Fleet maintenance costs have decreased in the past 12 months, compared to CY-2014, with the primary factor being increased overall vehicle quality. Contributing to this decline was increased reliability because of new motor oils, engine and transmission component engineering, onboard diagnostics informing drivers of issues, and faster OEM response time to component failures.
“Today’s vehicles are built to last and are more reliable now than ever before,” said Zingha Lucien, strategic consulting manager at Element Financial Corp.
The veracity of higher vehicle quality is best exemplified in fleet maintenance expenses. “Maintenance and repair costs remained relatively flat in the past year,” said Romy Bria, director, fleet management at ARI.
There are several fleet maintenance trends influencing maintenance costs in calendar- year 2015, which extended OEM required maintenance service intervals and the cost of OEM safety recalls resulting in extended vehicle downtime and increased rental expenses for replacement vehicles.
“Fleets continue to capitalize on the extended service intervals by working with their lessors to utilize predictive maintenance and mitigation measures,” said Dale Jewell, director, North American maintenance operations for EMKAY. “Catastrophic failure and unplanned maintenance expenditures will continue to be alleviated with the appropriate program implementation.”
Ongoing Safety Recalls
A carryover issue from 2014 has been the ongoing safety recalls and related expenses.
“OEM safety recalls have been very costly for many fleets, including increased driver downtime and rental needs. Parts delays still remain due to recalls, warranty work, and unscheduled repairs,” said Steve Jastrow, strategic consulting manager for Element Financial Corp.
Monthly maintenance rental costs significantly increased due to ongoing safety recalls. Replacement part delays were another key factor driving up rental costs. The lack of availability of replacement parts has been an ongoing issue that was further exacerbated by the massive number of vehicles recalled, this contributed to longer rental periods for replacement vehicles.
“The expenses connected to downtime and rental costs associated to warranty or recall repairs. These costs have varied greatly by fleet industry, vehicle composition, and vehicle utilization,” said Jewell of EMKAY.
Despite the widespread recalls, overall vehicle quality in 2015 continued to remain high. The introduction of new technologies into new models is contributing to ongoing high-quality levels. OEM offerings, including remote access to vehicles, have reduced costs and driver downtime for lockouts and drivability issues related to diagnostic trouble codes.
However, at odometer readings of more than 100,000 miles, maintenance expenses spike upward.
“Wheels has added some high-mileage fleets to the maintenance program in 2014-2015. Some are keeping vehicles past 150,000 miles. Those vehicles experienced much higher maintenance, but, because of the mileage, that data was not reported because it exceeds the survey parameters. The expenses for vehicles under 100,000 are very similar to expenses reported in 2014,” said Jeff Whiteside, senior director manufacturer relations and repair services for Wheels Inc.
Upward Pricing Pressures
One maintenance category experiencing an uptick in pricing is replacement parts.
“The largest obstacle we have witnessed in 2014 and 2015 has not been the cost of specific repairs, but rather parts availability. We encountered numerous issues where manufacturer supply chains are not able to keep up with demands for certain components — primarily related to warranty or recall covered work. These delays frequently lead to an increased downtime, potential interruption of revenue generation and production. However, many of these issues appear to be subsiding as manufacturers have worked to correct these chronic problems. We expect to see a steady decline in this type of expense,” said Tom Sopel, manager, maintenance and repair management for LeasePlan USA.
This concern was also voiced by EMKAY.
“Parts pricing has increased over time, and new technologies, such as hybrid drive systems, diesel emissions after-treatment, and electric steering assist have driven that increase. Additionally, the widespread use of ‘just-in-time’ manufacturing and the minimal part inventories of the manufacturers have led to many new parts being unavailable. This has resulted in increased downtime and rental costs,” said Jewell of EMKAY.
Although vehicle quality is high, some fleet management companies report that quality issues still persist.
“We are seeing an increase in intermittent drivability issues that require multiple trips to dealers for repair,” said Whiteside of Wheels. “For some, the rapid pace of new technologies has created issues very difficult for dealers to diagnose. These impacts are a very small percentage of the overall vehicles, but it can be very frustrating for drivers and clients. The vehicle manufacturers have been very cooperative and helpful when working through the issues, but it is key to get the manufacturer involved early to mitigate inconveniences and cost.”
One chronic maintenance area seems to revolve around diesel emission technology, in particular, selective catalytic reduction (SCR) systems.
“Generally, newer technologies have proven to be comparatively trouble free and not a significant driver of maintenance/repair expenses compared to past years. One exception is the increase in new diesel emissions technology, which adds complexity and requires driver training to properly understand operational requirements. We have also seen increased frequency in OEM recalls and service campaigns, which has created an increase in downtime and concerns for fleets to ensure compliance,” said Bria of ARI.
One technology that is making a positive impact on fleet maintenance is telematics.
“Several factors impacted maintenance/repair costs in 2015 positively, including the increased usage of telematics for tracking exact mileage, and onboard diagnostic data,” said Lucien of Element Financial Corp.
According to fleet management companies, the number of fleets employing telematics systems is on the rise.
“More and more fleets are realizing the value in telematics and its impact on reducing maintenance and repair spends. Optimizing engine hours, miles driven and idle time all have a trickle-down effect on PM services, non-PM spends, and downtime; and more fleets are realizing this through the power of the data. Telematics is no longer the ‘nice to have’ it once was for many fleet applications,” said Brad Jacobs, director of strategic consulting for Merchants Fleet Management.
A key advantage to telematics systems is the ability to spot maintenance issues at their inception before they become larger and more expensive problems and more expensive problems.
“Integration of telematics diagnostic trouble codes (DTC) with a vehicle’s maintenance history can help spot potential early maintenance issues and facilitate directing fleet drivers to a repair provider,” said Jastrow of Element Financial Corp.
Warranty Recovery Trends
Warranty recovery remained flat in 2015 and it is anticipated that it will continue to be flat in 2016.
“Compared to 2014, there have been no significant warranty recovery changes. Most of the warranty recovery is occurring during the term of the new vehicle’s warranty. Longer base and powertrain warranties have led to a reduction in post-warranty recovery,” said Jewell of EMKAY.
Agreeing with this assessment is Wheels. “We have observed no major changes in warranty recovery,” said Whiteside.
Higher vehicle quality is another factor for a decrease in warranty recovery monies. “Warranty recovery from an FMC standpoint continues to decrease slightly. Increased quality, extended emissions and powertrain warranties are contributing factors,” said Bria of ARI.
One ongoing trend is more stringent enforcement of manufacturer recommended services to be eligible for warranty coverage.
“OEMs are limiting warranty recoveries on the basis of missed fluid exchange intervals. This is particularly impacting transmission services and replacements,” said Bill Croke, manager of TotalView analytics at Merchants Fleet Management.
The consensus is that warranty recovery monies are decreasing.
“Manufacturers are being more stringent with fluid exchange service intervals, especially transmission and coolant related services. Warranty recoveries and goodwill adjustments are shrinking as failures associated with these components are incurred,” said Jacobs of Merchants Fleet Management.
Forecast of 2016 Maintenance Costs
The forecast for maintenance costs in 2016 is mixed. Some foresee higher costs, while others foresee costs remaining flat.
“We expect maintenance costs to continue increasing next year — 8 percent-plus is not unrealistic. Many ‘basic’ scheduled and non-scheduled repair services will see cost increases,” said Jastrow of Element Financial Corp.
Another factor driving this increase will be higher labor rates, which are anticipated to increase in 2016 as operational expenses increase, partially driven by auto technician shortages.
“Unfortunately, both parts and labor costs will increase through 2016,” said Jewell of EMKAY. “However, a well-managed fleet will see maintenance costs remain flat or trend slightly downwards. Proper vehicle spec and selection, a comprehensive maintenance control program, and good driver education can offset the expected increase in parts and labor,”
One silver lining is that the anticipated increase in maintenance costs will not have a large impact on fleets.
“At less than 10 percent of total cost, it would take significant inflation or aging of a fleet to have a major impact on cost,” said Whiteside of Wheels Inc.
In terms of the asset itself, higher quality, increased reliability, and better warranties will drive future maintenance costs.
“We believe there will be a continued trend toward better quality vehicles along with better warranties. We expect OEMs to continue to entice fleets with free services and other incentives to encourage drivers back to dealership facilities,” said Bria of ARI.
LeasePlan USA takes the contrarian view and forecasts maintenance and repair costs will remain flat for 2016.
“I anticipate the cost of maintenance will remain fairly close to what it has been the previous year. In recent history, we have seen quite a few changes in manufacturers’ maintenance recommendations and scheduled service intervals. These appear to have stabilized a bit and we do not foresee any major changes for 2016 models. Additionally, the issues that have plagued some of the early renditions of models currently on the road have been addressed both from the standpoint of units in service and units in production,” said Sopel of LeasePlan USA.
Others, likewise, do not foresee an uptick in fleet maintenance costs in 2016 and believe fleet managers should focus on reducing maintenance expenses by employing cost-avoidance strategies.
“Significant increases in maintenance and repair costs are not foreseen in the near future. PM services and tire replacements are dependent on commodity costs placing spend management outside of a fleet professional’s control in many cases. Instead we see fleets approaching maintenance from a cost-avoidance perspective through managing utilization, engine hours, vehicle cycles, and making tactical decisions by vehicle when significant investment needs to be made in a repair,” said Jacobs of Merchants Fleet Management.