Editors Note: This article is part of a five-part package dealing with operating costs in 2016. Read related articles that offer and in depth look at Fuel Spend, Tire Prices, Fleet Maintenance, and Preventative Maintenance.
Calendar-year 2016 marks the fourth consecutive year that fleet operating costs have remained stable compared to the past four years, primarily due to the continuation of lower gasoline and diesel prices.
This, along with other findings, are revealed in Automotive Fleet’s 25th annual operating cost survey, and are based on data provided by six survey partners:
- Element Fleet Management
- LeasePlan USA
- Merchants Fleet Management
- Wheels Inc.
This year’s survey is based on the analysis of actual operating costs incurred by 634,515 vehicles operated by commercial fleets, which are managed by these six fleet management companies.
Fuel Prices Continue to be Stable
Fuel represents 60% of a fleet’s total operating costs, so the lower price per gallon of fuel has had a dramatic impact on overall fleet costs. However, it has had a dramatic impact on fleets operated by energy companies, which are operating on austerity budgets to offset the decline in retail fuel prices.
In addition to lower prices at the pump, these cost reductions have been amplified by the ongoing trend by fleets to spec smaller displacement engines, when applicable, along with increased driver training to encourage more fuel-efficient driving behaviors.
Although there may be less pressure for alternative-fuel vehicles, the focus continues to be to acquire the most fuel-efficient models that can fulfill the fleet requirement. In addition, new-model vehicles tend to have higher MPG ratings than predecessor models, due to light weighting, the proliferation of higher-speed transmissions, and more efficient powertrains. The increased implementation of telematics systems has also resulted in improved route optimization and easier identification of drivers who are engaging in driving behaviors that are decreasing MPG.
What is the forecast for per gallon fuel prices in calendar-year 2017?
As many have learned through experience, fuel prices are impossible to forecast with certainty, and are influenced by a number of external variables, such as macroeconomic activity, geopolitical situations, and domestic supply and demand.
Most fleet management companies use the U.S. Energy Information Administration (EIA) of the U.S. Department of Energy forecasts for internal planning and external fuel price forecast dissemination. The EIA projects fuel costs to rise modestly over the next 12 months.
The EIA Short-Term Energy Outlook forecast is for an annual average of $2.26 per gallon of gasoline for CY-2017 from the current $2.08 per gallon in 2016. The forecast of continued flat fuel prices will be an important factor influencing 2017 and 2018 model-year acquisition decisions.
In addition, the prediction for CY-2017 is that global supply and demand for oil will remain at today’s levels, which will keep downward pressure on fuel prices. Another ongoing variable is that the percentage of imported oil has continued to drop with the increase in domestically sourced oil. This has lowered the impact of price volatility in oil-producing regions mired in political instability.
Tire Prices to Remain Stable
The second highest operating cost is replacement tires, whose pricing has been stable in 2016. A key reason for the stabilization in replacement tire prices is less volatility for the commodities used to manufacture tires, namely oil, rubber, and steel. These lower materials prices have contributed to keeping replacement tire costs flat.
Maintenance Costs to Remain Flat
Fleet maintenance costs have remained flat over the past 12 months, compared to CY-2015, with the primary factor being increased overall vehicle quality. In addition, increased maintenance intervals have contributed to lower maintenance costs for fleets.
An ongoing issue is parts availability, where the manufacturer supply chains are not able to keep up with demands for certain components — primarily related to warranty or recall covered work.
The widespread use of just-in-time manufacturing has created situations where demand exceeded production capacity and created unforeseen downtime waiting for parts deliveries.
In addition, there has been a general uptick in parts pricing. However, vehicle quality continues to remain high, helping to offset these expenses.
Another area that is putting upward pressure on maintenance costs is labor. But, maintenance still represents a relatively small segment of overall operating costs at just 10% of total operating costs. In order for maintenance to have a dramatic impact on total operating costs, it would require far more significant increases than what is anticipated in the future.
The following four articles provide an in-depth examination of 2016 operating cost trends and a forecast of expenses for the 2017 calendar-year.