing mail delivery vehicles.         consideration to
                                  In part, this is because
 local managers do not consistently
 and because there are inadequacies follow Service policy
                                    in
 report formats which makes valid cost the vehicle cost
                                       comparisons difficult.
      The Service has taken, or is in the
corrective action. A revised regional       process of taking,
on March 17, 1977, clarifying and        instruction    was issued
                                   reemphasizing    the  Service's
policy on leasing. The instruction
                                     also   pointed  out  the
factors to be considered in an economic
placement and/or new service vehicle      analysis   when  re-
                                       needs are determined.
The Service is in the process of initiating
accounting system which will record            a new vehicle
                                     operating expenses for
each owned vehicle by the vehicle's
                                     serial number. This
new system will enable vehicle managers
of service the vehicle provides so        to identify the type
can be made.                        that  valid  cost comparisons

      Headquarters officials stated that
purchasing vehicles should be considered  both leasing and
                                           to meet vehicle
needs and that this should be done
                                    locally.
would likely benefit from consideration        The Service
to insure that the most economical        of both alternatives
                                    vehicles are obtained.
The revised regional instruction
                                  and the implementation of
the new vehicle accounting system
                                   should make the Service
capable of performing valid lease-versus-purchase
However, the Service's policy change                analyses.
field vehicle personnel if it is to   must  be followed hy
                                     have any lasting effect.




                              13
APPENDIX I                                                                               APPENDIX I




wAd   E.*.   hmous ffi.

AMOMW S.            uMr.           SUBCOMMIurEE ON POSTAL FACILImE            MAIL AND
 -S M,'V        -                                LABOR MANAGEMENT
                                                 U
m     IWm.                                                Or'lT
      r.--
      Lnra      ~. u,               COMMrITT     ON POST OFFICE AND CIVIL SERVICE
                                          I12 CANnon   Hor Oernc        wa.meL
                                               llAUint,           .C. 20515
                                               April 15, 1976




             Hon. Elmer B. Staats
             Comptroller General
             General Accounting Office
             441 G Street, N.W.
             Washington, D.C.   20548

             Dear Mr. Staats:

                    Pursuant to the request I made of Mr. William
             Anderson, Deputy Director of the General Government
             Division, at my Subcommittee's hearing on the Bulk
             Mail System on March 29, I am herein presenting a
             formal request.

                    It would be of great assistance to my Subcom-
             mittee's efforts if the General Accounting Office would
             audit the United States Postal Service's purchase and
             leasing of all of their motor vehicles.  My Subcommittee
             would like to know the cost benefits, if any, of purchas-
             ing postal vehicles versus leasing those vehicles from
             private .ompanies. As you know, your office completed
             a review of the purchase versus lease program on a certain
             class of postal vehicles, "Postal Service Justified in
             Purchasing Mail Delivery Vehicles." (1/9/76) Wihat I am
             requesting now is a review of the leasing versus purchase
             program on all postal vehicles.  Specifically, I would
             like to know the following information:

                           1.   The cost benefit of purchased vehicles

                    2.  a complete review of the vehicle procurement
             procedures

                           3.   the true vehicle operating costs

                    4.  the management costs associated with th.
             vehicle maintenance facilities




                                                    14
 APPENDIX I                                               APPENDIX I


       5. the depreciation cost associated with the life
of the purchased vehicles, their insurance costs and
federal, state and local taxes applied to the vehicles

       6. the repair costs including parts and labor,
along with the cost for replacing parts such as tires
and batteries

       7. the cost for the facilities maintained to
service or store these vehicles, including salaries
for supervised personnel and fuel and oil costs

       8.   the costs associated with licenses and tags

       I would hope that the results of this study could
be shared with the Subcommittee as soon as possible
inasmuch as we are now in the midst of our investigation.

      In advance, thank you very much for your assistance.

                                     ic'y truly yours,)


                                          RS H. WILSON
                                     Chairman




                                15
APPENDIX II                                            APPENDIX II


                  VEHICLES OWN~ED-AND-LEASED

                     BY THE POSTAL- SERVICE'
                         AS'OF'JUNE'18;-I976



Description of vehicle        Owned        Leased          Total

1/4-ton left-hand
   drive jeeps                14,224             440       14,664
1/4-ton right-hand
   drive jeeps                59,519           1,662       61,181
1/4-ton electric jeeps           331              -           331
1/2-ton left-hand
   drive jeeps                   102             232          334
1/2-ton right-hand
   drive jeeps                25,186             132       25,318
Passenger cars/
  station wagons                           27,128          27,128
3/4- and 1-ton trucks          7,548          126           7,674
2- and 2-1/2-ton trucks        1,101            3           1,104
5-ton trucks                   1,793          236           2,029
Tractors                         877          118             995
Trailers                       1,631        1,563           3,194
Miscellaneous (note a)       -'4;858         -713           5;571

     Total                 b/117,l70       32;353       b/149;523


a/Vehicles not used for mail delivery purposes.

b/Excludes 6,376 postal-owned vehicles in storage which have
  met the S'ervice disposal criteria and are waiting to be
  sold.




                                 16