The Car and Truck Fleet and Leasing Management Magazine

Fuel Still a Key Factor as Operating Costs Remain Flat

November 2001, by Jose Tingson

While fuel prices have recently stabilized, they continue to have an impact on overall operating costs, which increased by 2 percent. Bob White, director of fleet services for ARI, in Mt. Laurel, NJ, said that although fuel prices have decreased from their high point earlier this year and the end of last year, the overall prices are still higher than they were a year ago and several years ago. “Fuel prices have remained as one of the driving factors in the increase in operating cost of vehicles,” White said.

While continuing to remain high, fuel prices are “much more erratic and volatile,” said Greg Corrigan, senior business consultant for PHH Arval in Hunt Valley, MD. White said that operating costs for all other categories are flat, but issues such as the Firestone tire recall and other vehicle recalls have helped increase warranty recovery credits. Likewise, Corrigan said he hasn’t seen any dramatic changes to other categories of the operating cost survey. “From what we’ve seen this year, on the maintenance side, whether it’s tires or preventive maintenance, we’re not seeing significant changes in those costs. It’s pretty much remaining flat.” Mike Southwick, vice president of maintenance management for CitiCapital Fleet in Carrollton, TX, said, “If fuel expense is stripped away, other operating costs have been relatively stable during the 12-month period represented in this study.” These findings are based on the data in Charts 1-12, which show actual operating cost expenditures incurred by 169,853 vehicles by three fleet manage-ment companies: ARI, CitiCapital Fleet, and PHH Arval.

Fleets Continue to Extend Lifecycle of Vehicles

In terms of vehicle depreciation, White said fleets are extending the service terms of vehicles, and delaying replacement decisions, but he said he has not seen much difference in depreciation expenses over the past year. Southwick also continues to see extended lifecycles for cars and trucks. Another consequence of high fuel prices, combined with worsening economic conditions, is that fleets continue to “focus on the management of fuel expenditures and selection of more fuel-efficient vehicles,” he said. But Corrigan hasn’t seen wholesale movement toward further extension of replacement “because we’re coming up against the natural point of contention between keeping a vehicle in service and impacting driver productivity. Fleets in general have reached the limit in how far they’re willing to extend replacement without adversely affecting the driver.”

Compact Cars Incur Higher Costs Than Intermediates

White said compact cars continue to be more expensive to run than intermediate cars. “The primary reason is people look to go into compacts because of cost, but sometimes they’re not the right vehicle for the applications,” he said. “So although you have a lower acquisition cost, you have a higher operating cost.” Southwick said that, in general, operating costs for cars have generally increased. “The industry has witnessed inflationary tendencies with respect to service and repair work, particularly at dealerships and independent shops.” “While compact cars have lower fuel cents-per-mile, they are generally more expensive to operate than intermediate vehicles – with respect to maintenance and repair expense – and have very similar tire expense. This is primarily due to application issues,” Southwick added.

Sept. 11 Attacks Cause Little Impact on Fleet Business

In the wake of the Sept. 11 terrorist attacks, White said the fleet business has not been affected dramatically, although the overall economic slowdown has caused consumers to delay capital budgetary decisions. “But overall it hasn’t had a big impact and I don’t see it affecting operating cost unless there’s an escala-tion that would affect supply, and primarily the greatest risk is obviously fuel and whether supply will become jeopardized.” “What’s lost in all the discussion around the fuel cost is that financing costs are down more than 50 percent from a year ago,” Corrigan said. “That’s partially due to Sept. 11. But mostly it’s the fact that the U.S. and the global economy are in a recession right now. So the central banks are fighting it with monetary policy.”

Lower Overall Operating Costs Forecast for Next Year

Corrigan sees basically a flat, if not lower, operating cost outlook for next year, primarily because the threat of a recession has already led to lower consumption of fuel, which is currently driving prices down. Daryl Lubinsky contributed to this article.

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