November 2012, Automotive Fleet - Cover Story
Fleet operating costs consist of four categories: fuel, replacement tires, maintenance/repairs, and preventive maintenance oil drains, offset slightly by warranty recovery monies. For the most part, all of the expense categories rose slightly over the last 12 months.
Not surprisingly, gasoline/diesel cost was the big cost story for fleets in 2012, seeing an almost across-the-board increase in all vehicle categories, with a few exceptions in individual mileage bands, which weren’t significant. While total operating costs were up in most segments, light-duty trucks and SUVs were the only segments that clocked in with lower overall operating costs ($481.40 per month in 2012 compared to $488.56 in 2011 for light-duty trucks and $397.24 in 2012 versus $400 in 2011 for SUVs).
These findings and others are highlighted in Automotive Fleet’s 21st annual operating cost survey based on data provided by six survey partners:
● GE Capital Fleet Services.
● LeasePlan USA.
● PHH Arval.
● Wheels Inc.
This year’s survey is based on analysis of actual operating costs incurred by 592,485 vehicles operated by commercial fleets, which are managed by these six fleet management companies.
Together, the fleet management company data and analysis from their experts give a three-dimensional picture of what fleet costs were over the last year and where they can expect to go in the next year.
Technology Helping Mitigate the High Cost of Fuel
Arguably, if there was any piece of automotive news that made more headlines over the last year, it was the volatility of gasoline and diesel prices.
“According to data from the Energy Information Administration (EIA), on average, pump prices were 7-percent higher for regular gasoline and 9-percent higher for diesel (September 2011-August 2012 compared to prior 12 months),” said Angela Feerick, director, strategic consulting for PHH Arval. “Price fluctuation over the past 12 months differed. There was a large price increase between Independence Day and Labor Day, due to the price increase in crude oil and supply disruptions in refining infrastructure.”
Jayme Schnedeker, fuel product manager, GE Capital Fleet Services, noted the cost of gasoline and diesel has continued to influence fleet decisions, adding that fuel price volatility makes this an ever-changing picture.
“As of September, the EIA expects the average price for fuel in 2012 to be $3.64 per gallong for gasoline and $3.96 per gallon for diesel. This is approximately a 3-percent (or 11.5 cent) increase over 2011 prices. If this forecast holds true, it will be the smallest annual increase in 10 years, with the exception of 2009. In 2009, prices were down more than 30 percent on average due to the recession. Nevertheless, the volatility of fuel prices was still a factor in 2012. During the first quarter of 2012, fleets saw fuel prices rise 31 cents for gasoline and 35 cents for diesel over 2011,” Schnedeker said.
However, the net effect of this volatility does not appear to have had an impact on fleets. “Even with higher per-gallon cost, fuel spend did not increase in 2012 when compared to 2011,” said John Bauer, manager, fleet analytics for Wheels Inc.
Why are fleets seeing little impact on their bottom lines while fuel remains so volatile? The answer, in a word, is vehicle technology.
“The overall cost of fuel is down in 2012 compared to 2011 in most age bands. This is attributable to three main factors. First, relative to the cost of retail fuel per gallon, costs in 2012 are less than the previous 12-month period. Second, OEMs continue to improve vehicle fuel economies, and fleets continue to move toward these vehicles during the specification process. This includes spec’ing four- instead of six-cylinder engines or choosing gasoline over diesel. Finally, hybrid and alternative-fuel vehicles have begun to establish a foothold in the fleet world,” said Tony Piscopo, director, fleet management services, ARI.
With the cost of fuel always front of mind, fleet managers are approaching vehicle decisions much differently than in the past, according to Amy Blaine, director of strategic consulting and sustainability for Donlen.
“Fleets have become more aware of the price of fuel than ever before causing them to continually look at the vehicles in their fleets to ensure drivers have only what they need and not more,” Blaine said.
The focus on the most efficient vehicle for the job can have a big impact on a fleet and a company’s bottom line.
“Selecting more fuel-efficient vehicles has been the most effective method to reduce fuel expense. An increase of 1 mile per gallon represents approximately a 5-percent decrease in gasoline or diesel fuel expense.
Subsequently, the greatest potential for cost mitigation that fleets are employing remains with alternative-fuel vehicles,” Schnedeker observed. “Many fleets see alternative-fuel vehicles as a long-term solution to rising fuel prices and fuel price volatility, plus an opportunity to reduce carbon emissions. Compressed natural gas (CNG), propane autogas, and electric vehicles have been the most popular alternative-vehicle types.”
OEMs have been helping fleets in their efforts to save on fuel costs by providing more fuel-efficient vehicles across the board.
“In sedan and SUV fleets, new, more fuel-efficient vehicles are being introduced,” said Bauer of Wheels. “As the older vehicles are being replaced, the average mpg for the fleet is increasing. Truck and van fleets are eliminating unnecessary weight and utilizing precise truck engineering to ensure they have the right vehicle for the job.”
Choosing the right vehicle for the job is only the first step in controlling fuel costs.
“Because there is very little companies can do to influence the cost of fuel, they are now taking a holistic approach to influencing their use of fuel, including driver behavior, purchase locations, and other factors,” said Kristofer Bush, vice president, marketing, for LeasePlan USA.
Piscopo of ARI echoed Bush with the specifics of a holistic approach.
“Tire inflation processes, route optimization, driver awareness, and specification reviews (weight carried, engine specified) are all areas that continue to be mined for fuel-saving opportunities. Smaller engines and hybrid solutions are now accepted as alternatives,” Piscopo said. “Fleets are implementing corporate fuel policies to define proper vehicle use (loading, idling, and personal use), proper driving habits, and proper use of a purchasing instrument (fuel card, etc.).”
The driver is a key component in increasing fleet fuel efficiency.
“Many fleets have initiated communication plans to their drivers that address issues such as unnecessary idling and fuel-efficient driving techniques,” said Bauer of Wheels.
Other fleets have taken a more comprehensive approach. “Fleets are advising their drivers of eco-driving behaviors and the importance of obtaining regular preventive maintenance to a vehicle’s fuel economy,” said Feerick of PHH Arval.
Telematics seems one answer — at least for now — in the ongoing effort to control fuel spend.
“Fleets have been looking more closely at telematics as a way to change driver behavior and improve fuel efficiency. With fuel prices varying by as much as 10-15 cents per gallon in a five-mile radius, fleets are also starting to use tools to better control where drivers purchase fuel,” said Blaine of Donlen.
Data from the pump is also crucial in controlling fuel costs. “Level 3 purchasing data from the purchasing instrument helps fleets enforce policy, and fleets rely on reporting to drive the use of regular grade fuel, discount or second-tier marketers, and self-service pumps,” according to Piscopo of ARI.
No matter how a fleet looks to control costs, it is crucial to do so, according to Bryan Steele, senior vice president, client relations, LeasePlan USA. “For larger fleets, a variation of even 1 mile per gallon could mean significant cost savings,” he said.
The theme of all these cost-control measures is access to data, according to Chad Christensen, strategic consultant, GE Capital Fleet Services. “The increasing number of choices to manage fuel cost all rely on data to effectively demonstrate savings,” he said. “It facilitates an initial evaluation of the solution as well as ongoing validation. Data also provide a means to identify fuel-cost saving opportunities and communicate more effectively with drivers on specific behaviors known to increase fuel cost. As the means for collecting the right data at the right time improves, it will provide fleet managers with additional ability to control fuel expense.”
Going into 2013, fleets can expect more uncertainty in fuel costs due to weather and continued political instability in the Middle East. However there is a glimmer of good news, according to the experts.
“Futures trading in gasoline contracts through the beginning of 2014 suggest fuel prices will remain steady or slightly below current levels,” said Bauer of Wheels.
The forecasted decline in price is due to the economic slowdown in the Far East, according to Schnedeker of GE Capital Fleet Services. “The anticipated decline in average annual price for gasoline during 2013 will be due to the expected decline in China’s growth rate and overall global economic outlook,” he said.
However, production issues closer to home could have a negative outlook for prices.
“Regional price variations continue to be heavily impacted by local refinery situations and ongoing changes to pipeline and production logistics,” said Feerick of PHH Arval.
Action by the federal government could also help keep diesel prices in check, according to Dave Lodding, president of fleet management services for Donlen.
“The government’s recent announcement that the number of gallons of biodiesel has to be increased should help keep the cost of diesel fuel in check. The downside to this is that many of the manufacturers offering diesel engines are recommending lower concentrations of biodiesel than what is being sold in many markets,” Lodding said. “This puts pressure on the driver to either search out what is approved, or risk a possible drivability issue that would not be covered under warranty.”
But, even with the outlook for lower prices at the pump, Blaine of Donlen recommended to take a “glass half empty” approach to budgeting. “Given the volatility of fuel over the past few years and the fact that it’s such a large part of the overall fleet budget, we recommend fleets conservatively budget for an increase in fuel price for 2013,” she said.
Feerick of PHH Arval noted that one thing won’t change no matter what happens at the pump. “We expect to see a continued focus on fuel-efficient vehicles as a selector option and fleets encouraging eco-driving behaviors among drivers,” she said.