Managing the Financial Side of Commercial Fleets

Market Trends

Game-Changing Fleet Megatrends

August 27, 2012, by Mike Antich - Also by this author

Within the context of fleet management, the concept of megatrends is used to identify economic and technological forces that can potentially alter our present-day industry in game-changing ways. Here are the key megatrends percolating within fleet:

Higher Interest Rate Environment: We are currently operating in a low-cost interest environment; however, I do not foresee this continuing indefinitely. Ongoing federal budget deficits will put upward pressure on interest rates. For fleets, this will ultimately result in increased costs to fund vehicles and equipment. Similarly, we are also in a low-inflation environment; however, many of the fiscal policies we are pursuing as a country are inherently inflationary. In fact, some will contend that it is the government’s strategy to “inflate” our way out of our national debt. The risk is that once the genie is out of the bottle, inflation is difficult to control. Our last bout with inflation in the early 1980s forced the Fed to tighten money supply to increase interest rates, which ultimately spiked the Prime interest rate to 21.5 percent in June 1981.

Higher Taxation Environment: With recent trillion-dollar annual deficits by the federal government, a cumulative $15.9 trillion-plus national debt, which continues to grow (at $75 million per hour) with no signs of near-term (or long-term) abatement, and with the interest paid to service this debt currently the third largest component of the national budget, only exceeded by defense and Medicare appropriations, there will be increased demands for new sources of tax revenue. There is only so much that can be cut from the budget in terms of services without pendulum-swinging voter pushback. There will be a need for additional revenue, ideally by growing the economy, but, most likely, by increasing individual and corporate tax burdens. I believe the near-term political environment precludes any overt tax increases. Long-term, despite political resistance, legislators will face the grim reality that to service an ever-increasing national debt, taxes will need to be raised. A similar scenario was played out in the 1960s in the UK. The end-result was that UK companies sheltered employees from excessive taxes by providing them with company vehicles as an alternative, but equivalent to monetary compensation. Could this approach be adopted in the U.S. at some fuzzy future date? I believe there would be strong support to modify the tax code favoring such a system, which would be supported by OEMs, suppliers, unions, and politicians representing states with large automotive manufacturing and supplier bases.

Technological Upheaval: The greatest catalyst for change in the next 10-15 years will be technology-driven. It will blur the lines of fleet management, causing traditional fleet management functions to shift to drivers. One manifestation will be self-serve fleet management. Currently, interactive self-service technology permeates the retail, hospitality, banking, and travel industries. We utilize this technology with ATMs, online banking, pay-at-the-pump fueling, online shopping, self-service retail checkout, online travel systems, and touch-screen kiosks at airports and hotels. Elements of self-service fleet management already exist. In the future, there will be increased emphasis in developing additional driver-based vehicle management tools. Mobile technology will provide ubiquitous access to these systems and will allow for greater empowerment of drivers in making vehicle-related decisions, all within fleet policy parameters. Social media tools will become more integrated into fleet management systems and will quickly become the communication medium of choice.

Tectonic Shift in Demographics: Today, the majority of fleet professionals occupy a narrow demographic band, primarily comprised of aging Baby Boomers. In the next decade, there will be a generational change in the industry’s demographics with the retirement of Baby Boomer fleet professionals. The result will be a younger workforce more willing to embrace (and demand) technological innovations at both the driver and management level.

Higher Acquisition Costs: The upcoming 2016 and 2025 CAFE rules will require substantial investments by OEMs, which will be passed on to end users. In 2016, CAFE standards will increase to an average of 35.5 mpg. It is estimated it will cost the OEMs $52 billion cumulatively to be in compliance and add $1,000-$4,000 to the cost of manufacturing a new vehicle. The 2025 CAFE standards will require an average 54.5 mpg, which currently no OEM can reach. Curmulatively, it will cost OEMs an estimated $190 billion-plus to achieve this mandate and add an estimated $2,000-$6,000 to future acquisition costs. Witness what happened to the diesel truck market in meeting new regulatory requirements in 2007 and 2010. While the EPA regs decreased tailpipe emissions, they also increased diesel truck acquisition costs by $6,000 to $9,000, plus introduced all-new operating cost expenditures for diesel exhaust fluid and diesel particulate filters, along with requiring the use of more expensive ULSD fuel and CJ-4 motor oil.

Corollary Megatrends: There are other converging megatrends that will impact fleet management, such as global demand-driven fuel pricing trends, next-generation telematics, breakthroughs in advanced powertrain technologies, sophisticated and reliable predictive analytics, and all-new concepts, such as crowdsourcing, currently being validated by DARPA, the defense department’s advanced research arm, which, as background, was also the agency involved in the early development of GPS and the Internet.

Let me know what you think.

[email protected]


  1. 1. Hugh Sutherland [ August 28, 2012 @ 12:42PM ]

    Hello Mike, Another great piece of investigative journalism! Although it sounds daunting, I figure that's just progress which means better products, safer motoring and more efficient use of scarce hydrocarbon energy resources. It also keeps the industry on its toes. Just compare what we have now with vehicles of a decade ago. Readers should also remember that they will be earning more next year to offset some of the cost increases so it's not all bad news.

  2. 2. Dennis [ August 28, 2012 @ 10:07PM ]

    What about converting our existing vehicles into all electric vehicles or hybrid vehicles?. The technology is here to do that and the cost savings of fuel versus the cost of converting the vehicles is now worth it.

  3. 3. Steve Kibler [ August 31, 2012 @ 07:46AM ]

    Mike, your investigative and well researched articles have become the best crystal ball for the fleet industry. I had to even look up two words in this one: "ubiquitous" (working simultaneously at multiple locations) and "crowdsourcing" (combination of multiple people and computers solving problems). The future vehicle costs related to the new CAFE standards really scare me though. I agree with Mr. Sutherland but wish to point out that the "published" % cost-of-living increases are always less than actual API so we may not really be earning more next year.

  4. 4. Suzanne W. [ September 04, 2012 @ 08:31AM ]

    Your point on taxes is right on. And, to comment on the income point, median household income went down by 4.8% since 2009, so it's not always a given that people earn more than they did in prior years. When we are in times of economic woe, it's unpleasant to be facing increased costs from more regulation. But, of course, those that created these regulations won't be facing reelection by the time we feel the pinch.

  5. 5. Hugh Sutherland [ September 04, 2012 @ 05:27PM ]

    Suzanne has a valid point, I find it strange that voters worldwide don't appear to connect these issues at election time. Politicians carefully plan their strategic moves when introducing more regulation, which hurts median household income, so as not to coincide with electioneering hype.

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Mike Antich

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Mike Antich has covered fleet management and remarketing for more than 20 years and was inducted in the Fleet Hall of Fame in 2010.

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