The Car and Truck Fleet and Leasing Management Magazine

Operating Costs Remain Flat in Calendar-Year 2010

Stable fuel prices were the primary reason fleet costs remained flat. Also, national accounts did not increase prices for oil changes and replacement tires. Maintenance costs were up for fleets that extended vehicle cycling.

November 2010, by Mike Antich - Also by this author

Click here for a PDF of the complete article, including charts.

Operating costs remained flat for 2010, primarily due to stable fuel prices, which represent the largest category of fleet operating costs. Contributing to this trend is an ongoing migration by commercial fleets to downsize to more fuel-efficient four-cylinder engines, along with acquiring fewer SUVs. There has also been a trend to more expensive synthetic oils and new engine oil performance standards, but national account contracts have kept the price of oil changes stable. However, replacement tire costs increased due to extended vehicle cycling, which necessitated an extra set of tires.

These findings and others are revealed in Automotive Fleet's 19th annual operating cost survey from data provided by survey partners:
● Automotive Resources International (ARI).
● Donlen Corporation.
● EMKAY Inc.
● GE Capital Fleet Services.
● LeasePlan USA.
● PHH Arval.
● Wheels Inc.

This year's survey is based on analysis of actual operating costs incurred by 620,964 vehicles operated by commercial fleets and managed by these seven fleet management companies.

Fuel Prices Stabilize

Gas and diesel prices stabilized in 2010. This is in sharp contrast to the volatile pricing that occurred in the past several years.

"According to the Department of Energy (DOE), the average price per gallon of regular grade gasoline increased from $1.79 in January 2009 to $2.61 in December 2009, a 46-percent increase, with much of the increase occurring in the first half of 2009. By comparison, the DOE is forecasting an average price per gallon of $2.73 during the second half of 2010, which is down 3 cents from the average of  $2.76 during the first half of the year," said Sung Lee, fuel product manager for GE Capital Fleet Services. "Although fuel prices increased during the first part of 2010, concerns about the rate of global economic recovery caused prices to retreat from their peaks in April and May."

EMKAY also cited stabilized fuel prices as a key factor in keeping operating costs flat. "Fuel prices have been fairly stable. Overall, most fleets started making changes to vehicle selectors shortly after summer 2008 and continued the trend to order smaller, more fuel-efficient vehicles when practical," said Jim Tangney, vice president of acquisitions for EMKAY.

Some experts warn against complacency, however, noting the occurrence of a natural disaster or catastrophic event could send fuel prices back up.

"Much like last year, fuel prices have decreased. Due to continued economic uncertainty, we've seen the average price per barrel drop, which was reflected at the pump. However, we warn companies against becoming complacent about fuel costs. A catastrophic event, the economy, war, etc., can change things at any time," said Tony Blezien, vice president, operations for LeasePlan USA. "The best thing is to be prepared for these cases and keep fuel on the radar, even when prices are low like they have been recently."

PHH Arval also reports the impact of fuel prices have been slightly less this year as average prices for 2010 were fairly close to budget targets. "PHH's fleet outlook for 2010 suggested gasoline prices in the $2.70 to $2.75 range, right in line with year-to-date average pump prices. Diesel prices have been slightly higher than expected, but not markedly so as we've seen in the recent past," said Greg Stanford, director, market intelligence for PHH Arval. "Remember 2008 when diesel shot up to $4.75 per gallon?"

Many fleets have adopted a variety of strategies to mitigate the cost of fuel. "These include right-sizing, smaller engine specifications, driver behavior training, and make/model migrations to best-in-class fuel economy vehicles for given application needs," said Brad Jacobs, client consultant, strategic consulting services for Donlen.

Fleets are also designing vehicle selectors to reduce fuel spend. "Many fleets have been very intentional in making selector choices with fuel economy in mind. Some put hybrids in service. Others are specifying four-cylinder rather than six-cylinder engines, which makes sense if the application is right. We've also seen dramatic reductions in fuel consumption when fleets use telematics to monitor driver behavior," said Stanford.

Wheels also reports more fleets right-sizing selectors to increase fuel economy. "Fleets using sedans and small SUVs are choosing four-cylinder engines in 2011. Four-cylinders are being ordered on almost 80 percent of sedans and 65 percent of SUVs," said John Bauer, manager of fleet analytics for Wheels.

In the past, only a few fleets really focused on fuel efficiency. "Now, the times are different, and, on a large scale, we're seeing smaller vehicles, fewer SUVs - replaced with either crossovers or sedans, and a strong upsurge in four-cylinder engines. In addition, many organizations are now considering telematics solutions to better plan routes to reduce fuel consumption," said Scott Tepas, manager of data analytics for EMKAY.
Another opportunity to reduce fuel expense is through reducing the average age of the fleet.

"In many cases, additional fuel cost savings could be achieved simply by replacement of aged units," said Jacobs. "Since 2005, the fleet-minded passenger sedan segment has shown up to a 10-percent fuel economy improvement, according to EPA fuel economy ratings. Fleets taking advantage of new engine technologies have seen the payoff in fuel spend reductions. With CAFE standards increasing through 2016, the opportunity for reduced spend through vehicle replacement should continue to grow."


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