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Market Trends

Fuel Becomes Fleet's No. 1 Expense at $3.25 Per Gallon Depreciation Moves to No. 2 Position

April 25, 2006, by Mike Antich

If this occurs, it would be a milestone for our industry, although a dubious one," said Greg Corrigan, VP, strategic business services for PHH Arval, who ran the calculations that reached this conclusion. However, Corrigan does not foresee gasoline prices reaching this level in the near term. PHH forecasts prices for 2006 to average $2.30 per gallon on the low end to $2.70 at the high end.

All fleets are feeling the pinch of higher fuel prices and are adopting compensatory strategies. Fleets are keeping closer tabs on personal use miles to avoid paying for non-business-related fuel expenditures. Currently, the average personal use charge to employees is $90 per month. Many fleets are re-examining chargeback systems to determine whether personal use expenses are adequately recouped, said Corrigan. Higher fuel costs have some fleet managers reevaluating the placement of SUVs on selectors. Fleet managers are also reducing fuel spend by optimizing trip routing to avoid unnecessary travel and backtracking, said Corrigan. 

Other fleets are attempting to minimize idling. The worst mileage is 0 miles per gallon, which occurs when a vehicle is idling. "Fleets tremendously underestimate the amount of idling that occurs. In reality, it is staggering, said Corrigan, who based this assertion on recent telematic data acquired from PHH Onboard pilot programs. Idling for long periods consumes gas that could be saved by turning off the engine. Restarting an engine uses about the same amount of gas as idling for 30 seconds.

Enforcing a Fleet Fueling Policy

Higher fuel prices can tempt some employees to do things they ordinarily wouldn't do. Scrutinize fuel exception reports, and if you haven't already done so, enforce limits at the time of purchase. The most effective way to enforce a fleet fueling policy is to set limits so that purchases outside these parameters are not allowed. For example, if you restrict transactions to two per day, the third transaction will be declined at the point of purchase.

Fuel cards should also be restricted so they cannot be used to purchase non-fuel products and services. also, control the days and times of fuel purchases. Frequent fuel purchases made with the company card outside of business hours is a clue of waste and abuse. Fuel should be purchased only during business hours. Watch for fuel purchases that exceed tank capacity. Lastly, stipulate the desired grade of fuel for each vehicle. Every time a driver fills that tank with a premium or mid-grade fuel, the company wastes as much as 10-25 cents more per gallon or about $2 more per tank of fuel.

Fuel Needs the Same Emphasis as Depreciation

The breathtaking increase in gasoline and diesel prices has given us a reality check as to how quickly fuel can dramatically increase fleet operating expenses. From January 2005 ($2.03/gal.) to October 2005 ($2.91/gal.), the average nationwide price of a gallon of regular unleaded gasoline increased 43 percent, which represents, on an annualized basis, an average increase of almost $750 per vehicle driving 2,000 miles a month. This new reality requires us to elevate fuel management to the same status as depreciation management.

Let me know what you think.

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Click Here to View Chart on the Impact of High Fuel
Prices on Fleet Budgets

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Mike Antich

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Mike Antich has covered fleet management and remarketing for more than 20 years and was inducted in the Fleet Hall of Fame in 2010.

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