Managing the Financial Side of Commercial Fleets

Vehicle Quality is Up, but So is Cost Per Repair

Vehicle quality has improved dramatically, with fleets experiencing a decline in the frequency of vehicle repairs. However, the average cost of repairs has been increasing.

January 2009, by Mike Antich - Also by this author

In calendar-year 2008, the cost of nonwarranty fleet maintenance increased approximately 5 percent due to higher labor rates, parts prices, and stricter warranty compliance requirements, especially for extended powertrain warranties. The cost of fleet maintenance is forecast to increase again in 2009. Five factors are exerting upward pressure on cost per repair.


Increased Vehicle Complexity

A key reason for the increased cost per repair is that vehicles have become more complex. The best illustration of the growing complexity of automobiles is the fact that GM CEO Rick Wagoner was the keynote speaker at the 2008 Consumer Electronics Show, a first for the automotive industry. In his keynote address, Wagoner said: "The electronic content in vehicles has grown 50 percent in just the past five years, and the headlong pace to incorporate electronic features and digital abilities will not subside."

Although electronic and digital technology is very reliable, it is expensive to repair should a failure occur outside of warranty. Typically, complex repairs are performed at dealerships, which have higher rates for labor and parts. Repair issues involving high-tech components, such as engine electronics, satellite radio, tire pressure monitoring systems (TPMS), navigation equipment, etc., serve to drive up the cost of fleet maintenance.


Higher Labor Rates

Another factor causing higher cost-per-repair expenses is increased labor rates. Labor rates are rising for a variety of reasons. First, there is a shortage of qualified technicians, who are able to command premium wages, especially in high-cost-of-living areas. Second, vehicle complexity has increased a reliance on sophisticated diagnostic equipment, requiring technicians with a higher skill set. The use of advanced diagnostics requires highly qualified technicians capable of diagnosing complex issues.

In addition to higher labor rates, repair facilities are feeling the impact of higher equipment costs and employee healthcare and regulatory compliance expenses, which are increasing the cost of doing business. These increased expenses are passed on to customers. Overall, these expenses have contributed to higher costs for parts and labor. However, a slowing economy may put a lid on how much labor and material prices can increase in the near future.


Increased Price of Parts

Automotive parts and component prices have increased during the past three years as commodity prices for steel, aluminum, and oil have skyrocketed. Although commodity prices have declined, expect higher parts prices to continue into the next calendar year.


New Diesel Emission Technology

Changes in emissions technology in diesel trucks in 2007, and again in the 2010 model-year, will result in additional PM expenses for particulate filter replacements and urea system maintenance. If failures occur, they will result in longer downtime for diagnosis and repair of these more complex emission components.

Longer Vehicle Service Lives

Improved vehicle quality allows extended replacement cycling. As a result, more fleets are electing to keep vehicles in service at higher miles, which promises to increase overall maintenance costs. Almost 35 percent of a vehicle's lifetime operating cost occurs in the 68,000- to 80,000-mile range.


Offsets to Higher Repair Costs

Improved vehicle quality helps offset parts and labor cost increases due to the lower frequency of repair. Under-the-hood components require less frequent servicing, such as the cooling system, transmission, differential, and spark plugs.

Diagnostic codes have reduced the guesswork in determining what to repair. Electronic diagnostic troubleshooting makes "throwing parts" at a problem a thing of the past.

The fleet vehicles of today are the most reliable, high-quality vehicles ever built. This is substantiated by OEMs reporting fewer warranty claims. Although the average cost of repair is trending upward, fleets are keeping vehicles in service for longer periods, experiencing fewer repairs, and operating dramatically more fuel-efficient and cleaner vehicles than the fleet cars of yesteryear. ■


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