Overall operating costs for commercial fleets increased 20 to 30 percent, on average, in 2006, according to industry data compiled by Automotive Fleet magazine. “Across all vehicle classifications, this increase was directly attributable to increased oil costs,” said Tony Piscopo, manager, Fleet Management Services for Automotive Resources International (ARI).

The high cost of oil has had a domino effect in increasing prices for other fleet-related commodities.

“With such a dramatic increase in fuel, it caused overall operating expenses to spike once again. This is seen not only in the fuel costs, but also the costs to manufacture and distribute maintenance-related products. While fuel was the primary driving factor, other oil-related products, such as tires and preventive maintenance, were also higher,” said Tony Blezien, vice president of operations for LeasePlan USA.

Although fuel prices have skyrocketed, there is a silver lining to this increase.

“Since 2005 was only a partial year in terms of high fuel prices, we saw a 10-percent increase in 2006 in total spend. The good news, however, was that we finally saw a significant (more than one mpg) increase in average miles per gallon across all clients, so indications are that fleets are adopting more efficient vehicles,” said Greg Corrigan, vice president, Business Intelligence for PHH Arval. “Otherwise, the fuel increase would have been higher.”

These findings and others are based on a survey of operating cost data provided by survey partners: ARI, GE Commercial Finance Fleet Services, LeasePlan USA, PHH Arval, and Wheels Inc. This year’s annual operating cost survey is based on analysis of actual operating costs incurred by 527,085 vehicles operated by commercial fleets and managed by these five fleet management companies.

High Fuel Costs Hit Fleets Hard
Fleets were hit hard by the steady rise in fuel prices in 2006. Some fleets have seen fuel expenses double or go even higher when compared to just a few years ago.

“Fleets with a heavy concentration in diesel usage were hardest hit as diesel costs increased more than gasoline,” said Jason Lee, fuel product manager for GE Commercial Finance Fleet Services. “In 2006, the substantial increase in gasoline and diesel prices brought fuel costs to the forefront of a fleet’s total operating expenses.”

The increase in fuel prices caused fleet managers to take a closer look at factors that affect miles per gallon, but the increase was not enough to reduce the amount of miles each vehicle was driven. “Fleet managers are keeping closer tabs on fuel exception reports. We’ve seen an increase in fleets choosing to start a fuel program to monitor and manage their fleet’s fuel exceptions. It did not have an immediate influence on the types of vehicles placed on selector lists. However, many companies have taken a second, and sometimes a third, look at more fuel-efficient vehicles, including hybrids and alternative-fuel vehicles,” said Blezien of LeasePlan.

In this era of high fuel prices, fleet managers are trying to reduce fuel costs any way they can. "Many fleet managers have become more vigilant in performing preventive maintenance services to make their vehicles more fuel-efficient,” said Blezien.

“Through our annual review process, GE detected a substantial rise in fuel costs for our customers. As a portion of overall fleet expenses, fuel is now the second-largest fleet expense, approaching what a fleet spends on depreciation, traditionally the largst fleet expense,” said Lee.

“When looking at the data closely, we find that some fleets have been able to deflect the impact of fuel increases by making a shift to more fuel-efficient vehicles. Not only have these fleets minimized the impact of rising fuel costs, but they have also taking a significant step in reducing their CO2 emissions,” added Lee.

However, not all fleets felt the same impact of higher fuel prices.

“The impact was not nearly as bad as anticipated. Most fleets budgeted for a fuel price per gallon above $3 and the actual average price paid was closer to $2.50,” said John Bauer, manager of fleet analytics for Wheels Inc. “Fleets also evaluated their use of SUVs or moved to smaller SUVs.”

Maintenance Costs Remain Flat
Outside of fuel- and oil-related products, repair and maintenance costs were relatively flat compared to 2005 levels.

“Improved quality, especially in the compact car and minivan segments, led to an actual decreased repair and maintenance expenses in those segments,” said Piscopo of ARI.

Eric Strom, maintenance product manager for GE Commercial Finance Fleet Services, agrees.

“In looking at overall maintenance costs, we have seen a decrease across the board for passenger cars, light-duty trucks, and vans. Maintenance costs have actually decreased enough to offset labor rate increases and the impact of crude oil pricing to parts costs. Manufacturer initial quality continues to improve —a key factor influencing maintenance costs. Now under-the-hood components require less-frequent servicing, such as cooling, transmission, differential, spark plugs, and fuel filters, which has led to decreased maintenance costs year-over-year,” said Strom.

Where maintenance expense for both cars and trucks has risen over the past year, two factors contributed to the increase. “Prices for individual repairs increased and the number of repairs was up due to more fleets keeping vehicles in service longer. The biggest increase was at the 48,000-plus-mileage range,” said Bauer. “Fleets that keep vehicles longer are more focused on keeping them properly maintained to ensure that drivers are productive. Even at these increased levels, maintenance and tire spend is less than 3.5 cents per mile over an 80,000-mile lifecycle. That’s less than 10 percent of the total cost of ownership,” added Bauer.

Other major factors that influenced fleet maintenance expenses in 2006 were rising oil prices and normal inflation. “Increased oil prices forced the price of gas up that, in turn, elevated the price of distribution, one of the most costly parts of getting products to market. All parts prices went up as manufacturers, wholesalers, and retailers had to pay more to ship parts around the country,” said Blezien.

Other indirect factors also impacted maintenance costs. “Due to higher fuel costs, towing and road service fees also increased. Many tow providers have not only increased their fees, but have also added fuel surcharges,” said Charles Thomas, product manager for Vehicle Maintenance Assistance for PHH Arval. “Higher oil prices also influence everything from oil-change costs to other petroleum-related items. Use of synthetic oil and repairs to import vehicles increased maintenance expenses. Higher labor rates also drove up costs.”

Also, new-vehicle technologies are creating new maintenance costs.

“We have seen early signs of increased costs to maintain the tire pressure monitoring systems (TPMS) installed on many fleet vehicles,” said Mark Lange, maintenance customer service specialist for GE Commercial Finance Fleet Services. “The increased costs relate to resetting the system when rotating tires or replacing tires. The OEM systems are all unique, making it difficult for repair shops to maintain them. At this time, no industry hourly rate has been established for mechanics, which further adds to the rising costs associated with tire pressure monitoring systems. For one system, the mechanic must literally run back-and-forth between individual tires and the inside of the vehicle to reset the system. As a result, we have seen automobile tire rotations priced as high as $100,” added Lange.

As expected, high fuel-consumption vehicles, such as vans and pickup trucks, experienced higher fleet expenses in fuel, tires, and preventive maintenance than in years past. “Generally, repair and maintenance expenses remained flat, although we continue to see fleets keeping units in service longer. This is especially true in the service truck/van segment. Additionally, as fuel costs have put additional strain on fleet budgets, dollars for replacement vehicles often suffer,” said Piscopo of ARI.

Replacement Tires Cost More
Due to rising materials cost, most major tire manufacturers increased base fleet tire pricing. “In fact, most had multiple price increases during 2006 due to unprecedented oil costs. This increase led to an 8-10-percent increase in tire expense across all vehicle categories,” said Piscopo.

Additionally, tire sizes are generally increasing for many fleet cars and trucks, resulting in higher replacement costs, added Thomas of PHH Arval.

“The limited product lines of new tire sizes are also a factor. Manufacturers are now, more than ever, developing new tire sizes for new-model vehicles that come out each year. This limits selection and availability on replacement units as the manufacturers do not produce tires at the same rate that corporate vehicles are driven. Instead, the production is based on public retail driving habits,” said David Jankiewicz, manager, maintenance and repair management for LeasePlan USA.

Larger tire sizes is another reason for the increased cost of replacement tires. “Over the past few years, manufacturers have introduced several models with a larger wheel size. This bigger wheel size has contributed to overall increased tire replacement costs. Some vehicles’ traditional 16-inch wheels have moved to 17-inch and even 20-inch on some popular fleet vehicles. The larger the tire, the more it costs to replace, and depending on a fleet’s vehicle mix, this could substantially increase a fleet’s total tire replacement expenses. To offset the rising tire replacement costs, several manufacturers now offer options for 16-inch tires with heavier ply ratings,” said Lange of GE Commercial Finance Fleet Services.

Oil Drain Costs are Increasing
Oil drain expenses were on the rise in 2006 due in part to certain manufacturers requiring the use of synthetic oil. “Ford recommends the use of semi-synthetic oil versus conventional oil and requires use of 5W20 oil,” said Lange. “There is typically an additional fee for both semisynthetic and 5W20.”

Despite this, an ongoing industry trend to extend oil drain intervals, in the long run, will help decrease oil drain costs.

“We continue to see and encourage extended drain intervals when appropriate. The major manufacturers have been aggressive in pushing intervals in order to appeal to fleet buyers trying to differentiate themselves with lower maintenance costs. This is especially true with light-duty diesels in service pickups and vans,” said Piscopo of ARI.

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