Element Warns of Higher TCO in 2017

Element Fleet Management is forecasting an 11% increase in fuel costs for the coming year compared with a 12% decrease over the past year that should increase total cost of ownership for light-duty vehicles, according to the fleet management company.

The findings came in Element's annual Total Cost of Ownership (TCO) Index released on May 4 by the Sparks, Md.-based company.

Fuel prices have been slowly moving higher in 2017 in part due to reduced supply from oil-producing countries in the Middle East.

Element projects an average per-gallon cost of $2.38 in 2017. Fleet managers will no longer be able to absorb other costs of vehicle ownership with fuel savings, said Chad Christensen, Element's senior strategic consultant.

"For companies hoping to save at the pump in 2017, it’s not great news," Christensen said. "However, there are other opportunities to decrease TCO, including choosing your new vehicles wisely. For example, fleet managers looking to replace cargo vehicles should consider the new Euro-style cargo vans. They’re more fuel efficient, and there’s a strong demand for used, older-style vans among trade contractors, making this a good time to sell your old vans."

In 2016, fleet managers could offset a 7% increase in depreciation with the savings from lower fuel prices that came as a result of a softening resale market. For the year, TCO remained flat compared to 2015.

Combined maintenance was up 10%, including 6.5% higher oil change costs due in part to the rising use of synthetic oil, and 15% on fleet vehicle repairs costs driven by the cargo van segment in 2016.

Looking ahead, fleets can manage higher fuel costs by switching to more efficient Euro-style vans, improve routing, reduce driving time or vehicle weight, and carefully evaluate investments in new sedans and compact SUVs. The resale market for these vehicles could be impacted with a projected influx of these vehicles coming off three-year retail leases, according to Element.