Across-the-Board Increases Hit All Operating Costs in CY-2011
Higher fuel prices, ongoing increases in replacement tire prices, more expensive motor oils required by OEMs, increased parts prices, and rising labor rates in high-cost markets have put upward pressure on operating costs.
Operating costs are comprised of fuel, replacement tires, maintenance/repairs, and preventive maintenance oil drain intervals. All of these expense categories witnessed price increases in the first eight months of the 2011 calendar-year.
For instance, fuel prices were approximately 73 cents to $1 per gallon higher than the same period in 2010. The price of replacement tires for light-duty vehicles rose 6 to 10 percent. In addition, the prices of a number of replacement parts increased, while inflationary pressures exerted upward pressure on labor rates in many markets.
These findings and others are revealed in Automotive Fleet's 20th annual operating cost survey based on data provided by seven survey partners:
● Automotive Resources International (ARI).
● 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 662,634 vehicles operated by commercial fleets, which are managed by these seven fleet management companies.
"Due to vehicles being held longer than typical replacement policy guidelines in 2009 and 2010, coupled with a strong resale market, 2011 saw a year-over-year increase in the number of vehicles being replaced," said Angela Feerick, director, strategic consulting, PHH Arval. "The entry into the fleet market by many new vehicles resulted in an overall impact to average spend for tire and maintenance as compared to prior years. As clients return to their normal cycling of vehicles this is expected to return back to historical trends."
In addition, Tony Piscopo, director, fleet management for ARI, pointed out that the average miles driven in 2011 are above last year, so the increase in the overall cost-per-month is higher than the average increase in the cost-per-mile.
This year, as with prior years, the operating expense category with the largest cost increase was fuel.
"In 2010, we all enjoyed a relatively stable fuel price environment, with little variability during the calendar-year and averages of $2.78 per gallon for gasoline and $2.99 per gallon for diesel. Also, 2010 fuel costs were largely in line with budgets established in the fall of 2009. This was not the case for 2011. For a good part of the year, pump prices for 2011 were as much as $1 per gallon above prior year levels; well above most budget forecasts for 2011," said Greg Stanford, director, market intelligence, PHH Arval. "We will probably end the year with average prices of $3.50 per gallon for gasoline and $3.85 per gallon for diesel - increases of 28 percent over 2010."
A similar observation was made by John Bauer, manager of fleet analytics for Wheels Inc. "Fuel prices are up $0.73 per gallon over the same period last year and monthly costs are up accordingly," pointed out Bauer.
As fuel costs have increased, many fleets are scrutinizing additional ways to lower their total fleet spend. "One way has been short-cycling into new, more fuel-efficient vehicles. Leveraging the historically strong resale market has helped companies offset rising fuel costs by cycling older, less fuel-efficient vehicles," said Mark Lange, CAFM, maintenance services specialist, GE Capital Fleet Services.
Another factor influencing this year's operating expenses has been the increased mileage as a wide range of businesses emerged from the recession. "Improving economic conditions have led to increased business activity, and, as a result, certain maintenance expenses are on the rise as fleets are logging more miles and retaining equipment for longer durations," added Piscopo of ARI.
As fuel price volatility has been occurring every several years and prices are trending upward, it has begun to change the management of fleet operations.
"Fuel costs have altered the way fleets have historically operated. Fleet managers continue to take into consideration several variables that ultimately affect variable fuel costs," said Mark Donahue, business analyst for Emkay. "Implementation of driver behavior training to reduce speeds, idling, and increased safety awareness and mpgs have gained momentum in 2011. In addition to training, the use of technology and alerts increased in popularity with the selection of more fuel-efficient vehicles and the deployment by fleet managers."
One positive outcome from fuel pricing volatility is that fleets are more experienced in addressing these price spikes and are better positioned to mitigate the price increases with new technologies.
"Fleets were more prepared for rises in fuel costs in 2011. They have done a much better job in taking advantage of all the tools out there to not just budget for fuel costs, but to manage it throughout the year," said Tony Blezien, vice president, operations, LeasePlan USA. "Fleet managers have turned to technology to help educate fleet drivers on how to locate the lower-cost providers in their area. Now, fleet drivers can use their smartphone to pinpoint fuel site locations and the lowest-cost provider within a certain mile radius."
According to Dave Lodding, president of Donlen Fleet Management Services, the key difference he has observed concerning the impact of higher gasoline and diesel prices has been with behavior and focus. "Fleet managers are more interested in looking at every option available to manage their fleet costs. Ideas that may have once been dismissed as 'that would not work for me' are now looked at with a fresh perspective. For instance, with the cost of diesel fuel now more than or equal to gasoline, fleets are reevaluating the overall cost of using diesel pickups unless there are specific business requirements such as heavy loads or towing," said Lodding.
To mitigate the high cost of fuel, many fleets are focusing on changing driver behavior. "As stated by the EPA, the driver can impact the fuel efficiency of a vehicle by as much as 33 percent, so providing guidance to drivers on how even minor changes to their driving behavior can have a big effect. Other areas getting attention are excessive idling and route management as a way to reduce fuel consumption and miles driven," said Lodding.