10 Predictions for the 2005-Model Year and Beyond
As we start the 2005-model year this month, here are 10 predictions as to what to expect next year and beyond.
1. Ongoing Fuel Price Volatility:
Watch for fuel price volatility to be repeated in 2005. The reason is the pre-existing weaknesses in the nation’s fueling infrastructure. No new refineries have been built in the U.S. since the mid 1970s. This has resulted in limited refining capacity, especially for the production of reformulated gasoline, which increases the frequency of spot shortages. One reason California and the Midwest fuel prices are so volatile is because there are few sources for their unique blend of gasoline. California and Midwest refineries must run at near full capacity to meet demand. If more than one of the region’s refineries experience downtime at the same time, gasoline supplies become very tight and prices soar. All of the ingredients are in place for a continuation of the roller-coaster-like volatility in fuel prices.
2. The Growing Influence of Strategic Procurement:
Strategic sourcing is the hottest trend in corporate procurement, and it is becoming a change agent in fleet management. Procurement is now the major driver in almost 90 percent of all outsource initiatives. Increasingly, procurement is responsible for managing the ongoing relationships with suppliers. In addition, more and more fleet managers are being reassigned to corporate procurement.
3. Taxation of Fleet Vehicles Will Increase:
As state and local jurisdictions look to balance budget shortfalls, sales tax and property tax rates will continue to rise. One revenue generator is to raise licensing fees for trucks. For instance, states have created a number of new taxes, such as tire taxes, battery taxes, environmental fees, and surcharges, which allow states to increase revenue without “raising taxes.” In addition, jurisdictions are aggressively ticketing vehicle violations to enhance revenue.
4. Accident Management Costs Will Increase:
OEMs are raising prices on replacement parts more frequently. Prices are now increasing quarterly instead of annually. In addition, manufacturers are selling more assemblies rather than individual parts. In the past, if you had a damaged quarter panel you would just buy that part. Now you have to buy the integrated body side unit that contains the quarter panel. Also, OEM are using more plastic components and electronics, which increase repair expense.
5. Vulnerability of the Used-Vehicle Market to Interest Rate Hikes: Retail interest rates to finance used vehicles almost doubled from July to August 2004. Rates went from the upper 3s and lower 4s to 5.8 percent to 6.0 percent on most loans. Other factors impacting fleet resale prices are the aggressive new-vehicle retail incentives and flat new-vehicle pricing. Retail incentives have a direct pass-through effect in lowering fleet resale values. Every $1 of retail incentives decreases resale values by 43 cents for a 3-year-old vehicle. Resale values should remain stable in 2005, but the wildcard is the level of manufacturer new-vehicle incentives.
6. Fleet Safety Becomes a “Hot” Issue Again:
In the past year, safety has become a hot issue for many fleets. One reason is greater involvement of risk management departments in vehicle selection. Costs due to at-fault accidents or accidents involving uninsured drivers have also risen. OEMs are using more expensive components, causing repair costs to quickly exceed the residual value of vehicles. More vehicles are being totaled today because of the high cost to repair them. Senior management is also exerting pressure to minimize corporate liability exposure.
7. Ongoing Stability in Fleet Maintenance Costs:
Vehicle maintenance costs have remained flat because of low inflation, stable national account pricing, and extended PM service intervals. Although vehicles are being kept in service longer, increased vehicle quality is helping to keep maintenance costs stable.
8. Increased Penetration of Hybrids and Diesels in Commercial Fleets:
Many companies want to portray an environmentally friendly corporate image. As more hybrids become available in the market, their presence in fleets will grow in the next five years. This may provide the opening for import-badged companies to gain a greater market share of the commercial fleet market. Also, watch for greater availability of more technologically advanced diesel engines for light-duty vehicles, which offer 20-30 percent improvements in fuel economy.
9. Telematics to Move Downstream to Smaller GVW Trucks and Cars:
Since the late 1980s, telematics has been used by the over-the-road truck industry for delivery scheduling, route optimization, and driver communication. The widespread use of satellite tracking and communication technology in the Class 8 market will migrate to the Class 3-7 market. One factor that will increase telematic use in automobile fleets is the ability to provide real-time mileage reporting.
Growing Number of State DMVs Offer Electronic Titles and Online Registration/Renewal:
Electronic vehicle titles will revolutionize title processing. An electronic lien and title system (ELT) is technology that allows vehicle titles and lien information to be transmitted electronically, much like e-mail, to and from state DMVs and lien holders, such as fleet management companies. Another program is online registration and titling of vehicles. In the next five years, an estimated 25 states will offer online registration.
Let me know if there are other trends I might have missed.