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Fleet reductions, decreased budgets, and layoffs are just a few factors that affected commercial fleet managers during the economic downturn in 2009, according to NAFA's "How the Economic Downturn is Affecting Fleet Managers" survey.
More than 400 fleet managers throughout North America responded to the May 2009 NAFA survey. Of the respondents to the survey, conducted over a two-week time span, 80 percent have fleets based in the United States, 7.2 percent have fleets based in Canada, and 7.9 percent have fleets based in both the U.S. and Canada. As many as 4.5 percent of respondents manage fleets globally, with the majority of respondents having one to 500 vehicles in their fleet (36.8 percent).
Though the economic slowdown has many people worried about whether they will be employed, 67.5 percent of fleet managers said they were not afraid that they were going to lose their jobs (32.5 percent said they may get more duties) and 17.5 percent were unsure. However, 15 percent of respondents were afraid of losing their positions, which speaks volumes of the state of the economy.
Since the recession, 46.8 percent of respondents said their fleet management company asked them to renegotiate parts of their contracts. Furthermore, 21.9 percent of respondents said the minimum requirements for vehicle use and/or other assignment criteria had been raised.
Nearly 60 percent of respondents said they had been specifically asked to cut fleet costs for 2009. In conjunction, 31.9 percent said they were asked to reduce the fleet budget in 2009, with 25 percent responding that they hadn't been asked to reduce the fleet budget, but they had plans to reduce it anyway.
Cutting Costs to Maintain Budget
Considering the state of the automotive industry last year, such as the closures of numerous Detroit 3 dealerships, it comes as no surprise that more than half of respondents (58.1 percent) said their fleets had decreased in size over the last 12 months due to the economic downturn.
In a time of economic crisis, the first thing most companies look to improve is the budget. Not surprisingly, more than half of respondents (51.3 percent) said their fleet budget decreased compared to 2008, while 30.6 percent report that their budgets remained the same. Additionally, 58.2 percent said they had been asked to cut fleet costs for 2009.
So what are fleets doing to reduce expenses?
Nearly 41 percent of respondents reported purchasing and/or leasing fewer or no vehicles in 2009. However, to cut costs, 62.3 percent of fleet managers said they negotiated with suppliers to obtain better pricing. Forty percent said they offer less expensive vehicles in their fleets.
Some companies cut costs by hastening their diesel truck purchases to avoid acquiring diesel trucks compliant with the 2010 EPA diesel emissions standards, which went into effect Jan. 1.
The costs for 2010-compliant diesel engines are on average $6,000 to $10,000 more than their predecessors; thus, fleet managers decided to ramp up replacement orders for diesel trucks to avoid more expensive vehicle prices.
It should be noted that fleet managers foresee the new standards as a challenge because it will increase the financial burdens that fleets must endure to remain EPA-compliant.
Extending Lifecycles to Cut Costs
The majority of fleet managers deferred purchasing 2009 models, and some companies decided not to make any new-vehicle purchases at all, especially those in the construction and housing industries, as layoffs of service staff eliminated the need to keep as many company vehicles as required in the past.
In fact, 57.4 percent of respondents said they reduced fleet costs by extending vehicle replacement parameters, with many moving to 75,000- to 85,000-mileage replacements.
While the percentage of respondents who have extended vehicle replacement parameters isn't too surprising, it should be noted that extending vehicle replacement parameters could cost more money in the long run.
The older the fleet gets, the more likely problems will occur for its vehicles. Extending the service lives of vehicles increases the percentage of the fleet operating outside of its warranty period. (See the Nov. 16, 2009 Market Trends blog entitled, "Deferring Vehicle Replacements is Counter-Productive to the Intended Goal" at www.automotive-fleet.com/Blog/Market-Trends.aspx.)
And once a vehicle is out of warranty, maintenance costs will likely increase.
As vehicles grow older, the likelihood of the vehicle having a catastrophic failure increases. And when that problem does occur, the percentage of purchasing out-of-stock increases, which is the most expensive way to replace vehicles in a fleet.
In addition to extending the lifecycles of company vehicles, fleet managers also are right-sizing their fleets, minimizing the number of required replacement vehicles.
As a consequence to the turmoil of the past 12 months, fleets are seeking to acquire vehicles from a different manufacturer than was originally planned (35.6 percent). Additionally, instead of single sourcing a vehicle manufacturer, 31.1 percent of respondents said they will use more vehicle manufacturers.
Also noteworthy: 10.3 percent reported they will use import-badged manufacturers for the first time.
Additionally, the majority of fleets reported that they will use a different mix of vehicle types (56.7 percent).
Managing Fuel During Economic Strife
Fuel prices continue to remain an issue for fleet managers. From the record-high fuel prices in 2008, the economic downturn resulted in the drop of fuel consumption worldwide. And though fuel prices stabilized in 2009, many fleet managers wonder how long that will last until the shoe drops. In AF's January 2010 article, "The State of Commercial Fleet Management in 2010," one fleet manager asked, "As the economy rebounds, will the price of fuel increase?"
The question seems fair, and results of the survey indicate commercial fleet managers are making strides to combat this issue. When asked the question, "What have you done to reduce fleet costs over the past 12 months," more than 63 percent of respondents replied that they offer vehicles with better fuel economy in order to reduce their fuel spend. Furthermore, 61 percent have introduced vehicles with better fuel efficiency (i.e., switching to four-cylinder engines).
With so many fleets concerned about future fuel costs and compliance with corporate sustainability initiatives, an increasing number are looking to purchase more "green" fleet vehicles, such as hybrids. However, only 18.8 percent of respondents said they've introduced green vehicles in their fleets to reduce fleet costs over the past 12 months.
Companies are still concerned with going green and attempting to lower their carbon footprints. However, companies are seeking to reduce fuel costs as much as possible. As one fleet manager stated, his company will only review and adopt technology that is economically feasible. Thus, more emphasis is placed on educating drivers on driving behavior, adopting anti-idling policies, increasing overall fleet mpg, and migrating to smaller classes of vehicles.
Only 2.6 percent of commercial fleet manager respondents said they entered fixed fuel cost contracts.
Looking to the Future
Some fleet managers do not believe that 2010 will be much better for commercial fleets than 2009.
However, despite the uncertainty of the economy, as evidenced by the NAFA survey results, many fleet managers are finding ways to do more with less and are dealing with challenges in stride.